Introduction
When it comes to sale agreements, it sometimes happens that the object or item of sale gets damaged beyond repair or partially, before or upon delivery. A relevant position to explore is who bears the risk of damage, either before or upon delivery, specifically if damage was caused by a vis major, which is an unexpected act of man or nature beyond the control of the seller and/or purchaser.
Such situation is also relevant to elucidate concerning the coronavirus or COVID-19 pandemic and the nationwide lockdown (“lockdown”) that was implemented by government. This is because a general narrative has emerged that since businesses or persons may not be able to abide by agreements, where a reciprocal duty of payment is required and where they may not therefore have the current means to pay in rationing only for the necessary during the lockdown, that they can cancel an agreement by invoking vis major as a justifiable reason. This may concern a sale agreement, lease or otherwise.
Relevant legal principles concerning a sale agreement
Typically, a sale agreement involves a “consensual agreement” in which the seller undertakes to provide the buyer a thing (“the merx”), in exchange for a fixed amount of money, which the buyer then undertakes to pay to the seller. The essentialia for a contract of sale are therefore consensus concerning the merx, the price and the mandatory requirement of the seller to deliver the merx to the buyer. When consensus is reached, a sale agreement would therefore have been concluded or in legal terms, perfected, even if the merx was not delivered at the time of conclusion of sale and where delivery is expected by the buyer sometime in the certain future. A sale agreement can also be subject to a suspensive condition concerning delivery to occur on an uncertain future date, upon which the agreement or sale would only then be legally enforceable or perfected. However, this article narrowly focuses on the time between when a sale agreement was concluded and until delivery of the merx to the buyer on a certain future date.
Although an apparent general principle, it was only recently authoritatively held and confirmed as follows in Isando Foods vs. Fedgen Insurance Co Ltd (“Isando-case”), and which is an affirmative answer to the scenario this article specifically explores:
Generally, when property is sold the risk that the property might be damaged passes to the purchaser once the sale is perfected even though delivery has not yet taken place but that does not mean that all risk passes to the purchaser irrespective of how it is caused. The risk that passes upon sale is the risk of damage through no fault of the seller. In other words it is only the risk of damage by vis major or casus fortuitus or damage caused by third parties through no fault of the seller that passes to the purchaser.
Until delivery of the merx, it may be legitimately fair to deduce in a contractual setting that the buyer assumes the risk of damage or otherwise caused by vis major, third parties or the purchaser itself, through no fault of the seller. Although a general principle, it would not be one to automatically assume in a contractual setting, where it would depend on the terms and conditions of the contract itself. Contractual parties are entitled to expressly contract out of the general rule, where the purchaser can be responsible for specific risks arising before delivery or where the seller would specifically bear or assume the risks of damage.
Two cases in point are relevant in this regard:
Griesel and Others vs. Haasbroek (“Griesel-case”)
The appellant, Mr. Griesel (“Griesel”) concluded a sale agreement with the Respondent, Mr. Haasbroek (“Haasbroek”), concerning a bull buffalo. According to relevant regulations in terms of the Animal Diseases Act 35 of 1984 and before a buffalo can be transported, it must first be sedated and undergo a blood test to be certified disease free (“sedation exercise”). Once disease free, a transport permit can be acquired. It would be sedated again for transport purposes, or in this case for transport and delivery to the purchaser, which was Haasbroek. In casu, the bull buffalo died as a result of the sedation required to do a blood test and Griesel instituted an action for the full purchase price of the buffalo against Haasbroek.
Griesel’s case mainly rested on an alleged express term of the sale agreement, where Haasbroek, as the purchaser, would assume or bear the risk of death or injury to the buffalo during the sedation exercise and that the buffalo had died as result thereof. Haasbroek disputed all these points and argued that specific performance for the purchase price can only be claimed against delivery of the merx, which is a general common law and trite principle. Furthermore, in terms of such principle, that a seller can only be excused from delivering the merx, if it was proved that there was a supervening impossibility of performance that caused damage or otherwise and which was through no fault of the seller. The case proceeded all the way to the Supreme Court of Appeal (“SCA”) and where Haasbroek then conceded to Griesel’s case, with the exception of endeavouring with its mentioned stance concerning specific performance.
