Does COVID-19 render non-performance justifiable in the context of construction contracts?

by Jason Smit, Director and Mahatma Khwidzhili, Associate

The outbreak and consequences of COVID-19 has resulted in government taking drastic action and exercising statutory power in an attempt to contain the rapid spread of this infectious virus. In so doing, various industries in the country, including the construction industry, have felt the consequences of the virus as it impacts our society and has effects such as restriction of movement, absence from the workplace due to illness and quarantine.

The conditions of contracts for construction under the FIDIC form (the “red book”), make provision for circumstances, where an event such as COVID 19 has had an impact on the performance of contractual obligations. FIDIC refers to such events as “Exceptional Events”. Exceptional events are those that are beyond a party’s control, could not reasonably have been provided for, were unavoidable and are not attributable to the other party. It is unavoidable to note that the effects of COVID-19 are likely to prevent a party from performing certain contractual obligations. In those circumstances, such effects would constitute an exceptional event for purposes of FIDIC, if the conditions of an exceptional event have been satisfied. There is much room for a conceptual argument for a contractual party that the effects of COVID-19 undoubtedly satisfy the definition of “Exceptional events”. The consequence thereof is that such affected party would be excused from performing those obligations that have become impossible to perform, due to COVID-19.

In addition, either party may terminate a FIDIC contract as a result of an exceptional event that prevents the execution of all works in progress for a continuous period 84 days.

Similarly, with JBCC contracts, COVID-19 would constitute a force majeure, where its effects have resulted in the exercise of statutory power by the government in the execution of contractual obligations for a continuous period of 90 calendar days or an intermittent period of at least 120 calendar days. In this regard, either party to the contract would be entitled to terminate the contract, without liability.

It is an inescapable conclusion that force majeure or similar clauses to play a significant role in offering respite to contractual parties in a construction context, where the ability of a party to perform its contractual obligations has effectively been rendered impossible, due to the impact of COVID-19.

Our legal system does recognise that the principle of sanctity of contract can be relaxed in the face of an unforeseen event, which justifiably renders the performance of a contractual obligation impossible. The extent of this recognition is likely to be tested significantly in the coming months and years.