(Force Majeure) Superior force in tough times

Force majeure is a French civil law concept, in English literally meaning “superior force.” In civil-law countries, such as the UAE, force majeure generally operates to excuse a party from the terms of a contract when performance of the contract becomes impossible or oppressive as the result of an event that the parties could not have controlled.
In common-law countries (such as the USA, India and England) the concept does not have a general meaning and will only operate if inserted into the contract, and according to the plain terms of the clause inserted.

The Contract
Many standard forms of construction contract contain a force majeure clause. The parties often amend these clauses during negotiations. Frequently, a clause will set out a list of circumstances, which amount to force majeure (such as war, hostilities, terrorism, strikes and natural catastrophes to name a few).
A clause will often include a “catch-all” provision to cover events not specifically listed. A dispute will often be about whether an occurrence amounts to one of the listed events.

At the negotiating table, if a party wishes that a particular event be recognised as force majeure, or not so recognised, consideration should be given to expressly including or excluding the specified event in the drafting of the clause.

A force majeure clause will also usually include provisions, which set out basic parameters, which a party will need to satisfy to successfully establish a right to relief. Common provisions will be whether the event was beyond the party’s control, couldn’t have been provided against and avoided.

The relief sought when invoking a force majeure clause will usually be a right to suspend performance until the situation improves or the event no longer prevents performance. The affected party will be entitled to an extension of time in which the obligation must be performed and, depending on the clause, may be entitled to the costs of such suspension.

If the force majeure event continues beyond a stated period, there will normally be a right to terminate performance.

Unforeseen events, UAE law
Relief against force majeure will be implied into contracts governed by UAE law, absent an express force majeure clause. Even where there is a force majeure clause in a contract governed by UAE law, the UAE Civil Code may still be relevant in assessing if performance of a contractual obligation has become impossible or oppressive.

We have already touched on force majeure and the general civil law test of impossibility of performance, but what about the lesser standard of oppression? The doctrine of unforeseen circumstances derives from the French theory of imprévision, and is contained in article 249 of the UAE Civil Code.

Article 249 provides (according to our translation): “If exceptional events of a general nature occur which were not capable of being foreseen, and the occurrence of which renders performance of a contractual obligation oppressive, albeit not impossible, for the obligor as it threatens him with exorbitant loss, it shall be permissible for the judge, in accordance with the circumstances, and after weighing up the interests of the two parties, to bring the oppressive obligation back to what is reasonable, if justice so requires.  Any agreement to the contrary shall be null.”

The simple thrust of this rule is that a judge or arbitrator has the power to revise a contract with a view to restoring economic equality between the parties.

What can be said here is that there is at least scope for a party to argue that the economics of a given situation are oppressive and that the contract should be “re-opened.” The escalation of materials prices, which has abated, was a good example of where this rule may have had particular relevance. No doubt there will be other examples from the current global economic turmoil.

Donald Trump credit crunch
Some will have recently read about Donald Trump’s recent claim of force majeure in relation to the Trump Tower being built in Chicago. Trump is arguing that the global economic recession (Trump calls
it a Depression) is a force majeure event.

Trump is relying upon a “force majeure” in a lending agreement with Deutsche Bank allowing the borrower to delay completion of the building if construction is delayed by things like acts of god or other events not within the reasonable control of the borrower.

An economic downturn is generally not recognised as a force majeure event, absent contractual language specifically including such economic circumstances.  Some commentators would say that the economic conditions under a contract are no more than a normal risk of a commercial bargain.

The question of causation is also complicated with these types of claims. Where the event does not render performance impossible, but rather creates conditions which in turn render performance economically more onerous, the event may not be the cause of the failure to perform.

Is a party physically prevented from performance? If there is only economic impracticability in performance in a contract governed by a common law country, it is unlikely (absent clear words dealing with the circumstances in the clause) that reliance on a force majeure provision will relieve a party of its obligations under the contract.

In the UAE, however, the doctrine of unforeseen circumstances may have something different to say about this, where an event can be shown to be exceptional, unforeseeable, of a general impact upon society and is oppressive.  Although an ill-liked cliché, each situation will very much depend upon its own set of facts.

Final words
Parties should pay special attention to force majeure and governing law provisions in their contracts.

Circumstances do change and the way in which these matters are addressed in a contract will obviously impact upon a party’s ability to respond to such change.

Construction week

  1. Dwayne Geronimo

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  2. Blaine Barcellos

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  3. Donald Trump’s reliance on the concept of “force majeure” will not succeed especially if viewed against his personal history of bankruptcies, rehabilitation and receiverships. His full grasp of the US economy would have forewarned him of this impending economic meltdown given the fact that the “proximate cause” of the financial crisis is spawned by bad credit management of the housing construction and mortgage sector of which he and his present project (the Trump Tower in Chicago) undoubtedly belong.

    Stretching the concept of force majeure to include economic crisis which to my view is “foreseeble” by an astute businessman like Donald Trump will not be favored by the courts even in common law jurisdictions. The contrary view will be bad for the financing sector.

    The only possible relief against “economic crisis” would have been to include a contract clause on “extra-ordinary inflation” or “extra-ordinary deflation”, fully defined as such, to afford relief to either parties in case of occurence. This suggested clause should be different from “force majeure”. This is the better approach than an empty reliance on a concept destined to afford false hope to the client.

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