In most commercial agreements, we find a ‘force majeure’ clause. Other terms used are ‘vis major’ or ‘casus fortuitus’ and ‘impossibility of performance’, they are all aimed in the same direction.
Purpose of the Clause:
The purpose, in short, is to provide a no-fault system for when contracts become impossible to perform.
Typical Clause: These clauses generally follow the same format:
“Force majeure means any fire, flood, earthquake, or public disaster; strike, labour dispute or unrest; embargo, riot, war, insurrection or civil unrest; any other act of God, any act of legally constituted authority; or any other cause beyond the Parties control which would excuse the Parties performance as a matter of law.”
“The failure of a Party to fulfill any of its obligations under the Contract shall not be considered to be a breach of, or default under, this Contract provided such inability arises from an event of Force Majeure, and that the Party affected by such an event has taken all reasonable precautions, due care and reasonable alternative measures in order to meet the terms and conditions of this Contract, and has informed the other Party as soon as possible about the occurrence of such an event.”
Legal Effect of Impossibility:
In general, the impossibility must be such that it:
- is objectively impossible;
- it must be absolute as opposed to probable, as well as absolute as opposed to relative, (in other words if it relates to something that can be done, but the one party cannot personally perform, that party remains liable.);
- The impossibility must be unavoidable by a reasonable person;
- It must not be the fault of either party; and
- The mere fact that a disaster was foreseeable, does not necessarily mean that it ought to have been foreseeable or that it is avoidable by a reasonable person.
This will suspend, or may in certain time sensitive contracts, make impossible the performance altogether.
When viewing such a clause and assessing the impossibility, the courts take a particular considerations into account, such as:
“the nature of the contract, the relation of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether the general rule ought, in the particular circumstances of the case, to be applied”.
The general rule is that a person, or business, is discharged from liability if it is impossible (as defined in the list above) to perform.
For a brief summary of the State of National Disaster, please read our article here. Suffice to say, for many industries and many businesses, the Disaster will make performance impossible. Non-Essential Services unfortunately will not be able to service clients or customers. Suppliers will not be able to supply and receivers of ordered goods will not be able to receive.
Provided your business is one which can, or to some extent can, operate remotely, then services should continue. It is likely certain adaptations will have to be made with clients and suppliers, but there are a myriad of web tools, platforms and methods for communications that can assist. For a fuller discussion of how the Disaster applies to the workplace, please see our article here.
Please read through your important contracts to see if Force Majeure clauses are applicable and whether there are any specific timeframes or obligations to notify.
Send out communications to suppliers, clients and creditors regarding the Disaster and how services, purchases and payments may be suspended. Make it clear that what is being communicated is not a repudiation (an intentional notification you no longer wish to be bound by the contract), nor a cancellation of the agreements in place. In particular, regarding lease agreements, a renegotiation should take place rather than a declaration of impossibility being sent. Take active, responsible steps to calm or mitigate the effect of the Disaster on your business.
If the particular agreement is time sensitive and performance cannot be delayed, then unfortunately refunds and returns will have to take place. Having a look at your insurance policies would also be a helpful exercise during this time.
What is vital is to assure those your business owes contractual obligations to are aware of your attitude and response to these events. Your best efforts at complying with obligations could go a long way towards fostering supplier and client relationships in the future.
We wish that everyone be safe, be innovative, and make productive use of this time for creativity in our projects, contemplation of our lives and care for our loved ones.
Feel free to visit http://www.contractuallyspeaking.co.za/contact.html and contact us should any advice be needed. This is intended for informative purposes only and does not create a legal practitioner-client relationship. Copyright Reserved.Stay safe.