Foreseeing contractual performance: Various scenarios

Note: Footnotes omitted and emphasis added

Appellant, a South African company, contracted in writing to sell respondent, a Swiss corporation, a large quantity of uranium oxide. Performance of appellant’s obligations would have involved exporting the material. At the relevant time disposal and export of such materials were prohibited by the Nuclear Energy Act 92 of 1982 (“the Act”) except with the written authority of the Minister of Mineral and Energy Affairs (“the Minister”) or his delegate, and contravention of the relevant provisions was an offence. Prior to the conclusion of the contract the Minister’s delegate, the executive chairman of the Atomic Energy Corporation of South Africa Limited (“AEC”), granted authority for the sale and delivery of the material subject to certain conditions. When the parties entered into the contract their respective representatives were both under the impression that all the conditions imposed had been met. Subsequently, the required export authority was refused and delivery could not lawfully occur.

Delivery never did occur. Appellant maintained that it was released from its obligations on the grounds of impossibility of performance but respondent regarded the failure to deliver as wrongful repudiation and sued appellant for damages in lieu of delivery.

The action was instituted in the Witwatersrand Local Division and tried by Schutz J. Despite appellant’s raising various defences, among them impossibility of performance, the claim succeeded. Hence the appeal. There is also a cross-appeal. It arises in this way. The course of the trial was protracted inter alia by the fact that respondent, having closed its case, applied for a postponement and re-opening on an issue relative to the question of damages. The application was opposed but granted. The costs of it – essentially the cost of opposition – were reserved until the end of the trial.

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In the view I take of the matter it is unnecessary to discuss all those issues or to recount and analyse all the evidence. The vital questions now are whether it was impossible for appellant to perform and whether respondent made out the case advanced in its replication in answer to appellant’s plea of impossibility.

It is appropriate at this point to summarise the allegations and contentions expressed and implied in the replication. They are the following:

(1) On a proper construction of the contract interpreted in the light of surrounding circumstances appellant guaranteed performance, alternatively assumed the risk that performance might become impossible.
(2) The refusal of an export permit was not lawful and thus did not make performance by appellant impossible.
(3) If such refusal was lawful, appellant, by concluding the contract, nonetheless guaranteed performance alternatively assumed the risk that performance might become impossible.

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So much for the evidence.

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On the question of impossibility of appellant’s performance, the Judge’s reasons appear at 82C-85A of the reported judgment. He found on the evidence that absolute impossibility had supervened after the conclusion of the contract but that this did not relieve appellant of its obligations.

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One might add that in finding absolute impossibility to have supervened, the learned Judge may well have considered, but did not discuss, the possibility that the necessary authority would have been granted had Hugelshofer or the third party softened their stance on the production of the undertaking required in conditions (b) and (d) imposed by De Villiers on 2 April 1985.

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The learned Judge’s finding of impossibility was therefore clearly correct.

It may be mentioned in passing that counsel for appellant advanced submissions based on the view of some writers that the failure of a common assumption, on the strength of which the parties contract, leads to substantially the same result as impossibility of performance: see

• De Wet en Van Wyk, Kontraktereg en Handelsreg, 5th ed 154 et seq;
• Van der Merwe, Van Huyssteen, Reinecke, Lubbe and Lotz, Contract, General Principles, 202-203; and
• Kerr, The Principles of the Law of Contract 4th ed, 406 et seq.
• (sed contra Christie, The Law of Contract in South Africa, 2nd ed, 400-401).

However, in the light of the finding that impossibility was established in this case it is unnecessary to consider whether his submissions were well-founded.

In referring thus far to impossibility of performance I have done so because that is the terminology used by the Court a quo and by counsel both on trial and appeal. More accurately, however, this is a case of supervening illegality of performance.

The difference between supervening impossibility due, say, to destruction of the merx or failure of the intended source of supply, on the one hand, and supervening illegality, on the other, is one of substance and importance. The latter brings to the fore considerations of public policy.

In this regard see Treitel, Frustration and Force Majeure, 364, 460. I shall revert to that work in due course.

First I shall deal with the question whether, on the basis of impossibility of performance as the doctrine has developed in South Africa, appellant was relieved of its obligations under the contract.

Certain remarks in the judgment in the leading case of Peters, Flamman & Co v Kokstad Municipality 1919 AD 427 at 435 and 437 seem to suggest that State action, such as the refusal of the requisite authority in this case, constitutes vis major and that absolute impossibility of performance due to vis major extinguishes the contract and thereby the parties’ contractual obligations.

This is referred to at 434 as the general rule, to which (as stated at 435 with reference to the Digest) there are exceptions.

What precisely the exceptions are was not discussed and the examples in the quoted text from the Digest are not helpful.

In Hersman v Shapiro & Co 1926 TPD 367 at 372, with reference to the judgment in Peters, Flamman it was said:

“A careful perusal of the judgment leads me to think that the learned Judge never meant to say that the defence of impossibility of performance is so absolute as to override the terms of the implications of the contract in regard to which the defence is invoked. ”

At 373 Stratford J (with whom Tindall J concurred) went on to say this:

“Indeed, it seems clear that it is impossible to disregard the nature not only of the contract, but of the causes of impossibility, because those causes might be in the contemplation of the parties; or, again, they might be such as no human foresight could have foreseen. The distinction between different kinds of causes of impossibility must be a feature to be regarded before applying this doctrine of impossibility of performance without qualification.
Therefore, the rule that I propose to apply in the present case is the general rule that impossibility of performance does in general excuse the performance of a contract, but does not do so in all cases, and that we must look to the nature of the contract, the relation of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether that general rule ought, in the particular circumstances of the case, to be applied. ”

That dictum has not been approved or commented on in reported judgments of this Court, as far as I am aware.

