Is Covid-19 a force majeure event?
26 Mar 2020
In this article, we consider whether the Coronavirus (COVID-19) has any effect on the rights and obligations of parties in contractual relationships, under South African law.
A force majeure (or vis major) event is an unforeseen and superior force, event or circumstance, which is beyond the control of the contracting parties, and which renders contractual performance impossible.
Where an agreement does NOT contain a force majeure clause, the legal principle of supervening impossibility becomes applicable. In such instances (unlike an express force majeure provision which contains the guidelines of application) the party who is unable to perform due to the supervening event must objectively prove that:
- as a result of the event, contractual performance is impossible (not merely difficult or more costly); and
- the event was unforeseen, and the consequences of non-performance unavoidable.
Where an agreement DOES contain a force majeure clause, it will be constructed to protect the parties to a contract by (i) limiting the affected party’s liability for non-performance, if a force majeure event occurs; and/or (ii) suspending performance of both party’s obligations (without penalties) until such time as performance can continue; and/or (iii) allowing an agreement to be terminated, without penalty, where performance cannot resume. Consequently, the force majeure provision suspends the ordinary consequences of breach of contract.
Is the Coronavirus (COVID-19) a force majeure event?
In 2014, ArcelorMittal applied a force majeure event in relation to its iron ore mining operations in Liberia, West Africa, due to an outbreak of the Ebola virus, which resulted in the evacuation of thousands of its employees at its iron ore mines, causing an absolute cessation of mining operations.
In the context of South Africa, President Cyril Ramaphosa declared a “national state of disaster” as a result of COVID-19, in an address to the nation on 15 March 2020. This becomes a landmark date, as the application of a force majeure clause will be assessed (in most cases) based on the impossibility of performance, as a result of COVID-19 and/or the effects of the President’s declaration on performance, after that date.
As such, a contracting party can only invoke a force majeure clause if the consequences of the declaration, and/or the spread of the virus, renders contractual performance impossible.
As at the date of this opinion, even though the President has imposed many prohibitions, he has not, as yet, imposed a complete lock-down in South Africa. Furthermore, the infection levels in South Africa are not yet such that the greater work force has been infected or affected, rendering them unable to work. As a result, unless the prohibitions imposed by the President, or the lock-downs imposed in other jurisdictions (for example the lock-down in China may have caused a block in the supply chain) have rendered contractual performance impossible, contracting parties would not yet be able to rely on a force majeure clause (or the principle of supervening impossibility in cases where no such clause is included in their contract).
That being said, in the event that the President imposes a complete lock-down (meaning that everyone must remain at home), or if the infection levels in South Africa increase such that the greater work force is infected or affected, and as a result contractual performance is rendered impossible, contracting parties would then be able to rely on a force majeure clause (or the principle of supervening impossibility in cases where no such clause is included in their contract).
The precise application, and effect, of a force majeure clause (or the principle of supervening impossibility) will depend on the circumstances and the specific wording of the clause, and its interpretation under the relevant governing law of the contract.
- The significance of force majeure provisions on contractual arrangements
- The media may be calling it an “act of God”, but what does the law say about force majeure and COVID-19?