In February 2025 the High Court reaffirmed the rights of lenders in South Africa’s banking and finance landscape. The judgment is significant for financial institutions as it reinforces the enforceability of lending contracts and the limits of debtor defences during economic disruptions such as COVID-19.
In this matter the Bank concluded a written overdraft facility with the First Respondent. The Second Respondent bound himself as surety and co-principal debtor, jointly and severally with the first defendant for the repayment on demand of amounts owing by the First Respondent under the facility.
Following the First Respondent’s failure to make regular and sufficient deposits to repay the interest and fees, and a clear reduction in turnover on the facility account, the Bank terminated the agreement and demanded payment of all amounts owing.
The defence raised of supervening impossibility because of the COVID-19 pandemic. The court noted that the fact that performance has become difficult since the conclusion of the agreement will not release the debtor from its obligations. The inability to comply with monetary obligations will amount only to subjective impossibility and not absolute impossibility.
The court referenced a number of case law and literature in which the common theme is that where the performance is of a personal nature, inability to perform cannot be said to be absolute impossibility.
Where the parties have expressly stipulated for what will happen in the event of supervening impossibility of performance, there can be no room for an implied term that the parties are excused from performance. The doctrine of supervening impossibility cannot apply if the contract provides otherwise.
In the matter at hand, no force majeure clause existed in the terms of the facility. The court was not convinced that the argument put forward by the respondents had merit. The court therefore granted summary judgment against the Respondents.
This case underscores two important issues. Firstly, where the contract does not expressly cater for force majeure events and such an event allegedly occurs, the common law doctrine of supervening impossibility will apply where the test will be whether performance is objectively impossible. Secondly, the inability to comply with monetary obligations will amount to subjective impossibility as performance will not be objectively impossible where obligations have become costly or burdensome.
Although our courts will not lightly excuse non-performance, the parties ought to be clear in their terms and expressly set out the circumstances which will or will not excuse performance under the contract.