Covid-19 And Contracts | Mlr Attorneys

THE EFFECT OF THE COVID-19 VIRUS ON CONTRACTUAL OBLIGATIONS

1. The COVID-19 disease is an infectious disease caused by a virus (“the Virus”), which emerged during 2019. The Virus has been declared a global pandemic by the World Health Organisation. On 15 March 2020, the President of the Republic of South Africa declared the outbreak of the Virus in South Africa a national disaster in terms of the Disaster Management Act 38 of 2005 (“the National Disaster”). As a result, there are currently various restrictions on travel, social gatherings together with the sale of alcohol in South Africa, as well as a national lockdown for 21 days from midnight on 26 March 2020 in place, to name a few.

2. The effect of this is that a party to a contract may find themselves in breach of a contract due to the limitations imposed as a result of the Virus and/or the National Disaster and accordingly may be liable for either damages, specific performance and/or penalties in terms of that contract.

3. Many contracts contain a force majeure clause, which means ‘superior force’. This clause will, ordinarily, provide that neither party to the agreement shall be liable to perform his/her/its obligations in terms thereof, in so far as non-performance is caused by any of event, which is defined in the agreement. This will depend on the respective agreement. Subject to the terms of the agreement, the parties will have the election to terminate the agreement and both parties are to be placed in the position that they were before the contract was entered into. It is not the Virus that will constitute a force majeure event but the restrictions imposed by government as a result of the National Disaster and whether an agreement falls within the ambit of such restrictions.

4. The restrictions imposed by government could also have the effect that performance is not possible, which is a defence to a party being held liable in terms of an agreement. It is important to keep in mind that a party’s defence of impossibility of performance does not excuse a party’s performance where that impossibility is subjective. However, in circumstances where the impossibility of the performance is objective (meaning that no other person in the shoes of the party in questions could have performed/fulfilled that obligation), this will serve as a valid defence for lack of compliance with the relevant party’s contractual obligations.

5. It may be the case that the agreement in question is cancelled by a party to the agreement and the agreement contains a penalty clause in terms of which the other party may be held liable. In this regard, the Conventional Penalties Act 15 of 1962 (“the Act”) is applicable. The Act provides that a court may reduce an excessive penalty if it appears to such court that the penalty is out of proportion to the harm that was suffered by a party to an agreement by reason of the act or omission in respect of which the penalty was stipulated. A court may reduce the penalty to such an extent as it may consider fair in the circumstances. When determining the extent of harm suffered by a party, a court shall take into consideration not only a party’s proprietary interest, but every rightful interest which may be affected by the act or omission in question.

6. Often, there are strict time limits and requirements to fulfill before a party to a contract may rely on any of the aforementioned defences. It is accordingly of paramount importance to contact your attorney as soon as you have become aware of any reason why the restrictions imposed as a result of the Virus and the National Disaster may cause you to be in breach of any agreement.

7. Should you find yourself in a situation where you are affected in any such a way, as described herein above, kindly contact Marius le Roux on 0763399189 or marius@mlrattorneys.co.za or Dawie Maartens on 0796969059 or dawie@mlrattorneys.co.za and we will gladly assist you.

This article does not constitute legal advice, as all cases are different. It is therefore important to seek the advice of an attorney, with specific reference to your matter. Please contact MLR Attorneys for comprehensive advice.