Background:

Loadshedding, being the deliberate and temporary shutdown of electricity supply to certain areas by a utility provider due to insufficient power generation capacity to meet demand, is a well-known phenomenon in the Republic of South Africa.

With South African role players having realised that loadshedding will likely be here to stay, it has become increasingly common for loadshedding to be incorporated as a force majeure event under South African commercial contracts. The question then arises whether loadshedding is indeed an appropriate force majeure event which should be incorporated into commercial contracts in South Africa.

Common Law Perspective:

Under South African common law, the principle of force majeure, also known as vis major, casus fortuitus and/or supervening impossibility, allows parties to be excused from fulfilling their contractual obligations when performance by one or both parties becomes objectively and absolutely impossible due to the occurrence of a force majeure event. Force majeure requires that the impossibility must not have existed at the time of conclusion of the contract and the impossibility must be objective and absolute. The fact that the impossibility makes it uneconomical for a party to perform, or that the party merely has a personal incapacity to perform, does not mean that performance is impossible for force majeure purposes.

If an event qualifies as a force majeure event under South African common law, and performance becomes totally impossible, the parties will be excused from their obligations which are impacted by such force majeure event for so long as the force majeure event continues.

When considering the South African common law principles outlined above, it is clear that loadshedding will not be recognised as a force majeure event under South African common law alone. Despite loadshedding making it economically challenging to perform contractual duties, alternative energy sources such as generators or renewable energy is available, making it objectively possible for a party to perform, despite loadshedding. Adjustments in work schedules to accommodate downtime resulting from loadshedding would further enable a party to fulfil its contractual obligations.

Contractual Considerations:

It should however be kept in mind that parties have the contractual freedom to expand the scope of force majeure events through contractual agreements. Consequently, the parties are free to agree that events which existed at the time of conclusion of the contract, or which will not necessarily make it objectively and absolutely impossible to perform, will excuse parties from their reciprocal obligations to perform. Parties can therefore expressly include loadshedding as a force majeure event under their contracts, thereby absolving themselves from any contractual non-performance caused by loadshedding.

Parties should however carefully consider whether it will be commercially viable and appropriate to include loadshedding as a force majeure event given the unique nature of each commercial agreement. Alternative routes to mitigate the risk of loadshedding are available, such as factoring anticipated loadshedding into pricing, delivery schedules, and performance obligations from the outset.

Conclusion:

When concluding contracts, it is crucial to carefully consider force majeure clauses and their practical implications. Loadshedding will not automatically qualify as a force majeure event, unless the parties expressly agree otherwise. Before agreeing to include loadshedding as a force majeure event, it would be prudent for each party to consider the commercial viability of doing so, as well as the spirit of the South African common law. Loadshedding may therefore have its place in South African commercial contracts – but contracting parties should carefully consider its practical implication before agreeing to its incorporation as a force majeure event.

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Published 1 July 2024