FACING COVID-19

12/05/2020
Bolloré's insights:

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01/04/2020
ENSafrica's explanation:

"Other than hand sanitizer manufacturers, private hospitals and the like which stand to profit from the coronavirus (COVID-19) disaster unfolding, the vast majority of South African companies fall into two groups: those that are hemorrhaging but will ultimately survive, and those who will not. Into which of these two categories a business falls will very much depend on whether it can, due to COVID-19, legally avoid settling some of its ongoing expenses until its erstwhile levels of income recover post-COVID-19 and whether its debtors can, due to COVID-19, legally avoid paying ongoing liabilities to it due to the crisis.

It is therefore crucial that businesses understand the effects of COVID-19 on the validity of their ongoing contractual liabilities to and by others. As companies scramble to understand the contractual consequences of force majeure or so-called “acts of God”, this article helps to offer some insight and practical advice on what can be a complex area of our law. Many businesses will have force majeure clauses stuck away in the nether parts of their agreements that they never read. Because natural disasters are relatively rare in South Africa, and we live in peaceful times, many do not spend much time on these clauses when negotiating agreements. Moreover, many agreements do not even contain those clauses and the common law principles will apply.

The law on force majeure and supervening impossibility of performance

The basic rule of South African law is that contracting parties will be held to their promises. However, our law makes an exception to this and will not consider a party to be in breach of an agreement if a recognised case of “supervening impossibility of performance” occurs. For a situation to amount to supervening impossibility of performance sufficient to terminate or, if applicable, suspend a contract, it must meet two requirements:

• The performance must be objectively impossible:
   
  • this entails that the impossibility that must be such that no one can tender the agreed performance. It is therefore not enough if it is impossible for only the particular contracting party to perform, nor is it sufficient in South African law if performance has merely become difficult or expensive. Whether performance has become objectively impossible is determined with reference to a standard of society (“’n verkeersmaatstaf”), which includes instances of actual physical impossibility and also instances where performance remains physically possible but cannot reasonably be expected to be rendered. A contractual party may be able to argue that, in the circumstances, requiring to perform would be so difficult that it would not be reasonable in the circumstances. The courts will not easily accept this, however, performance could also be considered objectively impossible even if it is physically possible where it is, for example, unlawful; and
     
• Impossibility must be unavoidable by a reasonable person:
   
  • in this regard, it is often said that the impossibility must be the result of a force majeure or an “act of God”. This requirement implies that the impossibility must not be due to the fault of one of the parties. It must be due to an event that was objectively beyond that party's control. The mere fact that the disaster was foreseeable does not mean that the supervening impossibility of performance could not have arisen. The event may still be unavoidable by the reasonable person. It is safe to say that the effects of a pandemic such as the COVID-19 have been so unforeseeable and unavoidable and not anyone's fault, that they would, without any doubt, fall within the definition of an “act of God” or force majeure.

Supervening impossibility of performance affects not only the obligation that has become impossible but also any counter-obligations. Supervening impossibility of performance ordinarily terminates the obligation and therefore excuses the debtor from performing. The debtor may, however, agree to carry the risk of supervening impossibility by express or tacit agreement. Accordingly, every agreement needs to be carefully construed to determine whether this is the case. A court will always consider the nature of the contract, the relationship between the parties, all the circumstances of the case, and the nature of the impossibility involved.

Supervening impossibility of an obligation also generally excuses a creditor from rendering a counter-performance that is reciprocal to the performance that has become impossible. Extinction of the obligations then results in an obligation to return whatever was performed under the contract, which in turn is enforceable by an enrichment action.

The effect of partial or temporary impossibility of performance depends on the circumstances of the case. Where a divisible obligation becomes partially impossible to perform, the debtor will be released from those parts of the obligation that have become impossible to perform. Where an indivisible obligation becomes partially impossible, the creditor generally has an election whether to accept partial performance in return for a proportionally reduced counter-performance, or whether to escape from the contract.

If performance has become temporarily impossible, the general rule is that the obligation to perform is suspended until the impossibility disappears. However, if the impossibility continues for such a period of time that is not reasonable to expect the creditor to continue with the contract, the creditor will have a choice whether to terminate the contract.

In conclusion

Contractual law is always dependent on the background facts to the contract and the terms of the contract itself. This is accentuated in the complex realm of supervening impossibility of performance and force majeure. This area is going to become crucial for businesses as they try to survive the COVID-19, and legal advice should be sought to navigate through this complex area."

>> Contact: Philip Geromont, Executive | Corporate Commercial @ENSafrica, pgeromont@ENSafrica.com

31/03/2020
Philip Geromont, Director @ENSafrica has answering the question.

"On 23 March 2020, the President of South Africa issued a statement informing the public that a nationwide lockdown would be enacted in terms of the Disaster Management Act, 2002. The lockdown commenced at midnight yesterday, 26 March 2020, and is set to end at midnight on Thursday, 16 April 2020.

