# When the virus crisis is over, the legal battles begin

- Link: https://dearsouthafrica.co.za/2020/03/31/when-the-virus-crisis-is-over-the-legal-battles-begin/
- Published: 2020-03-31T14:18:09+02:00
- Author: dearSA

![](https://cdn.dearsouthafrica.co.za/wp-content/uploads/2020/03/20191121/Screenshot-
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While the Covid-19 outbreak carves a vein of destruction across the planet, companies
worldwide are reviewing millions of contracts to assess whether they can plead force
majeure – or an inability to perform due to the pandemic.

It’s a dead certainty that the courts will be clogged for years with cases arguing
the limits of force majeure. Judges will be called on to separate the opportunists–
those who had already defaulted on contract obligations which had nothing to do 
with the virus – from genuine cases of force majeure.

In most cases, companies will be able to plead force majeure as a justifiable reason
for being unable to perform on a contract. The China Council for the Promotion of
International Trade announced on January 30 that it would issue force majeure certificates,
which will assist in legitimising any claims for contract non-performance due to
force majeure.

> The burden is on the party claiming force majeure to prove that the coronavirus
> falls within the contract wording and that non-performance was a result of the
> outbreak.

“It must also show there were no alternative means for performing its obligations
and that it has taken all reasonable steps,” writes Liz Pinnock, head of legal at
audit, tax and consulting firm RSM, in a recent article on force majeure.

Companies will be seeking to be excused from liability for non-performance, which
in most cases will mean renegotiating the terms of the contract by, for example,
extending timelines for delivery.

**‘Impossibility’ needs to be proven**

In a recent article, Justine Krige of Cliffe Dekker Hofmeyr says SA law does not
excuse the performance of a contract in all cases of force majeure. “There are certain
conditions that must be fulfilled in order for a force majeure to trigger the type
of impossibility that extinguishes a party’s contractual obligations.”

She says these are:

 1. The impossibility must be objectively impossible.
 2. It must be absolute as opposed to probable.
 3. It must be absolute as opposed to relative (in other words, if it relates to something
    that can in general be done, but the one party seeking to escape liability cannot
    personally perform it, such party remains liable in contract).
 4. The impossibility must be unavoidable by a reasonable person.
 5. It must not be the fault of either party.
 6. The mere fact that a disaster or event was foreseeable, does not necessarily mean
    that it ought to have been foreseeable or that it is avoidable by a reasonable 
    person.

While companies have highly-paid lawyers to protect their interests, individuals
do not. When they apply for a bank loan, they sign an agreement drafted by the bank
and heavily skewed in the bank’s favour. In such cases, debtors falling behind on
their mortgage and car payments will be unable to plead force majeure, says consumer
lawyer Leonard Benjamin.

**Two sides to every contract**

“Default [by a debtor] is purely a factual issue. Even a deceased person would be
in default if their bank froze the account out of which payments were being made
on being notified of the death. It’s not a question of blameworthiness. The main
thing about a loan is that the lender will have performed fully by advancing the
money so it falls only on the consumer to honour their side of the contract by repaying
the loan.

“If, in an agreement between companies, the obligations under the agreement are 
reciprocal, one party’s performance is conditional on the other’s,” adds Benjamin.“
A force majeure clause simply excuses the supplier’s performance but it will also
prevent it from claiming that the consumer perform.

> “A loan is different, as the bank would already have performed in full by advancing
> the funds.”

Banks risk massive reputational damage if they start pursuing customers through 
the courts for arrears brought about as a result of Covid-19, says Benjamin. However,
any bank seeking an eviction against a homeowner will likely get short shrift from
the courts, as judges are required to consider all the borrower’s circumstances –
including loss of income due to the Covid-19 crisis – before granting an eviction
order.

Banks are already coming under pressure for their “underwhelming” response to the
Covid lockdown compared to the response in other countries.

Read: [SA banks ‘underwhelm’ with response to virus fallout](https://www.moneyweb.co.za/news/companies-and-deals/sa-banks-underwhelm-with-response-to-virus-fallout/)

Standard Bank’s response appears to be the most generous so far, offering short-
term payment holidays for students and small businesses in good standing. The response
from the other banks has been more of a “call us if you’re in trouble” approach,
while governments elsewhere have made more decisive moves to protect borrowers.

Read: [Rate cut not enough](https://www.moneyweb.co.za/news/economy/rate-cut-not-enough/)

The US has placed a freeze on foreclosures and evictions, while several other countries
have announced or are planning to introduce debt repayment holidays for consumers
in distress. The UK has announced a three-month payment holiday, and European banks
are being pushed to offer similar forebearance.

**Calls for decisive intervention**

In SA, political parties and trade unions are calling for much more decisive intervention
from the banks than the lukewarm response to the crisis so far.

National African Congress of Trade Unions (Nactu) and Lungelo Lethu Human Rights
are among a growing number of groups calling for a total freeze on legal action 
related to debt recovery, particularly mortgage and car payments.

Cosatu wants across-the-board rather than piecemeal loan deferments.

The DA wants a four-month loan repayment holiday.

The EFF wants a payment holiday for a whole range of personal debts.

Nactu says government should invoke emergency powers to jail anyone pursuing legal
action against mortgage borrowers and car owners until the economic crisis has stabilised,
on the grounds that the country is facing an existential crisis.

US economist Michael Hudson says the massive debts accumulated over the last two
decades can never be repaid and must be written off, as was done repeatedly in history.
This would be the stimulus needed for an unprecedented economic recovery, he says.

[Article by Moneyweb](https://www.moneyweb.co.za/news/economy/when-the-virus-crisis-is-over-the-legal-battles-begin/)