The Coronavirus also known as COVID-19, has without a doubt brought the entire world to a screeching halt. As depicted on the news and on social media, many countries have implemented nationwide lockdowns in an attempt to decelerate the spread of the virus and bring the number of infections down. The obligations contained in construction contracts concluded before the lockdown continue to be valid and enforceable during this period. However, during the lockdown it might be impossible for parties to perform their contractual obligations. The lockdown will therefore inevitably have an adverse effect on the obligations of the parties to commercial agreements.
WILL PARTIES BE EXCUSED FROM PERFORMING DUE TO THE LOCKDOWN?
The Supreme Court of Appeal confirmed that “As a general rule, impossibility of performance brought about by (vis major) force majeure will excuse performance of a contract.” [1] However, as with most general rules of law, this rule has a few exceptions. Both “force majeure” and “impossibility of performance” are legal concepts, which will be defined and discussed in this article below.
FORCE MAJEURE (VIS MAJOR)
Force majeure is governed by the common law in South Africa. The common law position is as follows, Force majeure is “an unforeseen or unforeseeable act of God or man which creates an objective impossibility in the performance of the contracting parties obligation to the contract”. [2] In instances where a contract contains a force majeure clause, the provisions of the contract between the parties relating to force majeure events and the agreed consequences thereof, as stipulated in the contract, will take precedence over the common law, as set out above. [3]
Construction agreements are commercial legal agreements and generally will contain a force majeure clause. In the JBCC principal Building Agreement (PBA) and Nominated Selected Subcontract Agreement (NSSA) ed6.1 and 6.2 (“ed.6”) force majeure is a defined term and is defined as “an exceptional event or circumstance that (a) could not have been reasonably foreseen (b) is beyond the control of the parties, and (c) could not reasonably have been avoided or overcome”.
The definition of force majeure sets out three requirements, of which all three has to be fulfilled by the relevant circumstance in order for that circumstance to be classified as a force majeure event. The COVID-19 lockdown period fulfils all three of the requirements and will therefore fall under the JBCC (ed.6) definition of force majeure.
SUPERVENING IMPOSSIBILITY OF PERFORMANCE
Supervening impossibility of performance occurs if, after conclusion of the agreement, performance becomes objectively impossible. Supervening impossibility is, as mentioned above, a legal term meaning a circumstance which causes an interruption or change to an existing situation, and as a result, it is impossible for the parties to perform. Performance becomes objectively impossible when an unforeseeable and unavoidable event makes it physically or legally impossible, for both of the parties to an agreement, to perform in terms thereof. [4] The impossibility shall not be attributable to the fault of any one of the parties to the agreement. [5]
The effect of supervening impossibility on the agreement will depend on the facts of each particular case. If the cause of the supervening impossibility of performance is temporary, the general rule is that the obligation to perform is suspended until the cause of the impossibility to perform disappears. If the cause of the supervening impossibility of performance is not temporary, both parties will be excused from performance in terms of the agreement and it may lead to the termination of the agreement. [6] This being said, in instances where performance is already overdue, any subsequent supervening impossibility will not release such party from their duty to perform. [7]
During the lockdown period it will be impossible for the parties to perform their contractual obligations in terms of their construction contract. If one takes the above-mentioned factors into consideration, supervening impossibility will occur during the lockdown period.
RIGHTS AND OBLIGATIONS IN TERMS OF THE JBCC AGREEMENT ED 6.2
As a general rule, a force majeure clause in a commercial contract will suspend the obligations of the parties during the period of supervening impossibility of the performance [8]. The JBCC PBA and NSSA ed 4, 5 and 6 do not expressly state that the obligations of the parties in terms of the agreement are suspended during the period of the force majeure.
In terms of Clause 23.1.5 of the JBCC Ed 6.2 PBA, the contractor is entitled to claim for a revision of the date for practical completion, but he will not be entitled to an adjustment of the contract value due to stoppages occasioned by the COVID-19 lockdown. Clause 23.1.5 of the PBA provides that “The contractor is entitled to a revision of the date for practical completion […] without an adjustment of the contract value for a delay to practical completion caused by…[an] exercise of statutory power by a body of state or public or local authority that directly affects the execution of the works”.
Even though the 21-day lockdown imposed by the government meets the definition of force majeure as stated above, clause 23.1.5 is the appropriate clause to use to claim an extension of time due to the method of which the lockdown was imposed. On 15 March 2020, the spread of COVID-19 was declared a national disaster in South Africa, in terms of the Disaster Management Act. [9] The regulations prescribing what the public may and may not do during the lockdown period were issued in terms of section 27(2) of the same act. The lockdown therefore falls into the category of the exercise of a statutory power by a body of state, and it quite clearly directly affects the execution of the works, as the lockdown has made it impossible for construction of any works to continue for at least the next 21 days.
