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Impact of Lockdown on Contracts

20 April 2020 ,  Salomé van Wyk 770
  • In terms of our law, a supervening impossibility to perform obligations under a contract discharges the contract. The events giving rise to such impossibility will be any events that are unforeseeable with reasonable foresight, and unavoidable with reasonable care, and the lockdown could be such an event in certain circumstances.

    The event must render performance objectively impossible. The fact that your business does not earn an income and makes it financially impossible to perform in terms of the agreement, does not mean that performance has become objectively impossible. If the lock down and the consequent lack of income could be a reason not to pay your rental, then you could also argue that your debtors failed to pay and therefore it became impossible for you to perform. With a lease, an earthquake that destroys a building, makes it impossible for the landlord to fulfil its obligation to deliver the premises to the tenant and the agreement will fall away with the parties being excused from performing their respective obligations. The fact that a tenant has had a bad trading month resulting in limited cash flow, does not render its performance (payment of the rental) objectively impossible.

    Whether you can argue that the state of disaster is a supervening event of such a nature that it excuses a party to a contract from performing its obligations in terms of the contract, must be considered in the light of all the surrounding circumstances. Each agreement must be considered on its own merit.

    Our advice is that you should not make rash decisions until all relevant, surrounding circumstances have been considered, and you have obtained legal advice on your unique circumstances.
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  • Things that we will consider are the following:

    - The declared state of disaster constitutes a supervening event that may, in certain circumstances, render performance under an agreement objectively impossible;
    - The surrounding circumstances of your business and agreement;
    - The wording and terms of your specific agreement;
    - The party wishing to rely on the state of disaster to excuse its performance under the contract, bears the burden of proving it;
    - Normal legal remedies;
    - Whether your agreement contains a so-called force majeure clause which may deprive a party to rely on the lock down as and the steps to be taken provided for in the agreement;

    Contact us to consider the terms of your specific agreement and your circumstances, and we shall advise you accordingly.

    Should you require an appointment, kindly contact me at salome@millers.co.za

Salomé van Wyk

Director, Conveyancing Department

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Tags: Administrative, Agreement, Agriculture, Business Rescue, Commercial, Company, Compliance, Conveyancing, Coronavirus, Corporate, COVID -19, COVID-19, Credit agreements, Lockdown
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