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Tag: covid-19

Relying on vis major clause in a contract in times of COVID-19

January 12, 2022 / / Comments Off on Relying on vis major clause in a contract in times of COVID-19

Vis major clauses

Many businesses will seek to rely on the enforcement of vis major clauses to relieve their performance of certain obligations resulting from the COVID-19 outbreak. The term vis major refers to an event or occurrence, which renders contractual performance impossible.

These clauses allow a contracting party to escape the normal consequences of non-performance or late performance of contractual obligations because of an unavoidable and unforeseeable event. These may include acts of God, acts of government, natural disasters, epidemics, pandemics and even war and terrorism. These clauses will suspend a party’s obligation to fulfil their performance for the duration of the event occurrence.

COVID-19 and vis major clauses

In Bischofberger v Vaneyk it was stated that the general rule in South African law is that if contractual performance becomes impossible at no fault of the debtor, the contractual performance will be extinguished. However, this rule is not absolute, and consideration will still be given to the particular contract between the parties, the nature of the contract, relationship of the parties, circumstances of the case, as well as the nature of the impossibility. In addition, the possibility of parties relying on the COVID-19 outbreak as a means to suspend their contractual obligations will depend on the interpretation of the contract concerned.

A vis major clause may include a closed list of specific events or cover a broad criterion of events, in that, having a catch-all provision to include those unusual events not specifically listed. If the term pandemic and/or epidemic is expressly incorporated in the vis major clause of a contract, any delay or failure to perform resulting from COVID-19 may excuse the contracting party from their liability.
Moreover, the term ‘act of government’ in these clauses could be applied where the government has closed its borders, imposed quarantine or isolation, banned or restricted travel and/or announced a lockdown.

However, where the term ‘epidemic’ or ‘pandemic’ is not expressly listed, parties will have to interpret the contract to determine whether the parties intended for COVID-19 to be covered by the clause. This involves considering whether the list of events agreed to was intended to be exhaustive or not and whether the pandemic is to be included in any broad catch-all provision. Where a contract incorporates a term such as ‘or any other causes beyond the control of the party’, dependant on the words used, such clause could be interpreted broadly as opposed to being restricted to the scope of events listed.

In the instance where contracts do not have vis major clauses, the common law principle of supervening impossibility of performance will apply. As explained in Dale Hutchison and Chris-James Pretorius (eds) in The Law of Contract in South Africa 2ed (Oxford University Press 2012), this principle requires a party to prove that its contractual performance is objectively impossible.

It is recommended that parties include a sufficiently detailed vis major clause to regulate certain occurrences should such event occur. Vis major clauses should be carefully drafted, considered and reviewed so that the clause can be successfully enforced. The lack of such clause in a contract or the vagueness thereof may result in further damages at the expense of an unforeseeable event that fell beyond the scope of a contracting party’s control. In our current circumstances, courts will most probably be cognisant of the impact thereof and be accommodating in interpreting clauses when faced with a contractual dispute on this basis.

Reference List:

  • Interpreting contracts: Determining if COVID-19 is covered by force majeure – De Rebus, Archive, May 2020.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

When contract breach is out of your control

May 26, 2021 / / Comments Off on When contract breach is out of your control

The novel coronavirus, also known as COVID-19, has caused major disruptions worldwide since its outbreak in December 2019 in Wuhan, China. The virus has also recently spread to South Africa and our government has reacted swiftly by introducing a state of emergency and promulgating certain regulations. Restrictions initially only limited the number of people who were allowed to be in attendance at social events. These restrictions were increased to a complete “lockdown” between 27 March 2020 and 16 April 2020.

The above restrictions as imposed by the South African Government has certain severe consequences. One such instance is weddings were couples (or their parents) enter in a number of contractual agreements for services such as catering, décor and venue hire. Deposits are almost always payable for these services and there are often clauses according to which the deposit is forfeited in the event of the wedding being cancelled on short notice or penalties if the wedding is moved to a different date. The question thus arises: what happens when one must cancel or postpone a wedding due to the outbreak of a deadly virus and government’s restrictions following such an event which has the effect of prohibiting your wedding?