Upon interpreting the sale agreement and where it is trite that each case must be judged according to its own facts, the SCA acknowledged the specific high-risk event that Haasbroek as the purchaser would assume. Furthermore, that if the risk eventuated, then delivery would not be possible and where the SCA found that the parties had varied the common law term of a sale agreement that delivery of the merx would be normally required. The SCA therefore concluded that since the risk of death of the buffalo bull had indeed eventuated and along with Haasbroek’s concessions, that he was therefore liable for the purchase price. The SCA also held that the points raised and the law associated with supervening impossibility of performance, was therefore irrelevant and of no application.
Mekgwe vs. Geyer (“Geyer-case”)
The parties in this case concluded a sale agreement concerning immovable property. A relevant clause in the agreement provided that “all risks of ownership” would pass from the seller to the purchaser at the time of transfer of the immovable property.
After transfer, the purchaser noticed damages to the immovable property and instituted action in the Magistrates Court against the seller for not having received the property in the same condition before transfer. The action concerned payment for the amount that the damages amounted to.
The purchaser’s claim entailed an interpretation of the mentioned clause, where argument was raised that the seller had an obligation to look after or maintain the property before transfer. The court a quo dismissed the purchaser’s claim. The case then proceeded to a two-bench appeal court in the High Court (“appeal court”) and the purchaser’s appeal was upheld. The appeal court accepted the purchaser’s argument that “all risks of ownership” was borne by the seller “until date of transfer of the property” and that the parties had therefore contracted out of the general principle confirmed in the Isando-case. The appeal court did not address the merits and quantum aspects of the purchaser’s claim, which would therefore be decided by the Magistrates Court again, in view of the positive confirmation of the seller’s obligation before transfer of the property. This would entail the purchaser to still prove the damages claimed.
Vis major
Although a person may be generally aware of what a vis major entails, a helpful definition is as follows:
Vis major, or superior force, is some force, power or agency
which cannot be resisted or controlled by the ordinary individual.
The term is now used as including not only the acts of nature, vis
divina, or ‘act of God’, but also the acts of man.
Human acts include acts of State, of which the lockdown may be an example. A contractual obligation may become impossible to perform, due to a vis major, which may then constitute a supervening event and the case of Transnet Ltd t/a National Ports Authority vs. The Owner of the MV ‘Snow Crystal’ (Snow Crystal-case) confirmed the following:
As a general rule impossibility of performance brought about by
vis major…will excuse performance of a contract. But it will not
always do so. In each case it is necessary to ‘look to the nature
of the contract, the relation of the parties, the circumstances of
the case, and the nature of the impossibility invoked by the
defendant, to see whether the general rule ought, in the particular
circumstances of the case, to be applied’. The rule will not avail
a defendant if the impossibility is due to his or her own fault. Save
possibly in circumstances where a plaintiff seeks specific
performance, the onus of proving the impossibility will lie upon
the defendant.
Furthermore, the impossibility must be absolute and not relative, and objective, in the sense that it must be applicable to everyone and not personal to one contracting party. Vally J (Judge) further clarifies as follows in Frajenron (Pty) Ltd vs Metcash Trading Ltd and Others:
In terms of this rule an obligation to perform is discharged by a
subsequent change of circumstances that were neither
foreseeable nor foreseen. The reasoning underlying the doctrine
is that the need or demand for justice requires that the law
excuses non-performance because not to do so would effectively
be punishing a party that wants to, but cannot, perform its
obligations through no fault or neglect of its own, and in
conditions whereupon by exercising reasonable and prudent
care ab initio it could never have foreseen that circumstances
preventing it from performing would come to prevail. It is a
valuable rule. It demonstrates that the law is alive to the fact that
not every future fact, circumstance or eventuality is foreseeable
even by the most prudent and cautious of persons (the officious
bystander). Importantly though, the future fact, circumstance or
eventuality must not result from the default or neglect of the party
failing to perform as per the terms of the contract. After all, the
law is unquestionable that no person should be allowed to benefit
from his own wrongful act or omission.34
In Nuclear Fuels Corporation of SA (Pty) Ltd vs. Orda AG (Nuclear Fuels-case), Howie JA (Judge of Appeal) held as follows:
…if the cause of impossibility is not foreseen or is not such that
it ought to have been foreseen then the usual consequences of
vis major will follow even if the cause was within the bounds of
human foresight.
