Disruptions to commercial activity, quarantines, bans on travel and a decline in economic growth are events that have become synonymous with the novel COVID-19, more commonly known as the coronavirus. Undoubtedly, the coronavirus has had and will continue to have severe effects on commercial transactions, particularly international business and cross-border transactions. An important question is, to what extent does the effects of the coronavirus allow a party under a contract to delay performance, not perform, or resile from the contract altogether.
The South African legal equivalent to the concepts of ‘force majeure’, ‘frustration of contract’ or ‘fundamental change of circumstances” which are recognized doctrines in international legal systems, is the concept of supervening impossibility of performance. Supervening impossibility of performance refers to the situation where performance was possible at the conclusion of the contract but subsequently becomes objectively and permanently impossible through no fault of the parties.
The impossibility must be beyond the control of the parties and must be caused by vis major or casus fortuitus. Vis major is an ‘act of God’ or an irresistible force which includes events such as natural catastrophes, and casus fortuitus is a fortuitous or unavoidable accident which no ordinary care or oversight could prevent. It has been said that there is no practical distinction between vis major and casus fortuitus, which between them include any happening, whether due to natural causes or human agency, that is unforeseeable with reasonable foresight, and unavoidable with reasonable care.
In light of the legal position in South Africa, the coronavirus contains elements of both vis major and casus fortuitus. It is a pandemic that may be classified as a natural catastrophe which has arisen through natural causes. It can also be said that its effects could not have been reasonably foreseen nor avoidable at the time of contracting. Consequently, the principle of supervening impossibility of performance may very well justify non-performance of a party’s obligations under a contract where such non- performance has been caused by the virus, natural component (the virus itself) in cases where performance is of a personal nature, or practical component (for example, limitations on transportation, closure of industries, quarantines).
It must however be noted that the mere fact that the vis major or casus fortuitus has made it uneconomical or expensive for a party to carry out its obligations does not mean that performance has become impossible, and therefore would not constitute a defence to non-performance. The effect of supervening impossibility of performance is that as soon as the contract has become impossible in its entirety, the contract terminates, and the parties are freed of their obligations.
Notwithstanding supervening impossibility of performance, there is nothing in South African law that prevents parties from making special provisions in their contract for happenings that would otherwise discharge the contract and excuse non-performance. This is often exercised by the inclusion of the standard force majeure clause. The operation of the force majeure clause delineates specified instances which absolves parties from liability due to a failure to meet their obligations, where such failure is caused by force majeure. This is entirely contract-specific and is dependent on the definition attributed to force majeure in a particular contract. Consequently, where a force majeure clause is included, the coronavirus and its effects need to be assessed in light of the particular wording of the force majeure clause to ascertain whether it qualifies as a force majeure event.
In the absence of a force majeure clause in a contract, the common law principle of supervening impossibility of performance prevails, which favours the view that non-performance under a contract as a result of the coronavirus may very well be excused.