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10 Jul 2020

The feeling is mutual: Reciprocity of contract and enforcing obligations

by Keith Bishop, Partner - South Africa

Assisted by James Rooney, Legal Advisor – South Africa

Introduction

Just as everyone is growing accustomed to hearing a French maxim associated with Coronavirus (force majeure), it seemed like time to bring you a Latin one (exceptio non adimpleti contractus, “the exceptio[1]), which is part of South African law and a concept with which the Systech team in the country are growing accustomed. Whereas Force Majeure is about an unforeseen event getting in the way of performance, the exceptio is different. It is about enforcing performance, or more specifically the obligation of reciprocal performance, which to many may be more recognisable as ‘mutuality of contract’.

The defence of exceptio demands a two-step analysis to determine whether a party’s suspension of performance is protected. Firstly, there must be reciprocal performance obligations in the agreement, with both parties failing to carry out these obligations. The second aspect is that the party relying on the exceptio must demonstrate that there was a clear “order of performance” requiring one party to perform their obligations under the contract before it is possible for the other party to carry out theirs. These two aspects of the principle are not universal wherever mutuality, or another principle of reciprocity (such as the exceptio), is found. In some countries the extent of the breach is a key consideration in determining the extent to which reciprocal obligation arguments can be relied upon.

In order to understand how this reciprocity principle has developed differently across various jurisdictions, it helps to look backwards. Deriving from Roman law, the principle was incorporated into fledgling European legal systems in various forms. While it failed to find its way into Common Law for some time, the Franco-Germanic civil law systems adopted it readily. The Dutch and French colonialists then brought their differing interpretations of the reciprocity principle with them to their new territories. This influence can still be seen today in jurisdictions in which Systech Law is advising clients, such as in South African law and in the Civil Code of Quebec. 

Regardless of jurisdiction, what seems evident from our experiences is that while principles such as this are incorporated and applied to systems differently throughout the world, they are seen as foundational contractual concepts. As such, we do not ordinarily find clauses about reciprocity in standard form construction contracts in any of these jurisdictions. 

Reciprocity in Canada

Canada acts as a microcosm of the differing approaches to the reciprocity principle taken by both civil and common law jurisdictions. In the historically English-speaking provinces, we see it used in much the same way as in the UK. However, in the Francophile jurisdiction of Quebec, proportionality of response becomes a key factor. Indeed, the language of article 1591 of the Quebec Civil Code includes the mitigating term “substantial breach” in its codification of the principle.[2] Damages, suspension or, in some rarer cases, termination are adjudged based on the extent of the breach, with the courts taking a “sliding scale” approach based on the impact caused by the claimant’s failure to satisfy its contractual obligations.

In Employers’ Liability Assur. Co. v. Lefaivre[3] [1930] the Supreme Court of Canada was forced to consider both the order of performance and the extent of the breach. Here it was established that even where the obligations of the party relying on principle are divided, so performance is required both before and after the claimant’s obligations, if the claimant’s breach is deemed substantial enough the reciprocity defence can still be used.

While often founded on standard forms, Canadian (particularly Quebecois) construction contracts tend to be more bespoke agreements. As a result, we do sometimes see reciprocity explicitly stated, where this is deemed necessary. However, in most cases, application of the principle is sufficiently embedded in the legal system that contracts remain silent on the issue.

Reciprocity in the UK

The UK legal systems were comparatively late to the party in respect of the reciprocity principle. As is often the case in the UK, the principle took on a different form, as it evolved from the judgements of Lord Mansfield in two seminal 18th Century cases: Kingston v Preston[4] and Boone v Eyre[5]. In the Kingston case Lord Mansfield laid down the precedent for reciprocity as a general concept, creating the notion of “dependent and independent promises”. This is comparable to the two-step test applied in civil jurisdictions, as it required that the performance of one obligation was dependent upon the prior performance of another. In Boone v Eyre, Lord Mansfield was given the opportunity to further develop this principle. Here he introduced a softened down version of the extent of breach principle. As a result, it can be said that, while less formally entrenched into English law, the reciprocity principle does have its place in the form of mutuality.

In the case of Johnston v Robertson[6]  the Scots courts demonstrated that, there too, the ‘reciprocity’ principle was a recognized pillar of the law when they said: “In a mutual contract where one party seeks performance of the stipulations in his favour he must show that he has given or tendered performance of his part of the contract.” This principle will apply to all material, mutual obligations. However, that does not mean it is always easy to place such mutual, material obligations in order of precedence, and that can lead to a stand-off. 

South Africa’s exceptio non adimpleti contractus

Exceptio non adimpleti contractus is a clear and potentially effective defence in South Africa that allows a party to withhold its own performance, accompanied by a right to ward off a claim for such performance until the other party has duly performed its obligations under the contract. As stated above, the two performances must be reciprocal to one another and one party must be obliged to perform first.

In the case of Universal Storage Systems (Pty) Ltd v Crafford and others[7] in 2001 the South African High Court neatly encapsulated the doctrine when it held that where certain consideration has been promised to the party restrained (the respondent) in a covenant in restraint of trade, the obligation to abide by the restraint is reciprocal to the obligation of the party providing consideration (the applicant), in whose favour the restraint operates, to render the promised consideration, and that the latter obligation must be performed first. Therefore, as long as something remains to be performed by the applicant, the respondent may raise the exceptio as a defence to any attempt by the applicant to enforce the restraint.

What is needed to operate a defence of exceptio in practice is the identification of obligations that are dependent upon one another and a means to identify which of those obligations takes precedence. To that extent, at least, exceptio has a slightly different feel to that of mutual obligations in the UK.

So, what can we take from this?

Contracts are really just a series of mutual rights and obligations, but they do not always prioritise them and the obligations themselves can be conflicting. Generally, what reciprocity(and particularly exceptio in South Africa)does is provide some guidance. As set out above, the principle identifies that one obligation is dependent upon another being carried out first. Even a recognition of reciprocal obligations to be performed may not provide quite the same clarity as the exceptio.

The principle of reciprocity is important to contractors operating across the globe because it forces an employer to carry out its own obligations before immediately pointing the finger of blame. In entering into a contract which imposes a high degree of responsibility on a contractor to get it right or face the consequences, it is sensible to identify what conditions the employer needs to satisfy if the contractor is going to meet its obligations. However, that may not be of much help unless there is a recognition of mutual obligations applicable to the contract into which the contractor is entering.

Standard contracts do not tend to bear precise words over reciprocal obligations or, more particularly, explain how that sort of agreement will operate, so it is important to identify what the law of any particular contract is before agreeing the terms. Many present-day legal systems (such as South Africa, the UK and Canada) recognise this type of principle. 

The message remains loud and clear that it is a mistake to assume that a standard form contract, whether the conditions are amended or not, provides all the answers. Legal principles flowing from the law which governs the contract, such as reciprocity, can, and very often do, impact outcomes.  


[1] There are many ‘exceptio’ maxims in the law of South Africa, for convenience ‘exceptio’ is used in this article to mean the exceptio non adimpleti contractus.

[2] Civil Code of Québec, CQLR c CCQ-1991; Article 1591

[3] (1930) S.C.R. 1 CA

[4] (1773) 2 Doug KB 689

[5] (1777) 1 H Bl 273

[6] (1861) 23 D 646

[7] 2001 (4) SA 249 (W)

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