Following the outbreak of the COVID-19 virus and the announcement of a national disaster in terms of the Disaster Management Act 57 of 2002 (“the Act”), South Africans face a time of great uncertainty. We are confronted with situations in our daily lives which most of us have never encountered.
On 18 March 2020, Minister Nkosazana Dlamini-Zuma published regulations in terms of the Act (see our article on the regulations here). In terms of those regulations, various Ministers are given powers to issue directions (some of which are already in effect) and we can expect more such directions in the coming weeks and months. Examples of the regulations and directions include the following:
- A ban on travel from various countries, including the United Kingdom, China and the United States;
- Limitation on the sale, dispensing and transportation of liquor;
- The closing of various land and seaports of entry; and
- A ban on gatherings of 100 people or more.
The effect of these regulations will be that many day-to-day events and activities will be unlawful. A few examples of persons or entities which spring to mind which will be affected by such regulations are:
- A music festival that has sold tickets to 1000 guests anticipated to be in attendance
- A hotel has bookings which, if fulfilled, would result in a gathering of more than 100 persons
- An airline has sold tickets whereby passengers will travel to or from South Africa (and where visas have been restricted)
- A container ship is contracted to deliver goods via Saldanha Bay (a closed port)
By operation of law, these events and activities may, partially, fully, temporarily or permanently, be made impossible. The question then arises: What does the law say when regulations make it impossible for parties to perform in terms of their contracts?
The general principle: supervening impossibility
In normal circumstances, once a contract is formed, parties are bound to their obligations until they are discharged or varied. In exceptional circumstances, the obligations created by a contract may be varied or discharged as a result of supervening impossibility i.e. where a contract, duly formed, has for some or other reason become impossible to perform.
This general principle was laid down in Peters, Flamman & Co v Kokstad Municipality 1919 AD427:
“For the authorities are clear that if a person is prevented from performing his contract by vis maior or casus fortuitus…he is discharged from liability”.
In other words, when a contract is struck by an event which renders performance by one or both of the parties impossible, the parties will be released from their obligations in terms of the contract.
This general principle applies to all contracts and is not dependent on the existence of a tacit or implied term. The principle is applicable where the impossibility is caused by legislative changes or the publication of regulations, as is the case of those in terms of the Act.
Performance must be objectively impossible
The fact that performance has, as a result of the supervening event, become more difficult or expensive than anticipated will not release a party from its obligations and failure to perform in such circumstances may amount to a breach of contact. In this regard, see Hersman v Shapiro & Co1926 TPD 367.
In the current crisis, where, for example, toilet paper is being bought up and supply is scarce, a supplier who offers goods and services which include the supply toilet paper may still be held to supply such goods, despite the fact that its price per unit may have become commercially unviable.
In this regard, our law is markedly different from the English law position which recognises the doctrine of frustration in contractual relationships. This approach, whilst notionally harsh, emphasises the founding principle of our contract law, of pacta sunt servanda – that agreements must be honoured by the parties.
In a similar vein, where a contracting party had a particular object or purpose in mind when it entered into the contract and that object or purpose is struck by an event but, performance in terms of the contract remains possible, the party is not released from his obligations. In this regard, see MacDuff & Co Ltd (in Liquidation) v Johannesburg Consolidated Investments Co Ltd 1924 AD 573.
The impossibility must not have been foreseen / foreseeable
Where an event of casus fortuitus and vis maior has been foreseen, or was reasonably foreseeable, it may have the effect of ruling out the general principle of supervening impossibility on the basis that the parties had accepted the risk of impossibility arising from such events.
Again, the focus of the foreseeability test is on the event itself and not its consequences. As the court found in Nuclear Fuels Corporation of SA (Pty) Ltd v Orda AG 1996 (4) SA 1190 (A): “what is relevant is actual foresight, or the reasonable foreseeability, of the event which causes impossibility, not the consequences of such event”.
This is tempered by the influence of public policy on contracts, as in Nuclear Fuels:
“foresight, or the foreseeability, of the illegality could make no difference. If it were contrary to public policy to hold the parties to their contract it would not matter that they foresaw, or ought to have foreseen, that the prohibition might supervene”.
In the event that casus fortuitus and vis maior are catered for in the agreement, parties may be considered to have foreseen the event and thus, the general principle will not apply. The contract and the agreement will be enforced because the parties had agreed on what would happen in such a scenario.
If, for example, an airline or travel agency’s terms and conditions address the prospect of travel bans, it is likely that these terms and contracts will be enforced.
What happens if one or both parties have already performed in terms of the contract?
Where performance has, partially or fully been delivered by a party to a contract which is struck by supervening impossibility, a new obligation is created for the party which received such performance, to return or transfer back such performance. This obligation is based in unjustified enrichment and, more specifically, the condictio sine causa. In this regard, see Kudu Granite Operations (Pty) Ltd v Caterna Ltd  3 All SA 1 (SCA).
If parties are released from their obligations in accordance with the general principle, no action for damages arising from a breach of contract is possible in regard to an obligation not performed because of supervening impossibility. Furthermore, a forfeiture clause based on such non-performance cannot be invoked to claim money or retain performance in such circumstances.
In some cases, it may be that only some and not all of the performance due in terms of the contract has become impossible. Where an obligation which can be separated from the rest of the contract has become impossible, the impossible part may be discharged and the rest of the contract may remain in operation.
Where an obligation is inseparable from the contract, and performance of that obligation has become partially impossible, the creditor may have an option of cancelling the contract, where he cannot reasonably be expected to be satisfied with partial performance or accepting the reduced performance in exchange for a reduced counter performance. In this regard, see Stansfield v Kuhn, 1940 NPD 84.
In World Leisure Holidays (Pty) Ltd v Georges  JOL 10112 (W) the court recognised that these distinctions must be made on a case by case bases, applying objective criteria:
“In every case a value judgment, based on objective criteria, will be required to establish whether it is just that the bargain should, to the extent still possible, be upheld and the obligations of the parties adjusted. On the one hand, the court should not make a new contract for the parties. On the other hand, neither party should be allowed to escape its obligations where the essence of the contract is still capable of performance.”
Highly relevant to the COVID-19 crisis is the fact that the national disaster that was declared on 15 March 2020 lapses after three months, unless terminated earlier or extended by the Minister, as per section 27(5) of the Act.
Accordingly, the impossibility imposed by law may be regarded as temporary. Temporary impossibility which affects the obligation as a whole, suspends the contract and performance, together with any reciprocal obligations until such time as the circumstance prevents performance is removed, subject to an election by the creditor to cancel, similar to the position with regards to partial impossibility. The option to cancel, however, only arises if, in the context of the contract and the surrounding circumstances, the interruption continues or is expected to continue for an unreasonably long time.
As a final comment, we must bear in mind that the COVID-19 crisis and the national disaster which has been declared are unprecedented. Each contract and its specific circumstances must be considered on a case-by-case basis. Please feel free to contact us for specific advice on the topic of supervening impossibility.
See further Christie’s The Law of Contract in South Africa.