Concluding Remarks
The Isando-case, together with the Griesel- and Geyer-case, clearly assists in comprehensively addressing the scenario introduced at the beginning of this article. Of importance is that each case must be dealt with on its own facts and that a proper interpretive exercise of the relevant sale agreement would be necessary, where context is everything and as laid down by case law.36
Concerning COVID-19 and the lockdown that was implemented by government from 27 March 2020, a contractual party should not automatically assume that a vis major is present and that his/her/its contractual obligation is therefore affected thereby. In terms
34 Unreportable, (10467/14; 15192/14) [2019] ZAGPJHC 428 (25 October 2019) (However, marked Reportable on pdf.) para 14.
35 Nuclear Fuels-case 1996 (4) SA 1190 (SCA) at 50.
36 Natal Joint Municipal Pension Fund vs. Endumeni Municipality 2012 (4) SA 593 (SCA) para 18; KPMG Chartered Accountants (SA) vs. Securefin Ltd & Another 2009 (4) SA 399 (SA) para 39.
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of the law regarding the Snow Crystal-case, it shall depend on the circumstances of the contractual context, the contract itself and the type of contractual relationship between the parties. This is very relevant where the parties’ contract expressly contains a clause which sets out that claims may not be made against a party who has breached the
contract, where it was objectively impossible for such party to perform a contractual obligation as a result of a vis major (“vis major clause”).
However, as the Griesel- and Geyer-case shows, the principles of freedom of contract and pacta sunt servanda (parties must honour and comply with their contractual obligations) should not be underemphasised. Contractual parties may expressly contract out of the general legal principles and where the aspect of risk of damages, as a result of a vis major, can be borne by a contractual party much differently.
If a contract does not expressly contain a vis major clause, the default legal position which stems from the common law shall prevail. Such position entails the usual legal requirements as set out in the Snow Crystal-case. This is also because a contract must in any event and which is apparent from its context in the country, be interpreted in terms of South African law. In my view regarding a contractual setting, the event of the implementation of the lockdown itself may constitute a vis major and not COVID-19 per se.
South Africa had knowledge of the virus, ever since it initially broke out in China and rapidly spread to parts of the world, in terms of worldwide news, health and scientific reports. It was then declared a pandemic by the World Health Organisation. The country then braced itself more when the first COVID-19 case was reported in KwaZulu-Natal at the beginning of March 2020. With the exception of persons who started self-isolating, should there have been the possibility that they came in contact with someone who has the virus, business continued as usual for most South Africans before the lockdown.
The lockdown itself would have had a direct concern or impact on parties’ contractual obligations, without the contract being unenforceable in many cases, due to the certainty of how long it will endure in terms of deadlines announced by government. It is important to emphasise that the uncertainty lies in for how long COVID-19 shall be around as a health crisis. The lockdown itself is dramatically curbing the population’s movement. The lockdown was supposed to end by 16 April 2020 and was extended for a further two weeks.
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The government will indeed make an announcement again should a further extension be necessary and it is therefore important that the public stays alert. However, whether the lockdown, as a possible vis major in contractual settings, would make it impossible for a party to perform a contractual obligation, would have to be objectively analysed and interpreted in terms of the legal principles.
In order to specifically know if one may be unable to perform a contractual obligation, as a result of the lockdown, is in my view quite a unique position to explore, analyse and interpret in terms of the contractual circumstances in each case. This is because of Howie JA’s aforementioned view in the Nuclear Fuels-case, which in my view should be
a strict cautionary rule to take into account along with the other legal principles, in that the lockdown having a possible impact on parties’ contractual obligations is at the very least within the bounds of human foresight.
