The nationwide lockdown and regulations issued in terms of section 27(2) of the Disaster Management Act (“the Lockdown” and “the Regulations”) has resulted in a sudden and rapid release of legal articles setting out and explaining Lockdown’s impacts on a wide array of contracts. Over this period, we’ve found our clients asking similar questions and what the impact of the Regulations are for their agreements?

Unfortunately, there is no one size-fits-all answer; no one can provide such blanket advice covering all agreements. Every agreement is different, presenting unique terms and each must be assessed individually with regards to the specific obligations of the parties. While some contracts and standard clauses could lean toward a particular answer, we must consider the nature of the agreement, its material terms, the relationship of the parties, as well as the nature and impact of the impossibility of performance.

In order to understand the need for consideration of each individual contract, we explain some of the general contract and legal principles applicable below.

Terms of the agreement: Common law and force majeure clauses

Most readers are quite well-versed and knowledgeable at this stage about force majeure clauses and the common law position. An agreement may include a force majeure clause (sometimes this clause is placed under a heading professing exactly this and at other times, it is not as easily distinguished). Essentially, this clause excuses a party from performing, either in whole or in part, its obligations under the agreement should a certain event (sometimes defined) occur which prevents the party from performing. This clause usually suspends the obligations rather than extinguishing them, which reflects the common law position.

In the absence of a force majeure clause which modifies the position, the common law applies. Our law recognises ‘supervening impossibility’, subject to certain requirements: i) the performance needs to be objectively impossible; ii) the impossibility must be as a result of an unforeseeable and unavoidable event; and iii) the impossibility must arise through no fault of either party. The requirement of objective impossibility may be met where it has become illegal or too burdensome on the performing party such that he cannot reasonably be expected to perform.

That being said, if the parties agreed to perform in the event of such impossibility, or perhaps the performing party guaranteed its performance, then that party is not discharged of its obligations to perform.

Nature of the impossibility: Permanent or Temporary

There is an important distinction to be drawn between permanent and temporary impossibility of performance. Whether an obligation is permanently impossible, or merely temporarily impossible, to perform depends on the terms of the agreement and its specific obligations.  The distinction between these two types of impossibility is material as they have different consequences.

On the one hand, an obligation will be permanently impossible if, even after the supervening event ceases, the obligation can never be fulfilled. For example, if you purchased a ticket to attend a concert at the Cape Town Stadium on a specified date, which was during Alert Level 5, and subsequently the event was cancelled by law (in this instance, the Regulations prohibiting “gatherings”). Even after the Lockdown is lifted, the parties’ obligations can never be fulfilled as the date of the show was material to that agreement. In this example, performance is permanently objectively impossible. Generally, permanent impossibility of performance extinguishes the obligation to perform completely.

On the other hand, performance could be temporarily impossible, if once the Lockdown is lifted, the full performance is still possible. For example, a sale agreement where the date of performance is not material to the contract and, as such, full performance may still be possible after the Lockdown.

It may sometimes not be so clear; the key is to assess whether delayed performance is possible or permissible in the circumstances. Full performance is not possible if late performance would essentially be worthless and thus tantamount to no performance at all.

It is always advisable to seek legal advice which is tailored specifically for your agreement and circumstances of each case.  Please feel free to contact us for assistance.