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Impact of the coronavirus on contractual obligations
03 June 2020  | Philip Swanepoel | Views: 85

The coronavirus has caused major disruptions across the world since December 2019 and will continue doing so in the coming weeks. The South African Government has introduced drastic measures in an attempt to try and slow down the infection rate. The health risks associated with the virus and the corresponding restrictions imposed by the government is making performance in terms of a myriad of contractual relationships impossible. This article will very briefly look at the consequences when performance in terms of a contract becomes impossible due to unforeseen circumstances over which the contracting parties did not have any control.

The novel coronavirus, also known as COVID-19, has caused major disruptions worldwide since its outbreak in December 2019 in Wuhan, China. The virus has also recently spread to South Africa and our government has reacted swiftly by introducing a state of emergency and promulgating certain regulations. Restrictions initially only limited the number of people who were allowed to be in attendance at social events. These restrictions were increased to a complete “lockdown” between 27 March 2020 and 16 April 2020.

The above restrictions as imposed by the South African Government has certain severe consequences. One such instance is weddings were couples (or their parents) enter in a number of contractual agreements for services such as catering, décor and venue hire. Deposits are almost always payable for these services and there are often clauses according to which the deposit is forfeited in the event of the wedding being cancelled on short notice or penalties if the wedding is moved to a different date. The question thus arises: what happens when one must cancel or postpone a wedding due to the outbreak of a deadly virus and government’s restrictions following such an event which has the effect of prohibiting your wedding?

The answer to the above question can be found in the law of contract. Contractual agreements can be varied or discharged by operation of law in cases where there is a supervening impossibility (also sometimes referred to as an act of God).  The general position in South African law is that if performance in terms of a contract becomes objectively impossible after the conclusion thereof due to an unforeseen and unavoidable event, then the obligation to perform in terms of the contract will be extinguished.  

It is thus clear from the above that two requirements must be met before a contractual agreement will be terminated due to a supervening impossibility. Firstly, performance must be objectively impossible. This requirement is only met if no one can offer the required performance. It is not sufficient if only the specific party to the contract cannot offer the performance anymore.  Performance will also be deemed to be objectively impossible in circumstances where it is factually possible but has become unlawful due to new legislation.  This requirement is present in the current circumstances where performance, depending on the size of the wedding and type of venue, has become impossible due to legislation effectively prohibiting the event.

The second requirement is that the impossibility must be unavoidable for the reasonable person. This means that the impossibility must not have been caused due to the fault of one of the contracting parties. It is often said that the impossibility must be the result of vis maior or casus fortuitus.  It is clear that this requirement is met in the current circumstances since the reasonable person would not have foreseen the outbreak of a virus on a global scale which has brought entire nations and economies to a halt. Such a reasonable person would also not have been able to foresee the promulgation of legislation restricting social movement and events.

The result of a supervening impossibility as discussed above is that the contractual relationship comes to an end.  The termination of all contractual obligations creates new obligations to return whatever has been delivered in terms of the contract up until that point, such as, for example, a deposit which was paid to a wedding venue. This obligation to return can be enforced by way of an action for unjustified enrichment. In conclusion, those who have paid deposits or even the whole sum owed in terms of a contract which cannot proceed anymore due to the coronavirus and subsequent legislative restrictions should be able to get refunded. However, this is subject to the contract in which the parties may have agreed to deal with a supervening impossibility differently. Members of the public are encouraged to consult an attorney to discuss their specific contract and circumstances.



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