South African case law does not provide a precise legal definition of the term “within the bounds of human foresight”. In my view, there cannot be a precise legal definition, as the term would in any event be applied and interpreted, if applicable, in terms of the circumstances of each case. Logically, it may entail that an event may be a possible cause for an impossibility, which is the inability to perform a contractual obligation. However, the relevant question is whether there would be a duty to reasonably inform the potential suffering contractual party of the possibility of the impossible event.37 This is also necessary to elucidate, in terms of the juxtaposed position of a party being aware that the event will in fact occur and thus leading to the impossibility.
If an event is foreseeable or intentionally or negligently caused by a party, then a defence of vis major cannot be applicable. One must carefully see if one is then concerned with foresight of the consequences of the event which causes the impossibility or actual foresight or reasonable foreseeability of the event.38 Only the latter is of relevance and where Howie JA states in the Nuclear Fuels-case, that “[i]f you foresee vis major you must necessarily foresee impossibility of performance.”39 Focus should be placed “on foresight of the event, not foresight of the consequences.”40
37 My emphasis.
38 Supra 34 at 41.
39 Supra 34 at 42.
40 Ibid.
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Undoubtedly, the implementation of the lockdown for many contractual parties was an unforeseen event, even if it was assumed before it was initiated. It would have been assumed within the bounds of human foresight and since the lockdown has been in place, the relevant position is how contractual parties’ obligations are or may be affected
thereby. There would then be a time period, in terms of a person’s financial situation, to ascertain until when he/she/it would be able to still perform a contractual obligation. It would therefore be difficult to reasonably inform the other contracting party of future non performance per se, even of the possibility thereof, where it would only be a moot concern at best. Furthermore, the principle of good faith cannot be implied in a contract as a term, unless issues of ambiguity arise, for a party to at least communicate such concern, where interesting legal developments may therefore ensue in our courts in the near future concerning the lockdown.41 However, “[t]he particular parties and set of facts can serve only as catalysts in the process of legal development.”42 A solution would be to look to the contract itself, in the normal course of interpretation and the contractual context, to see if an express or tacit contractual duty exists concerning the communication of a possible legitimate concern. Even if not, logic dictates that nothing still prevents the contractual parties to communicate with another and see what can be done and agreed upon otherwise, if necessary or possible. The principle of freedom of contract informs such an approach, with new contractual obligations to then be honoured, where the parties’ contract can be novated or where a signed written addendum can be added as annexure.
At the time the obligation cannot actually be performed, the impossibility would be a matter of fact and in terms of which the defaulting party cannot be held liable for breach of contract or specific performance. There is case law to the effect that impossibility of contractual performance is “not implicit in a change of financial strength or in commercial circumstances which cause compliance with the contractual obligations to be difficult, expensive or unaffordable.” This is understandable, since each case must be judged according to its own facts to see if financial difficulties can be seen to be the direct result of the lockdown, as a vis major, and in terms of the legal principles. At the very least, where performance after a duration of time is impossible in terms of the lockdown, the South African Forestry Company Ltd vs. York Timbers Ltd [2004] defaulting party would have a bona fide defence, in that non-payment would be unavoidable.
Where it is, at a certain moment of time, impossible for a party to perform a contractual obligation but the relevant contract would not be affected in that performance would continue some time in future, temporary impossibility of performance arises. Contractual obligations are therefore suspended, while the impossibility continues. The impossibility however must still comply with the relevant legal principles elaborated earlier, in that its applicability or invocation would depend on the circumstances of each case. In my view, the most likely cases to appear whilst the lockdown is in place are that of temporary impossibility. This is illustrative by many offers that were made by persons or financial institutions to debtors that should they be in financial woes, as a result of the lockdown, contractual obligations can be deferred. Complete impossibility may arise in other situations, which would involve the fair termination of a contract but perhaps only in limited circumstances, such as employment contracts.