With COVID-19 disrupting the performance of construction, consequently contracts and the obligations under these contracts are being revisited to assess the impact caused by COVID-19 and what relief, if any, can be sought by the parties. The contractual term brought to the fore due to the impact felt by COVID-19 is that of “force majeure”.
This article will look to define what force majeure is and look to see if it is applicable to use to claim in relation to COIVD-19 under Clause 19 of the FIDIC suite (1999 edition).
What is Force Majeure?
The term “Force Majeure” originates from French law, its literal meaning is “superior force”. It is considered a legal concept under most civil law systems and can be invoked by an affected party in civil law jurisdictions regardless of any relevant contractual provisions.
However, under common law jurisdictions (whether under English law or another common law jurisdiction such as the United States) there is no doctrine of force majeure. Instead, the term force majeure is a clause introduced to contracts under common law jurisdiction, as it provides temporary reprieve to a party from performing its obligations under a contract upon a force majeure event happening.
Why you need a force majeure clause
A force majeure clause provides the parties to a contract a useful risk management tool, to future proof their contract to deal with changes in circumstances that may occur during the term of the contract.
Since, under common law, force majeure clauses are to be drafted by the parties; their interpretation will be governed by the normal rules of contractual construction. It is important to note that such clauses will be strictly interpreted by the courts. As such, no force majeure provision under common law will be implied in a contract where it has been omitted.
For this reason, a properly drafted force majeure clause, governed by common law, should provide a mechanism to relieve a party from performance of its contractual obligations where that performance is impacted by events out-with its control.
Does Clause 19 (Force Majeure) of FIDIC Suite (1999 edition) apply to COVID-19?
To determine whether a force majeure clause applies to the circumstances arising from COVID-19, the parties should examine the definition of the force majeure clause.
The most commonly used force majeure clause used within international construction contracts is Clause 19 (Force Majeure) of the Rainbow FIDIC suite of Contract, 1999 edition.
(The new FIDIC 2017 edition is still not commonly used and its Clause 18 (Exceptional Event) contains no notable improvement for the like of COVID-19.)
Sub-Clause 19.1 defines force majeure as an exceptional event or circumstance:
- Which is beyond a Party’s control;
- Which such Party could not reasonably have provided against before entering into the contract;
- Which, having arisen, such Party could not reasonably have avoided or overcome; and
- Which is not substantially attributable to the other Party.
This generic definition if followed by a non-exhaustive list of categories that could fall within the generic definition of force majeure. The list provided within Sub-Clause 19.1 includes the following:
- War, hostilities (whether war be declared or not), invasion, act of foreign enemies;
- Rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war;
- Riot, commotion, disorder, strike or lockout by persons other than the Contractor’s Personnel and other employees of the Contractors and Subcontractors;
- Munitions of war, explosive materials, ionizing radiation or contamination by radio-activity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio-activity; and
- Natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity.
One should note that the list provided within FIDIC does not include the term, “epidemic”, or “quarantine” or anything similar, which is the primary manifestation of the event that is COVID-19.
However, the absence of such terminology in the list is not detrimental to the merits of a party claiming COVID-19 as force majeure. The affected party will be required to demonstrate that COVID-19 complies with all the requirements of the generic definition of Sub-Clause 19.1 (a) to (d).
If the party can show that COVID-19 falls within the relevant definition of force majeure, then the party seeking relief will be required to show that they were, pursuant to Sub-Clause 19.2 [Notice of Force Majeure], prevented from performing any of its obligations by reason of the force majeure event. This is subject to notifying the other party within 14 days of becoming aware of the event or circumstance.
Pursuant to Sub-Clause 19.4 [Consequences of Force Majeure], the contractor will be entitled to an extension of time for delays arising from being prevented from performing any of its contractual obligations in respect of all categories of force majeure events, subject to Sub-Clause 19.3 [Duty to Minimise Delay].
As the construction sector has witnessed, since March 2020 to date, there have been severe labour and supply chain disruptions and finding alternatives have been challenging. Therefore, the duty to minimise delay is an additional obstacle for the contractor to overcome.
One can see that a contractor can argue entitlement to an extension of time, however the recovery of cost is more challenging. Pursuant to Sub-Clause 19.4 (b) the contractor can only recover Cost (excluding profit) if the force majeure event (as per meeting the definition requirements as per Sub-Clause 19.1 (a) to (d)) occurs in the country where the works are located. However, the contractor cannot recover costs in relation to category (i) and (v) events.
For an event such as COVID-19, Sub-Clause 19.4 is silent on what the financial remedy the contractor is entitled to in the extent that the contractor meets the requirements of the definition of force majeure, therefore a contractor is unlikely to recover Cost.
The parties pursuant to Sub-Clause 19.6 [optional Termination, Payment and Release], may terminate the contract in the event of prolonged force majeure lasting more than 84 days for one event or for multiple events totaling more than 140 days. With this provision the parties may try and settle amicably in order to avoid termination.
Conclusion
Parties to the contract should think about the effect of enacting Clause 19 [Force Majeure] as it is likely to prove unfavorable to the contractor for seeking relief and compensation in relation to the COVID-19 pandemic.
Other contractual provisions that could be used by the contractor could be Sub-Clause 8.4 (d) [Extension of Time; Unforeseen shortages in the availability of personnel of Goods caused by epidemics or governmental actions] FIDIC Suite (1999 edition), as it specifically refers to “epidemics” and its consequence as a cause of delay entitles the contractor to an extension of time.
As this Sub-Clause describes COVID-19, this should entitle a contractor to raise a claim for an extension of time pursuant to Sub-Clause 20.1 [Contractor’s Claims]. The contractor should not forget that the Sub-Clause 8.4 (d) gives entitlement to an extension of time only, and makes no mention of financial remedy. The will depend upon the particular circumstances and whether the contractor can establish an entitlement to financial compensation elsewhere under the contract or at law.
The contractor in order to succeed in its entitlement would need to refer in its notice to Sub-Clauses 8.4 (d) together with Sub-Clause 20.1 as well as referring to Sub-Clause 19.1, due to COVID-19 meeting the definition of force majeure.
Please note that each contract is unique and the impact felt by COVID-19 will differ from one case to the next.
As demonstrated above, contractors may see that enacting the force majeure clause may prove more problematic for them to recover time and cost. In seeing this, they may go down the more conventional road and claim through Sub-Clauses 8.4 and 20.1, although this itself may prove difficult to re-coup cost.
The advice provided would be to not ignore the matter, but if you feel entitled to make a claim, make sure you submit the appropriate notices and follow up with an interim claim as soon as possible.
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