We have been contacted by several clients (employers and contractors) to advise them of their rights in terms of existing construction contracts in light of Covid-19 and the lockdown. A typical example of an enquiry is as follows: A construction contract was concluded and the building work on site commenced before the National State of Disaster; in terms of the contract, the building works had to be completed by 27 April 2020, but as a result of the lockdown all activities on the construction site have now grounded to a halt. What now?
Whether Covid-19 effects existing contracts, depends largely on the specific wording of the contract and the parameters of the definition of the force majeure clause (if included in the contract). Typically a party must prove that the force majeure event was: (i) not within its reasonable control; (ii) could not have reasonably be avoided or overcome; and (iii), is not as a result of the negligence of the affected party. There must be a link between the force majeure event and the failure to perform.
Ordinarily, a contractor would be able to rely on a force majeure clause to excuse performance under the contract as a result of the Covid-19 epidemic and lockdown. The contractor may be excused to continue building while the force majeure continues but will be obliged to resume performance once it is able to do so.
The JBCC agreement, the most commonly used construction contract in South Africa, recognizes (from edition 6 onwards) the concept of force majeure. If the JBCC agreement is used, Covid-19 would entitle a contractor to claim for a revision of the practical completion date in terms of clause 23.1.6 but the contractor would not be entitled to an adjustment of the contract value for such a delay. In terms of the JBCC agreement it is important to note that either party (contractor/employer) may terminate the agreement where building work has ceased for a continuous period of 90 calendar days.
In the example used above, the contractor will need to comply strictly with the contract notification provisions to notify the employer of the delay and to claim for a revision of the practical completion date. Once the lockdown period has ended, and if building works have not ceased for more than 90 continuous and the parties have not terminated the agreement and depending on any further regulations that may be issued in terms of the Disaster Management Act 2002, the contractor will be obliged to return to site and resume building.
Where there is no force majeure clause in the construction contract a contracting party may under certain circumstances rely on the doctrine of supervening impossibility. The basis being that Covid-19 is an occurrence that he could not reasonably have foreseen at the time of entering into the contract prior to its outbreak. One would also need to prove that performance is objectively impossible and that the impossibility could not be avoided. In cases of supervening impossibility, the rights and obligations of the parties to the agreement are extinguished.
Our team is working during the lockdown period. Please feel free to contact Stoffel Ackermann (email@example.com) or any of the construction team members for further advice during these challenging times.