From the date on which the lockdown causes a delay (probably 27 March 2020) the Contractor will have 20 working days within which to notify the principal agent of his intention to submit a claim, else he will lose his right to claim for a revision of the date of practical completion. The contractor will then have a further 40 working days from when he is able to quantify the delay in terms of the programme within which to submit his claim to the principal agent. The claim must state the clause on which the contractor relies in order to claim, which we submit should be clause 23.1.5, and the cause and effect of the delay on the current date for practical completion and must include the period for which an extension is being claimed in working days.
In the event that the lockdown period is extended to an untenable length of time, the similarity between the wording of clause 29.20.2 and clause 23.1.5 is notable, and will open up the possibility of terminating the agreement should performance in terms of the contract remain impossible for a continuous period of 90 calendar days, or an intermittent period of 120 calendar days . However, the initial lockdown is intended to only last for 21 calendar days, and therefore termination of the agreement is not currently an option open to either party.
RIGHTS AND OBLIGATIONS IN TERMS OF THE JBCC AGREEMENT ED 6.1
The JBCC PBA and NSSA ed 6.1 does not include a delay occasioned by “[an] exercise of statutory power by a body of state or public or local authority that directly affects the execution of the works”. Ed 6.1 does however list force majeure as a circumstance for which the contractor is entitled to claim for a revision of the date for practical completion, without an adjustment of the contract value. The contractor must therefore submit its claims for an extension of time in terms of clause 23.1.6 of the agreement. Clause 29.20.2 in ed 6.1 contains the same wording as clause 29.20.2 in ed 6.2, relating to the termination of the agreement.
RIGHTS AND OBLIGATIONS IN TERMS OF THE JBCC AGREEMENT ED 5
Force majeure is not a defined term in the JBCC PBA and NSSA ed 5, and is not contained as a listed circumstance for a claim for the revision for the date of Practical Completion. Contractors must therefore submit their claims for an extension of time in terms of the “catch-all-phrase” contained in clause 29.3 of the agreement. As with edition 6.2, the contractor is entitled to claim for a revision of the date for practical completion, but will not be entitled to an adjustment of the contract value due to stoppages occasioned by the COVID-19 lockdown. Either party may terminate the agreement in term of clause 39 where “on the cessation of the works for a continuous period of 90 calendar days or an intermittent period totalling 120 calendar days, due to circumstances beyond their control”.
RIGHTS AND OBLIGATIONS IN TERMS OF THE JBCC AGREEMENT ED 4
Clause 29.1.4 of the JBCC PBA and NSSA ed 4 refers to “vis major”, which is another legal term for force majeure. The contractor must therefore refer to clause 29.1.4 in its claim for a revision of the date for practical completion without an adjustment of the contract value, due to stoppages occasioned by the COVID-19 lockdown. Clause 39 in ed 4 contains the same wording as clause 39 ed 5 relating to the termination of the agreement.
CONCLUSION
The common law states that Force majeure is as an unforeseen or unforeseeable act of God, or man which creates an objective impossibility in the performance of the contracting party’s obligation to the contract. However, parties can contract out of the common law position, which will mean that the parties are obliged to perform in terms of the agreement regardless of a Force majeure event. The good news for parties who are using the JBCC suite of contracts, is that they have not completely contracted out of the common law force majeure principle.
The lockdown is creating a situation whereby contractors have no choice but to down tools for the next 21 days. The JBCC agreements do not, however, expressly state that the obligations of the parties in terms of the agreement are suspended during the period of the force majeure. The JBCC PBA and NSSA does, however, contain a clause stating that the contractor and the employer shall comply with the law, and the Lockdown has been imposed by law.
The contractor, in terms of the JBCC PBA, will however be entitled to claim for a revision of the date for practical completion, without an adjustment of the contract value due to stoppages occasioned by the COVID-19 lockdown. The clause on which the contractor will rely upon, in order to claim an extension of time will be dependent on the edition of the JBCC used.
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[1] MV Snow Crystal, Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal [2008] 3 All SA 255 (SCA) Paras 28.
[2] Hutchison et al 2016, The law of Contract in South Africa, Second Edition Oxford, p 412 – 413.
[3] Airports Company of SA Limited v BP Southern Africa (Pty) Limited and others [2015] JOL 34127 (GJ).
[4] Ramsden, PA. 2014. Mckenzie’s Law of Building and Engineering Contracts and Arbitration, 7th Edition.Cape Town: Juta. p 70.
[5] Ramsden, PA. 2014. Mckenzie’s Law of Building and Engineering Contracts and Arbitration, 7th Edition.Cape Town: Juta. p 70.
[6] Ramsden, PA. 2014. Mckenzie’s Law of Building and Engineering Contracts and Arbitration, 7th Edition. Cape Town: Juta. p 70.
[7] Ramsden, PA. 2014. Mckenzie’s Law of Building and Engineering Contracts and Arbitration, 7th Edition. Cape Town: Juta. p 70.
[8] Hutchison et al 2016, The law of Contract in South Africa, Second Edition Oxford, p 412 – 413.
[9] Disaster Management Act, 57 of 2002.
