How far can Covid-19 be used to avoid meeting contractual obligations?
"With the outbreak of the coronavirus and the resulting lockdown I have found that many of the service providers to my business are using the coronavirus as an excuse to not meet their contractual obligations. We have all been affected by this, but at some point the virus cannot be a blanket excuse for not meeting your obligations. To what extent is the virus a valid excuse?"
It is indeed unprecedented times affecting many businesses. These times also call for patience and accommodation that sometimes goes beyond the letter of the contract. But the coronavirus has not invalidated our law or given rise to a new set of legal rules overnight. The law of contract still applies and is still relevant to your existing contracts and the obligations thereunder.
What the virus may have triggered in terms of a contract is what our law tends to call a force majeure event, with the coronavirus potentially falling into the category of events that qualifies as a force majeure event. Typically, such events will allow a party to claim a postponement-amendment or absolution of their obligations in terms of the contract due to the event occurring.
Reliance on force majeure is, however, not automatic and a contract must make provision for such events and define what could be construed as such an event as well as the consequences that would follow if such an event did occur. Assuming though that a contract does provide for such an event, it would then allow the other party to claim such relief as afforded to the aggrieved party by the contract. If any of your service providers are claiming reliance on a force majeure clause, it will be important to review your contracts with them to establish if such reliance is correct and provided for.
Another justification which parties could use for not meeting their contractual obligations is the common law defence of a supervening impossibility of performance. This defence can be used where an event like the coronavirus makes it partially or temporarily impossible for a party to perform in terms of an agreement. Each set of facts will have to be evaluated on their own merits to determine whether such a defence is valid and whether it would apply to all obligations or only certain obligations under the contract. Where there is a valid impossibility to perform, the party's obligation to render performance is then usually suspended until the impossibility disappears, and the obligation then again becomes due. However, if the impossibility becomes unreasonable, too lengthy or even permanent, the party awaiting performance may elect to cancel the contract.
What should be clear from the above is that there are various potential defences and justifications that could be used by a party as to why they are not meeting their obligations. Irrespective of whether one relies on the terms of a contract or the common law, such claims cannot be used open-endedly or in general to avoid meeting contractual obligations. As contracts and circumstances will differ in each case, it would be advisable to obtain legal assistance in reviewing each contract to determine the merits and correct course of action when engaging with your service providers regarding their failure to meet their obligations.
Author Kotzé Low Swanepoel Attorneys