2020 was a year like no other, in many ways the whole world was turned upside down, no exceptions. In the world of contracts, many people were left with questions on how to adapt to the times, particularly in light of standing contractual obligations. Words like force majeur, act of God and supervening impossibility were thrown about by overnight contract law experts – but what do these words actually mean, and what practical implications do they have on contractual obligations now?
Before we get to the present challenges that contracting parties are faced with following the year that was, it is perhaps best to start at the beginning. On 23 March 2020, the President of the Republic of South Africa declared a national lockdown for three weeks (from 26 March 2020 to 16 April 2020). This was the first and hardest iteration of the national lock down period that South Africa entered into. It was extremely restrictive in that, for three straight weeks, all almost all economic activity had to come to an abrupt and unanticipated standstill. People were confined to their homes, with only essential workers being permitted to be out and about providing essential services. Businesses were closed– those that could work remotely were permitted to work, but for all other intents and purposes the country came to a hard stop. Due to the global Covid-19 pandemic the economic hubs of the country became a proverbial ghost town almost overnight.
The big question that arose in the world of contracts was what happened to the contractual obligations of parties who lost their ability to perform these obligations due to the national lockdown?
For those who had the foresight to enter into contracts that had force majeure clauses, the path forward was a little less foggy. Plainly put, a force majeure clause in a contract regulates the liability of parties to that contract, as well as the effect on the said contract, when circumstances beyond the control of the parties prevents one or both parties from performing their respective obligations. A well written force majeure clause will clearly dictate the consequences for each party should an event, such as the national lock down, occur and affect their ability to perform in terms of the contract.
Unfortunately, those who had contractual obligations but no force majeure clauses to guide them through the murky waters had no choice but to depend on the common law principle of supervening impossibility – which is impossibility which arises after the contract has been concluded. In order for a party to rely on supervening impossibility, a party must show that performance has become objectively impossible in order for that party to escape the liability to perform. For example, if A concludes a lease agreement with B, but then the property burns down – it becomes objectively impossible for the parties to perform their respective duties, and in that case, it makes sense that the contract would terminate. However, not all circumstances of impossibility are so black and white.
The consequences of impossibility in contract really depend on the nature of the impossibility that arises. This is because, at the time of the conclusion of the contract, the parties were able to perform their respective duties, the nature of the impossibility that arises after the conclusion of the contract is therefore what will dictate whether the obligations of the parties terminate or continue to exist. For example, if A ordered 1000 bottles of wine from B to be delivered for a party on a specific date, but then the alcohol ban was imposed – the contract between A and B already arose, however the alcohol ban made it impossible for them to perform their obligations (although A can still make payment for the bottles, B could not deliver on time), the contract could terminate, or performance would merely be deferred depending on other circumstances of the case.
What is clear from the examples above, and from the various real life issues that are arising in the aftermath of the hard lock down is that there is no “one size fits all” when it comes to the consequences of impossibility in contract. This means that each case will need to be decided on its own facts.
While, there were many instances where parties found themselves objectively unable to perform their contractual obligations – therefore rendering their contracts invalid, many parties in fact found themselves in a sort of legal limbo. So what is the answer to the question “what happens to contractual obligations in the after math of the strict lock down?”? Well any good lawyers should tell you that “it depends”, there is no one size fits all solution. Supervening impossibility is not a miracle cure to the many tough situations that have arisen over the past few months. In order to navigate the murky waters that lie ahead in regards to their contractual obligations, parties will need to consult an astute lawyer (and perhaps approach a court) get a clear understanding of their obligations following the lock down.
Deborah Mutemwa-Tumbo, Tumbo Scott Incorporated