How Cape Town’s water crisis could hit construction in the city

With a number of major developments currently underway in Cape Town, its becoming increasing clear that day zero – the day that the taps officially run dry – could have a major impact on the region’s construction industry.

Property developers are not immune to the water restrictions being imposed by the City of Cape Town and, in terms of the recently published Level 6B water restrictions, have had to reduce their monthly consumption of municipal drinking water by 45% from 1 February 2018.

“With day zero looming, contractors need to be aware of the remedies available under their construction contracts and, where no relief is provided, to ensure they do not sit idle but actively explore possible alternatives,” said Caleb Jones, associate, Norton Rose Fulbright Cape Town.

“Should the taps run dry, the timeous completion of many developments will hang in the balance and developers will need to be familiar with the relief options in their construction contracts,” he said.

Force majeure

Most standard form construction contracts contain ‘force majeure’ clauses.

These clauses generally provide that where a party has been prevented from performing its obligations under a contract due to unforeseeable circumstances (and which were not caused by that party’s own fault), that party will be excused from performing its obligations under the contract for as long as the event or circumstance continues to make performance impossible.

In certain circumstances, either of the parties may also be entitled to cancel the contract.

“Relief under these circumstances is stipulated in the particular provisions of the contract,” said Jones.

“The extent to which a party is entitled to seek this relief depends on the precise wording of the relevant clause.

“For example, it is common for contracts to have extensive provisions detailing when an event will constitute a force majeure event, thus entitling a party to relief under the provisions of the contact,” he said.

“A party wishing to rely on a force majeure clause needs therefore demonstrate to their counter-party that they are entitled to the relief under the provisions of that contract.”

What if the contract does not contain a force majeure clause?

Without a force majeure clause, the principles of ‘supervening impossibility of performance’ apply, which require proof that performance under the contract is objectively impossible (ie that it would be impossible for any person to perform) and that the situation was not foreseen or foreseeable.

The fact that performance would be more costly or inconvenient does not entitle a party to rely on the defence of supervening impossibility of performance.

“To avoid the strict principles of supervening impossibility of performance which apply in the absence of a force majeure clause, parties ought to include a detailed and well drafted force majeure clause in their contracts which govern when a party will be entitled to seek relief under the provisions of the contract should a force majeure event occur,” said Jones.

“However, regardless of whether a contact contains a force majeure clause, where performance under a contract is objectively impossible at the time of concluding the contract, the contract will not come into existence.”

Read: How Cape Town’s water crisis could affect salaries

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How Cape Town’s water crisis could hit construction in the city