By Shamiso Mangwengwende, Associate
A contract is based on an undertaking that is made by one or more parties to perform certain acts or obligations whose fulfillment will generally result in benefit accruing to the parties concerned. If a party defaults on its obligations, it is considered as breach of contract and the innocent party is entitled to sue the party in breach because of the non- performance of its obligations. So what happens when a party is unable to uphold its end of the contract due to the occurrence of an unavoidable and unforeseeable event? This is what is known as force majeure or an “act of God”.
Force majeure refers to the occurrence of an adverse event that is not reasonably preventable by a human being and prevents the fulfillment of a contractual obligation particularly in commercial contracts. Some examples of force majeure are natural disasters such as earthquakes, floods and fires, pandemics, wars, terrorist attacks, strikes and other labour disputes. Some force majeure clauses will exclude events such as war and strikes which may be considered “man-made” and strictly adhere to natural disasters. The outbreak of a pandemic such as the one we are currently experiencing with Covid-19 may be considered as a force majeure event.
Parties to a commercial contract may include a force majeure clause in their contract in order to eliminate or limit the liability of a non-performing party in the event that such an event occurs. This kind of clause generally cannot be implied in the contract. This means that the clause has to be included in the contract for a non-performing party to rely on it. The event/events have to be specified as well as the steps to be taken and available remedies in the event that the clause has to be relied on.
Force majeure clauses will include a list of what the parties consider to be force majeure events. The wording of the clause is important in determining whether or not a particular occurrence will be regarded as force majeure. However, the nature of the occurrence is not the only thing to be considered. The effect that the occurrence had on a party’s obligation and ability to perform as well as the extent to which the party was affected in its ability to perform will be considered.
One effect that comes to mind in relation to Covid-19 is the inability to access an office, project site or certain resources and materials due to the obligation that has been placed on most people to self-isolate and stay indoors. If the subject matter of the contract does not fall under essential services a party may find itself unable to do its work normally to the detriment of its contractual obligations. Force majeure will not apply if the party had means to perform even during a period of lockdown. For instance, a party may make use of the internet and the various resources that the internet offers that allow work to continue from home or any other location that is away from the office. The inability to access the office may be disruptive for some but not so much that it would hinder performance of contractual obligations.
There are three considerations that are taken into account when determining whether or not an event qualifies as force majeure:
- The event must be beyond the party’s control. The effect or the impact of the event must be beyond any reasonable steps that a party could have taken to prevent it. In the case of Covid-19, if a party needed to travel in order to perform its obligations then it may be able to invoke force majeure in light of the travel restrictions that have been put in place.
2. The non-performing party should be hindered from performing its obligations. The extent to which a party has been hindered from performing will be considered and will be important in determining whether or not the event in question falls under force majeure.
3. The steps taken by a party to reasonably mitigate or minimise the effects or impact of the event. If there is anything that a party can do in order to minimise loss, then it must be done because failure to do so will be construed adversely against that party. Any degree of performance that can still be done in spite of the event should be done and any measures that can be taken to minimise the effects of the event must be implemented. A good example of this in the time of Covid-19 is to implement a system in which relevant personnel can still work remotely even though they cannot access the office or site. Once a party realises that it is affected by a force majeure event it has to give notice of such occurrence and inability to perform to the other party within a reasonable period of time. The notice period is usually defined in the relevant clause.
The remedy available to a party that invokes the force majeure clause will depend on the nature of the event. If the court finds that the non-performing party was indeed affected by a force majeure event, that party will invariably be excused from performing its obligations in terms of the contract or the time frame for performance may be extended. This will however only apply for the duration and extent of the effect of the event in question. In some instances, the contract may be terminated if the effects of the event continue for an extended period of time.
In the event that an “act of God” occurs when the parties did not have a force majeure clause in the contract a party may rely on a common law doctrine known as “supervening impossibility”. This doctrine will be discussed in detail in part 2 of this article.
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