This article, written by Michael Straeuli and Dominic Harris from Webber Wentzel, provides clarity on yet another phrase many of us have seen, but not really applied our minds to. Like with business interruption caused by a reportable contagious disease, this phrase, which was hidden somewhere in the fine print, has suddenly become very important.
Businesses experiencing disruption from the recent events in South Africa may be able to invoke force majeure clauses in contracts, or the law of supervening impossibility, depending on the circumstances. The events of the past few days have resulted in considerable social and commercial upheaval.
In the face of ongoing and future disruptions, the potential impact on a party’s ability to perform in terms of a contract may be far-reaching. We have highlighted some key issues related to contracts at this time – focusing on force majeure clauses and the accompanying doctrine of supervening impossibility.
Force majeure and contractual obligations
As you may be aware, force majeure clauses exist to protect a party to a contract from an event beyond the control of that party, which subsequently prevents the party from performing its contractual obligations, through no fault of their own. A party who successfully invokes force majeure will be released from their contractual obligations, either temporarily or permanently, and will escape any liability that may arise in respect of the “default”.
Whilst it is correct to associate force majeure with natural disasters, the concept also covers a wide range of events, including public riots, strikes, sabotage, national crises and, in certain cases, the declaration of a state of emergency. Importantly, each force majeure clause is different and, while some clauses are more substantial than others, it is often industry practice to include events, such as public riots and strikes, in the list of what would constitute a force majeure event in a contract.
If President Cyril Ramaphosa declares a state of emergency in response to the recent riots and looting, this may well constitute grounds on which to declare force majeure or rely on the doctrine of supervening possibility, although a final determination in this regard would depend on your contract and whether the declaration has or will result in an impossibility to perform in terms of the contract.
Should the recent turmoil have affected your inability to perform in terms of a contract, we recommend taking the following steps:
Step 1: examine the wording of the force majeure clause in your contract to check whether it covers the event in question – e.g., public riots.
Step 2: establish the facts – force majeure is only available if the prescribed event has taken place and has caused (or is about to cause) the default in question.
Step 3: a party seeking to rely on a force majeure clause will probably be required to give timeous notice to the other party; and
Step 4: be mindful of any exclusion listed in your contract which could result in the event not constituting force majeure in terms of the contract.
Any declaration of force majeure must be done carefully, as an invalid declaration may constitute a repudiation of the contract in question.
If your contract does not contain a force majeure clause, the common law provides protection in the form of a legal concept known as supervening impossibility. This concept operates in similar fashion to force majeure and includes any event that is unforeseeable with reasonable foresight, and unavoidable with reasonable care.
Depending on the contract and accompanying facts of any given case, the recent riots are likely to qualify as an event constituting supervening impossibility, provided that performance in terms of the contract has been rendered genuinely and objectively impossible.
Webber Wentzel recommends seeking legal advice at an early stage.