The answer to the above question can be found in the law of contract. Contractual agreements can be varied or discharged by operation of law in cases where there is a supervening impossibility (also sometimes referred to as an act of God).[1] The general position in South African law is that if performance in terms of a contract becomes objectively impossible after the conclusion thereof due to an unforeseen and unavoidable event, then the obligation to perform in terms of the contract will be extinguished.[2]

It is thus clear from the above that two requirements must be met before a contractual agreement will be terminated due to a supervening impossibility. Firstly, performance must be objectively impossible. This requirement is only met if no one can offer the required performance. It is not sufficient if only the specific party to the contract cannot offer the performance anymore.[3] Performance will also be deemed to be objectively impossible in circumstances where it is factually possible but has become unlawful due to new legislation.[4] This requirement is present in the current circumstances where performance, depending on the size of the wedding and type of venue, has become impossible due to legislation effectively prohibiting the event.

The second requirement is that the impossibility must be unavoidable for the reasonable person. This means that the impossibility must not have been caused due to the fault of one of the contracting parties. It is often said that the impossibility must be the result of vis maior or casus fortuitus.[5] It is clear that this requirement is met in the current circumstances since the reasonable person would not have foreseen the outbreak of a virus on a global scale which has brought entire nations and economies to a halt. Such a reasonable person would also not have been able to foresee the promulgation of legislation restricting social movement and events.

The result of a supervening impossibility as discussed above is that the contractual relationship comes to an end.[6] The termination of all contractual obligations creates new obligations to return whatever has been delivered in terms of the contract up until that point, such as, for example, a deposit which was paid to a wedding venue. This obligation to return can be enforced by way of an action for unjustified enrichment.[7]

In conclusion, those who have paid deposits or even the whole sum owed in terms of a contract which cannot proceed anymore due to the coronavirus and subsequent legislative restrictions should be able to get refunded. However, this is subject to the contract in which the parties may have agreed to deal with a supervening impossibility differently. Members of the public are encouraged to consult an attorney to discuss their specific contract and circumstances.

Reference List:

  • D Hutchison & CJ Pretorius (eds) Kontraktereg in Suid-Afrika
  • R H Christie The Law of Contract 2001
  • Kudu Granite Operations (Pty) Ltd v Caterna Ltd 2003 (5) SA 193 (SCA).
  • Bayley v Harwood 1954 (3) SA 498 (A).

[1] R H Christie The Law of Contract 2001 p 280.

[2] D Hutchison & CJ Pretorius (eds) Kontraktereg in Suid-Afrika 2012 p 402.

[3] 403.

[4] 403. See also Bayley v Harwood 1954 (3) SA 498 (A).

[5] D Hutchison & CJ Pretorius (eds) Kontraktereg in Suid-Afrika 2012 p 404.

[6] 405.

[7] Kudu Granite Operations (Pty) Ltd v Caterna Ltd 2003 (5) SA 193 (SCA).

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

No work-no pay – What does the law say?

September 7, 2020 / / Comments Off on No work-no pay – What does the law say?

Many employers were left in the dark after the President of the Republic of South Africa declared a national state of disaster in terms of the Disaster Management Act, 2002, and implemented a national lockdown thereafter, as a means of reducing the spread of COVID-19. Employers who did not provide “essential services” were in an extraordinary position and due to the uncertain future, a lot of industries faced immense financial pressure.

Besides the grants the South African government made available to employees during the lockdown, to assist employers with their financial strain, , most employers were still left with the burdensome decision of possibly reducing salaries, retrenchment or finding another means to get through the difficult period. As both former options entail strict procedures, which may be both difficult and costly, the principle of “no work – no pay” became the desirable method of keeping businesses afloat.

On the 3rd of June 2020, the Labour Court handed down a judgement in Macsteel Service Centres SA (Pty) Ltd v National Union of Metal Workers of South Africa and others [2020] JOL 47372 (LC) (“Macsteel”). The case was brought before the court on an urgent basis to make an order regarding the status of an unprotected strike. The Labour Court, in order to address the problem at hand, discussed the options of employers during this national outbreak of COVID-19, with specific reference to the “no work – no pay” principle. Even though the Employer in the matter, did not apply the said principle to its employees and continued to pay its employees in full despite the fact that they were not able to render their services. The court made it clear that the principle would be ideally suited for the current circumstances that employers are facing. The court further held that:

“The reality in law is that the employees who rendered no service, albeit to no fault of their own or due to circumstances outside their employer’s control, like the global COVID-19 pandemic and national state of disaster, are not entitled to remuneration and the Applicant could have implemented the principle of ‘no work – no pay’.”

The said judgment provided clarity on the matter, especially during these uncertain times.

