Life Under Lockdown – Covid-19 And The Enforceability Of Contracts

The lockdown has had alarming consequences for the providers of all goods and services not deemed to be “essential”. The regulations issued by Minister Dlamini Zuma on 25 March 2020 require every non-essential business to close. Yet salaries and wages need to be paid, rent needs to be paid, electricity bills need to be paid – just about every expense associated with such a business continues to be incurred. However, as a direct consequence of compliance with the lockdown laws, the ability to generate income of many who trade in non-essential goods and services has all but dried up completely. Does our law have any answers in these circumstances?

It is necessary, firstly, to understand the distinction between the validity of a contract, and its enforceability. It has long been the position in our law that contracts which are contrary to public policy are invalid. An agreement to commit a crime, for example, is contrary to public policy and invalid on this ground. Any attempt by a party to such a contract to enforce it will not get off the ground, because the contract – on account of its invalidity – does not confer rights or obligations upon any of the parties. Invalid agreements simply cannot be enforced.  However, once an agreement is found to be valid the next question which arises is whether its enforcement is contrary to public policy. If it is then a Court will not enforce the terms of such a contract. Restraint of trade agreements are an example of agreements which are not contrary to public policy, and therefore valid, which Courts nonetheless refuse to enforce if, on the facts, it is shown that enforcement is against public policy. For example, a restraint of trade agreement which is purely anti-competitive in nature will not be enforced by a Court, even though restraint of trade agreements are valid in law.

In Barkhuizen v Napier the Constitutional Court had to consider the question whether a term in a contract of insurance requiring the insured to institute legal proceedings against the insurer within 90 days of the claim being repudiated was against public policy and, accordingly, valid.

In considering the question before it the Court considered separately the issue of validity and the issue of enforcement. Firstly, was the agreement that the insured had to institute proceedings within 90 days of his claim being rejected constitutionally valid? And secondly, if the agreement was constitutionally valid, was it unconstitutional to insist on compliance with the clause? Ultimately, the Court held that the agreement was valid and that, on the facts before it, its enforcement was not against public policy.  Let’s examine, briefly, the notion of “public policy”. It is important to understand what is meant by this. In Barkhuizen the Constitutional Court said this:

“[73] Public policy imports the notions of fairness, justice and reasonableness. Public policy would preclude the enforcement of a contractual term if its enforcement would be unjust or unfair. Public policy, it should be recalled “is the general sense of justice of the community, the boni mores, manifested in public opinion.” Thus where a claimant seeks to avoid the enforcement of a time limitation clause on the basis that non-compliance with it was caused by factors beyond his or her control, it is inconceivable that a court would hold the claimant to such a clause. The enforcement of the time limitation clause in such circumstances would result in an injustice and would no doubt be contrary to public policy. As has been observed, while public policy endorses the freedom of contract, it nevertheless recognises the need to do simple justice between the contracting parties. To hold that a court would be powerless in these circumstances would be to suggest that the hands of justice can be tied; in my view, the hands of justice can never be tied under our constitutional order.”

These principles have not been tested in circumstances such as those confronting us today. Never before have providers of non-essential goods and services been legally prevented from trading and earning an income in order to prevent the spread of a lethal virus in an attempt to prevent the massive loss of life.

However, it is a question of applying the legal principles set out above to the facts. We think that an attempt by a landlord to enforce a lease, for example, by insisting on payment of rent, or cancelling on account of non-payment, may be met by the defence that for a Court to order compliance by a tenant in the circumstances of the present COVID-19 pandemic is against public policy. In other words, the enforcement of the agreement may be against public policy and not therefore be lawful. Evidence, however, is crucial. The tenant would need to show that his or her inability to pay rent was, as a matter of fact, directly a consequence of an inability to trade because of the Regulations prohibiting trade issued by Minister Dlamini Zuma, and not a matter over which he or she had any control.

It remains to be seen whether our law will be developed along these lines. We think that there is every chance that the point canvassed above will be taken and that our courts will be required to pronounce upon it.

Written by:
Stephen Koen – Partner
Savanna Kanzler – Candidate Attorney

For more information please contact Stephen Koen on skoen@bissets.com or via:

Switchboard:   021-441 9800
Website:  www.bissets.com
Bissets WhatsApp:  072 370 0416 – our Client Liaison, Tracy, will put you in contact with the relevant professional.