As we enter a 21 day nationwide lockdown period as announced by our President, the effects of COVID-19 (hereinafter referred to as “the virus”) on businesses nationwide are starting to rear it’s head at a high impact. Several businesses are seeking advice on a variety of topics, including, but not limited to, the impacts of the virus on delivery within the supply chain context.
As part of a supply chain, the issue of delivery can affect the production and operation of more than just one company or entity. If one supplier fails to deliver a specific good or service needed for the next business to operate or produce their respective outputs, naturally, the question of liability arises.
What happens in circumstances where there is a contractual clause?
The contractual climate in South African law dictates that the sanctity of the contract must be respected. It is for this reason that when there is a delay or non-delivery of the goods or service specified, the contractual provisions are the first point of departure. In the ordinary course of conclusion, contracting parties usually agree on penalty fees for non-performance or where performance is not adequately fulfilled. In this instance, the innocent party may claim a penalty from the supplier for either delayed delivery or non-delivery entirely. A penalty fee can be included and enforced as per the provisions of the Conventional Penalties Act. Interestingly, the innocent party would not be allowed to claim both the penalty fee and for damages relating to the delay or failure to deliver unless the contract expressly provides for this. Alternatively, the contract could provide for cancellation of the agreement.
What happens in circumstances where there is no contractual clause?
In this instance, the normal course of action relating to a breach of contract would apply for a delay or non-delivery. It is important to note that to claim for damages in terms of the contract, the supplier’s delay in delivery or failure to deliver must be as a result of a happening within his control. For purposes of this article and in the climate of COVID-19 and the nationwide lockdown, however, this would be a factor beyond the power of the supplier.
Where there is a delay or failure to deliver, which is beyond the scope of the supplier’s influence, the subject of impossibility arises. Impossibility arises where the contractual obligations cannot be met by one of the parties. If a contract were concluded before the onset of the virus, the obligations of which have since not been achieved in terms of delivery due to the virus, then this would be defined as a supervening impossibility. In layman’s terms, if a contract is concluded, and since that date, one of the parties cannot perform as a result of a factor beyond their control, the contractual obligations would cease to exist.
For supervening impossibility to be relevant, the performance must be objectively impossible, and the impossibility must be unavoidable by a reasonable person.
Where parties aim to continue the relationship at a future point
In severe cases, the above might be a necessary option for some businesses to make use of to mitigate their losses. In cases of delay in delivery, Section 19 of the Consumer Protection Act becomes relevant. Section 19 allows a consumer to accept performance at whichever time such performance is received instead of the agreed date between the parties. This provision would help where a consumer is understanding of the impacts and delays experienced as a result of the spread of COVID-19 and wishes to continue the relationship at a future point. If there is a failure to deliver, which in turn results in the consumer not being able to produce their desired product or service, they may then make use of the same provisions to mitigate losses concerning a further contract they hold as a supplier or services provider.
There seems to be little to no businesses or professions not affected by the spread of COVID-19. The current economic climate is already a challenge for companies or entities without the added strains of the virus. In these circumstances, it is strongly recommended that proper precautions are taken to mitigate the losses a business might experience and to practice compassion when dealing with your suppliers who may not be able to fully or timeously perform as well during this challenging period where COVID-19 has infiltrated all businesses. Every challenge is unique and to ensure you receive accurate advice regarding your specific situation; it is advised that you consult with the appropriately qualified legal professional in anticipation of all possibilities.