The Lockdown vs. The Business
Updated: Jun 20, 2020
If lockdown prevents you from fulfilling a contract, are you still bound by it?
The announcement and implementation of the countrywide lockdown has had serious effect on the way in which business is conducted within South Africa. While some businesses have been able to continue, either working from home or continuing due to their essential status, many others have been forced to shut their doors. Shutting down, or even partial interruption to their business, means that many of these companies are unable to fulfill their normal contractual obligations. A natural question which stems from this is whether you can be excused from your contractual obligations due this inability to perform.
Force Majeure South African law makes reference to a term called “force majeure”, which is defined as an unforeseeable circumstance that prevents someone from fulfilling their obligations in a contract, also known as “act of God". Most well-advised contracts contain a force majeure clause which deals with the consequences of an event which causes performance to become impossible. Should your contract contain a clause that deals with this, it is to be followed. Where a contract does not contain such a clause we will turn to our common law. Our law is quite strict when it comes to the application of force majeure, however, there are certain elements that when present, will allow for an event to constitute force majeure. Elements Here are some (not all) of the elements that need to be present for force majeure to be applicable: · It must be objectively impossible, · It must be absolute and not probable, · It must be unavoidable by a reasonable person, · It must not be the fault of either party, · It did not need to be foreseeable. Where a government orders a complete lockdown (i.e. makes it illegal to conduct certain kinds of businesses and/or acts) this would be categorized as an “Act of State” and would accordingly fall under our common law understanding of force majeure. Important It is important to note that one cannot simply invoke force majeure, as a false announcement could lead to a breach in contract. In addition, each scenario will have to be viewed independently and will be determined on a case by case basis. In some cases only certain portions of the contract would be affected whereas in other cases the entire contract may be rendered impossible. In some cases the obligations may only be impossible for the duration of the lockdown whereas in other cases the entirety of the contract may be voided.
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