However, it was followed in Bischofberger v Van Eyk 1981 (2) SA 607 (W) which in turn was quoted with approval in the reported judgment at 82H-83D. It is also one of the authoritative sources relied on by Ramsden, Supervening Impossibility of Performance, a work referred to in argument by counsel on both sides, for the proposition (at 51) that:

“(N)either vis major nor casus fortuitus can exist where the consequences of the event
(a) were within the contemplation of the parties at the time of contracting; for example where the promisor had either expressly or impliedly guaranteed that performance was possible or had agreed to be liable in any event …”

Ramsden contends at 52 that there are other situations in which vis major cannot exist, namely:

(b) … where (the consequence of the event) should have been foreseen by the exercise of reasonable foresight, and could have been avoided if reasonable care or diligence (which includes the taking of ordinary precautions) had been exercised;
(c) (they) were brought about by the fault of one or both of the parties, which includes:–
(i) a deliberate or negligent act; or
(ii) undue delay in tendering the performance in question. ”

The chief authority relied on by Ramsden for proposition (b) is Bayley v Harwood 1954 (3) SA 498 (A) to which counsel also referred. That case concerned the question whether a lessee, who had been effectively deprived of beneficial occupation of the leased premises by the terms of a supervening amendment to legislation governing the use of the property, was entitled on the equities to remission of rent.

In the course of the main judgment Greenberg JA said (at 503H-504B):

“Dealing with this question of vis major from another angle, I am unable to come to any conclusion adverse to the lessee, in regard to the question whether he ought to have foreseen the possibility that legislation of this kind would be passed and that it was either remiss on his part not to have done so, or that he must be deemed to have contemplated that this would happen and to have undertaken the risk. Placing myself as best as I can in the position of the prudens paterfamilias, it seems to me that a particularly prudent person might have foreseen the possibility of the event and provided for it, but beyond this I am not prepared to go. Speaking for myself, I can only say that I would at least be as likely to foresee the possibility on the Witwatersrand, where the leased property is situate, of damage by lightning, and this appears to be accepted as vis major.”

From that passage it would appear that remissness on the part of the debtor or the assumption of risk by him can certainly be relevant. What is not altogether clear is whether such factors assist in determining the existence if vis major or, vis major having been established, the existence of considerations which result in the debtor being nonetheless liable. In his separate concurring judgment Schreiner JA stressed the relevance of the parties’ foresight.

He said (at 506G-507 in principe):

“It cannot be said of the parties to a contract that they ought to have foreseen, or must be taken to have foreseen, a change in the law merely because laws can always be changed by the lawgiver; and it could, in my view, make no difference if the legislation were of a type or kind that was well-known and might be expected to be introduced from time to time and in one form or another.
If it could be inferred as a fact that the parties to a lease actually foresaw the change in the law which afterwards made it impossible to use the property for the purpose for which it was leased, then it may be assumed that there could be no claim for remission, whatever the precise foundation for the conclusion would be. But there is nothing in the present record to support an inference of fact that, at the time when the lease was entered into, the change in the law which was subsequently effected was in the contemplation of the parties. ”

Here, too, it is not certain whether foresight of the event rendering performance impossible serves to rule out vis major or is an important factor in determining whether, vis major having supervened, it must be inferred, as a fact, that the debtor assumed the risk of impossibility due to vis major .

Either way, it is clear from the judgments in Bayley v Harwood that what is relevant is actual foresight, or the reasonable foreseeability, of the event which causes impossibility, not the consequences of such event, as Ramsden, op cit., would have it.

If you foresee vis major you must necessarily foresee impossibility of performance. See, too, the dictum in Wilson v Smith and Another 1956 (1) SA 393 (W) at 396 D (cited in the reported judgment at 83E-F) where the stress is on foresight of the event, not foresight of the consequences.

It is unnecessary, however, to discuss the role of vis major any further. I shall accept that it gives rise to what has been called the general rule but that it was open to respondent to seek to avoid the legal consequences of impossibility by putting up a case in its replication aimed either at negating vis major or showing that, despite vis major, appellant should not be relieved of the obligation to deliver.

I shall also assume, without deciding, that the grounds upon which such a case can successfully be based are those enumerated by Ramsden, op. cit., at 51, 52.

Turning to the grounds relied on in the replication it is convenient to repeat them at this point. They appear in the paragraphs earlier numbered (1) and (3) and are:

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“Contract – Supervening impossibility of performance – As a general rule the parties to the contract are relieved of their obligations thereto – However, actual foresight and the reasonable foreseeability of the event which causes the impossibility, and not the consequences of the event, are exceptions to the general rule.
Contract – Supervening impossibility of performance – If the cause of the impossibility is not foreseen or is not such that it ought to be foreseen, then the parties to the contract are relieved of their obligations, even if the cause of the impossibility is within the bounds of “human foresight” – Where this is so it cannot be said that the risk of the impossibility of performance was assumed.”

[From the headnote to the [1997] 1 All SA 11 (A)]