Ironically enough, on the same day, the High Court of Johannesburg, in Mhlonipheni v Mezepoli Melrose Arch (Pty) Ltd and Others; Lwazi v Mezepoli Nicolway (Pty) Ltd and Another; Moto v Plaka Eastgate Restaurant CC and Another; Mohsen and Another v Brand Kitchen Hospitality (Pty) Ltd and Another (2020/10556; 2020/10555; 2020/10955; 2020/10956;) [2020], did not uphold the “no work – no pay” principle and in fact held that employers have a legal obligation to pay its employees over the COVID-19 lockdown period. The facts of the matter, however, differ from Macsteel.

Even though there seems to be a stalemate regarding the “no work – no pay” principle, especially during the National Lockdown, the Macsteel matter seems to provide better reasoning regarding the hot topic. Due to the immense financial impact of the lockdown and the strict restrictions the government regulated during the lockdown, employers will be able to justify the implementation of the “no work – no pay” principle.

Reference List: 

  • Disaster Management Act, 2002.
  • Mhlonipheni v Mezepoli Melrose Arch (Pty) Ltd and Others; Lwazi v Mezepoli Nicolway (Pty) Ltd and Another; Moto v Plaka Eastgate Restaurant CC and Another; Mohsen and Another v Brand Kitchen Hospitality (Pty) Ltd and Another (2020/10556; 2020/10555; 2020/10955; 2020/10956;) [2020],
  • Macsteel Service Centres SA (Pty) Ltd v National Union of Metal Workers of South Africa and others [2020] JOL 47372 (LC).

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Possible insurance relief for struggling businesses due to lockdown

August 5, 2020 / / Comments Off on Possible insurance relief for struggling businesses due to lockdown

A business interruption insurance policy typically caters for a decrease in turnover or profit (depending on the type of cover); an increase in operating expenses and a move to a temporary location (if necessary).

The question arises whether or not COVID-19 qualifies as an insured event which could lead to a valid and enforceable insurance claim?
The short-term insurance sector has experienced an influx of interest and claims arising as a result of the impact experienced during the lockdown. Business Interruption Insurance is possibly one of the most highlighted arrears of concern in respect of assessing our current abilities to deal with this impact.

Whether you are covered for business interruption is ordinarily determined by a policyholder’s policy document. Most of these policies are short-term insurance policies and usually require a form of “damage event” to trigger cover in that instance. However, there are instances where cover for business interruption insurance is a standalone policy. These are usually more complex and have a number of qualifying factors in respect of the relevant claims. Unfortunately, a number of insurers are not regarding the lockdown as the “damage event” or “insured event” required to trigger cover for business interruption. Insurers appear to be of the view that the actual infection may be an insurable event if the policy document covers for business interruption in respect of infectious diseases, but the lockdown is not.

In the recent judgment against Guardrisk, the Western Cape High Court addressed the question of notifiable disease in great length. According to that ruling, COVID-19 is a notifiable disease. judge Andre Le Grange said although that announcement was made by a national minister, and not a local authority as insurers argue, “COVID-19 was by law portable to a local competent authority”.

The Guardrisk judgment has clarified that COVID-19 is a notifiable disease and as such the virus being a notifiable disease is a binding component, at least in matters heard in the Western Cape High Court.

The Court ruled that Guardrisk must pay out business interruption claims of Cape Town restaurant, Cafe Chameleon, but it is still unclear whether the ruling will set a precedent for other cases of this nature. It was ruled that Guardrisk is liable to pay Cafe Chameleon’s claim for losses suffered when the lockdown began on 27 March, an order that has left a question mark on whether other insurers still stand a chance in winning the same argument or if they should just start paying up.

The court did not only rule in favour of Cafe Chameleon, but it also ordered Guardrisk to pay costs, an order that is normally reserved for cases where the judge feels the defence argument was a waste of the court’s time. But the ruling is not binding to other regional courts unless the Supreme Court of Appeal arrives at the same conclusion. The judge did, however, make it clear that each case must be decided upon its own facts. One can, in summary, gather from the judgment that the judge’s intention was to say that there could be poorly worded policies that could deviate from the Guardrisk outcome and as such there could be scope for one to go to court if your policy is massively differently worded.

It is of extreme importance that policyholders are aware of the mechanisms for claiming business interruption insurance in respect of their specific policy documents. It is further relevant to seek proper assistance when dealing with the rejection of a claim, where such rejection appears to be invalid. Know your policy and know your recourse.

Reference List:

  • https://www.adams.africa/insurance-law/possible-insurance-lifelines-struggling-businesses-result-lockdown/
  • https://www.news24.com/fin24/companies/financial-services/inside-the-looming-court-case-that-could-force-insurers-to-pay-covid-19-claims-20200612
  • Café Chameleon CC v Guardrisk Insurance Company Ltd (5736/2020) [2020]

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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