why it is impossible to fulfil their obligations in South Africa? What were the actions taken up against them by the government??
Answers
Some reports claim that as many as one third of people around the world are subject to some degree of lockdown to stem the coronavirus (COVID-19) rate of infection. As a result, businesses everywhere are facing unprecedented circumstances that most of us would agree could never have been imagined, and certainly not anticipated, in negotiating a contract. Many such businesses are likely looking at their contractual obligations and evaluating whether they are able to perform the obligations. Although parties will not have anticipated the lockdowns, the 2002 ISDA Master Agreement (the “ISDA Master”) contains two “termination events” pursuant to which one or both parties may have a right to terminate transactions that it cannot perform due to lockdown. In addition, South African common law recognises an exception to the contractual principal of pacta sunt servanda – that parties are bound to keep their agreements – where supervening events make it impossible for a party to perform its obligations under an agreement.
Firstly, under section 5(b)(i) of the ISDA Master, a party can terminate a transaction due to an “illegality” if, after giving effect to any other remedy or provision provided in the transaction confirmation (incorporating the relevant definitions published by the International Swaps and Derivatives Association, Inc. (“ISDA”) or the ISDA Master) it is illegal for such party to make, deliver or receive payments or deliveries, or comply with any obligations, relating to the transaction. The illegality needs to arise due to an event that is not an action taken by the party itself, and the applicable law must affect the office through which the party normally makes, delivers or receives payment or delivery, or complies with obligations, of the relevant transaction.
In the current environment, it is unlikely that the parties would find themselves in an illegality situation in relation to payments or delivery of dematerialised securities (at least in South Africa, as payments and deliveries through the banks, the JSE and settlement systems are working as usual), but in respect of deliveries or compliance with other obligations it could be that due to a jurisdiction’s “lockdown rules” a particular delivery or performance is temporarily illegal. Of course, the parties would also be free to agree that performance of the obligation will take place once the illegality no longer exists, if, as is the case with the lockdown, it will likely be temporary.