Contracts need to be examined before declaring force majeure in times of unrest – Webber Wentzel

16th July 2021 By: Donna Slater - Creamer Media Contributing Editor and Photographer

Following the looting, violence and vandalism after the imprisonment of former President Jacob Zuma, law firm Webber Wentzel says businesses experiencing disruption may be able to invoke force majeure clauses in contracts, or the law of supervening impossibility, depending on the circumstances.

The unrest, concentrated in KwaZulu-Natal and parts of Gauteng, has led to numerous businesses losing stock, having stock otherwise destroyed or soiled and having infrastructure destroyed as a result of the unrest.

Webber Wentzel partner Michael Straeuli and associate Dominic Harris state that, in the face of ongoing and future disruptions, the potential impact on a party’s ability to perform in terms of a contract may be far-reaching.

They say force majeure clauses exist to protect a party to a contract from an event beyond their control, which subsequently prevents the party from performing its contractual obligations, through no fault of their own.

A party who successfully invokes force majeure, they say, will be released from their contractual obligations, either temporarily or permanently, thereby escaping any liability that may arise in respect of the “default”.

They point out that, while it is correct to associate force majeure with natural disasters, the concept also covers a range of events, including public riots, strikes, sabotage, national crises and, in certain cases, the declaration of a state of emergency.

In this regard, Straeuli and Harris say each force majeure clause is different and, while some clauses are more substantial than others, it is often industry practice to include events, such as public riots and strikes, in the list of what would constitute a force majeure event in a contract.

IN PRACTISE

The lawyers highlight that should President Cyril Ramaphosa declare a state of emergency in response to the recent riots and looting, this may well constitute grounds on which to declare force majeure or rely on the doctrine of supervening possibility.

However, they also say that, a final determination in this regard would depend on the contract at hand, and whether the declaration has, or will, result in an impossibility to perform in terms of the contract.

In the case of the unrest affecting a business’s inability to perform in terms of a contract, Straeuli and Harris recommend embarking on four steps, starting with undertaking an examination of the wording of the force majeure clause in contracts to check whether it covers the event in question – public riots.

The second step involves establishing facts. In this regard, they say force majeure is only available if the prescribed event has taken place and has caused, or is about to cause, the default action in question.

Step three involves a party seeking to rely on a force majeure clause, in which case it will probably be required to give timeous notice to the other party, state Straeuli and Harris.

The fourth step involves being mindful of any exclusion listed in a contract, which could result in the event not constituting force majeure in terms of the contract.

In any case, the lawyers state that any declaration of force majeure must be done carefully, as an invalid declaration may constitute a repudiation of the contract in question.

“If your contract does not contain a force majeure clause, the common law provides protection in the form of a legal concept known as supervening impossibility,” they say. This concept operates in similar fashion to force majeure and includes any event that is unforeseeable with reasonable foresight, and unavoidable with reasonable care.

Nonetheless, Straeuli and Harris say that, depending on the contract and accompanying facts of any given case, the recent riots are likely to qualify as an event constituting supervening impossibility, provided that performance in terms of the contract has been rendered genuinely and objectively impossible.

Webber Wentzel recommends seeking legal advice at an early stage.