In terms of the statement, all shops and businesses are to remain closed during the lockdown period, except for pharmacies, laboratories, banks, essential financial and payment services, including the JSE, supermarkets, petrol stations and health care providers.

For those shops and businesses which are to remain closed and operate from leased premises, the question arises as to whether the business owners (being tenants), must continue to pay rent to their respective landlords during the lockdown period.

Indeed, during this period, affected tenants will be deprived of the beneficial enjoyment of the leased premises, as it has become legally impossible for landlords to perform their obligation to give undisturbed use and enjoyment of the leased premises to their tenants.

In South African contract law, a legal impossibility of this nature would generally fall into the category of force majeure or supervening impossibility events. When performance of a contractual obligation becomes impossible, the party responsible for rendering the performance is relieved of its obligation, for the duration of the impossibility, and the other party to the contract is likewise relieved of performing its reciprocal obligation.

In addition to the above general principle, South African law contains a doctrine specific to lease agreements. In terms of this doctrine, a tenant is entitled to claim a total or partial remission of rent if through vis maior (force majeure) it is unable to have undisturbed use and enjoyment of the leased property.  In this regard, our courts have found that “A remission is claimable where the enjoyment of the property for the purposes for which it was let is hindered or prevented by some vis maior happening without the default, actual or constructive, of either party”. This quote was approved and applied by the Appellate Division in a case which makes it clear that an act of the legislature preventing performance qualifies as vis maior: “The intervention of the sovereign power, whether by legislation or by executive action, has the quality of vis maior”.

In the circumstances, tenants whose shops/businesses have to remain closed during the lockdown period, would, in principle, be released from their obligation to pay rent, either totally or partially, depending on whether they are totally or partially deprived of the enjoyment contemplated in the lease to which they are bound.

Tenants should, however, be aware that each lease agreement may contain specific provisions regulating force majeure and supervening impossibility events, in a manner that might derogate from the principles described above. Specific legal advice should therefore be obtained in each instance where a tenant wishes to claim remission of rent."

20/03/2020
Deanne Wood, Partner @Fasken's answer:

"It is impossible to give a catch all answer – in short it would depend entirely on what the contract says. If it provides for cover in these circumstances then there will indeed be cover. If cover is not provided for such circumstances then no claim will be possible. It therefore depends on the agreement concluded between the insurer and the insured at the start of the policy and whether the insurer has elected to take on that specific risk."

17/03/2020
ENSafrica's explanation:

"Repayment of bookings

In terms of section 27(5) of the Disaster Management Act, 2002, a national state of disaster lapses three months after it has been declared, but can be withdrawn or extended.

In the meantime, all public gatherings of more than 100 people are prohibited and all non-essential domestic travel – especially by air, rail, taxis and bus – are discouraged. This will have significant impact on the travel and events industry and a key question is whether consumers will be entitled to a full refund for prepaid bookings, tickets and the like.

This matter is largely regulated in terms of the Consumer Protection Act, 2008 (“CPA”) and South African common law of contract. While consumers may be entitled to a refund in terms of the CPA in certain circumstances, companies may, in turn, be entitled to cancel payments to their suppliers."

>> Contact: Philip Geromont, Executive | Corporate Commercial @ENSafrica, pgeromont@ENSafrica.com

16/03/2020
Katy-Lynne Kay, Partner @Fasken
Antoinette van der Merwe, Senior Associate @Fasken
have published a white paper answering the question.

"Covid-19 is spreading, and the mass hysteria and panic buying, are causing irreparable damage to the global economy. Currently, the only people resting easy at night are the manufacturers and distributors of hand sanitizer and face masks. Companies worldwide are distributing notices to their employees cancelling international travel, conferences, in person meetings, implementing their business continuity plans and giving detailed instructions on how to limit their employees’ chances of catching the virus. However, the biggest concern for many businesses, whether they be investors, borrowers, suppliers, service providers or contractors – is whether or not they have appropriate contractual rights to protect them during this period.

It is likely that businesses will start to receive (if they have not already) force majeure notices from their suppliers, contractors and service providers, especially if such entities are located in the Covid-19 “hotspots” such as China, Italy and Iran. The China Council for the Promotion of International Trade has issued numerous force majeure certificates to businesses in China affected by the Covid-19 outbreak.

If any of these downstream entities are successful at invoking force majeure it will suspend their obligations under their contract for so long as the force majeure event persists. Although this seems entirely reasonable in relation to the affected party, this may leave the counter-party in an untenable situation. For instance, in a project finance transaction, whilst it may be beneficial to a contractor under its construction agreements, the employer (as borrower) may not be as successful under its loan agreements, as the failure to make repayment of its loan is not usually a force majeure. Similarly, if you are a distributor of goods (such as medical supplies, textiles or equipment), your supplier may be able to successfully invoke a force majeure provision under the supply contract, but you may not be as successful under your distribution contract..."

>>> Read the full article here