Contract Administration

By Ruth Wilkinson

Key Points:
• A force majeure clause normally excuses one (or both) parties from performance of the contract in some way on the occurrence of a specified event or events beyond their control

• In English law what constitutes force majeure varies widely between contracts

• Most construction contracts define what is meant by force majeure and prescribe the time and cost consequences, as well as what happens to the contract going forward

• The courts have taken a narrow approach to construction of force majeure clauses, requiring that obligations have actually become impossible to perform, not merely more difficult or less profitable

The origin of the doctrine of force majeure is the French Civil Code. It has been used as a defence to a claim for breach of contract as in effect it relieves a party of performance because of some ‘act of God ’ or unavoidable catastrophe. A force majeure event may be relied upon if it has made performance of the contract impossible, was unforeseeable and was unavoidable in consequence and effect.

But in English law it is not so simple. The term ‘force majeure’ is not a legal term of art. Chitty describes the normal understanding of the purpose of a force majeure clause as follows:

‘
[a force majeure clause is] normally used to describe a contractual term by which one (or both) of the parties is

entitled to cancel the contract or is excused from performance of the contract in whole or in part, or is entitled to suspend performance or to claim an extension of time for performance, upon the happening of a specified event or events beyond his control.’

Typical force majeure events would include war, riot, civil commotion, strike and natural catastrophes (such as earthquakes and hurricanes) but would not include bad weather, football matches, a funeral or an act, negligence or omission by the party seeking to be excused.

The concept of force majeure cannot be relied upon as a defence unless and to the extent that the contract so provides, or if it is implied as a term. Construction contracts will usually define what is meant by force majeure and the consequences. The precise terms and effect of such clauses can vary widely.

As the leading authority on force majeure in English law (the judgment of McCardie J. in Lebeaupin v Crispin [1920] 2 KB 714) states, the precise ambit of the term will depend on the context in which it is used:

‘A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract. The effect of the clause may vary with each instrument.’

It is common to see force majeure defined by a list of events followed by a general sweep up provision. In Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm) the defendant sought to justify its refusal to accept delivery of an aircraft on the basis that the alleged ‘unanticipated, unforeseeable and cataclysmic downward spiral of the world’s financial markets’ constituted ‘any other cause beyond the Seller ’s reasonable control’ as provided for in the force majeure clause of the contract. This, they said, postponed the time for the defendant to complete the purchase.

The judge rejected the argument. He held that this phrase had to be read in the context of the entire clause. Although the judge noted that the phrase ‘any other cause beyond the Seller’s reasonable control’ did not need to mirror the specific examples set out earlier in the definition, he pointed out that it was nonetheless telling that nothing in any of those specific examples was even remotely connected with economic downturn, market circumstances or the financing of the deal.

A force majeure clause may provide relief from liability when a party is prevented from carrying out his obligations or is unable to do so. However, a party seeking to rely on a clause which states that he is relieved of his obligations if he is prevented from carrying them out must show that performance has become physically or legally impossible, and not merely more difficult or unprofitable.

It is not unusual for contractors to claim that whilst performance of the contract is technically possible, it has become financially unviable, so much so, that it is economically impossible.

Generally, a change in economic or market circumstances affecting the profitability of a contract or the ease with which the parties’ obligations can be performed will not be regarded by the courts as constituting a force majeure event. This was the case in Tandrin above.

Thames Valley Power Ltd v Total Gas & Power Ltd [2006] 1 Lloyd ’s Rep 441 established:

‘… It does not at all follow that the supplier is entitled to rely upon an increase in the market price in comparison to the contract price as a force majeure circumstance … This conclusion is consistent with a line of cases, both on force majeure clauses

… to the effect that the fact that a contract has become expensive to perform, even dramatically more expensive, is not a ground to relieve a party on the grounds of force majeure …’

The burden of proof is on the party seeking to rely upon the force majeure clause. He must prove the occurrence of the event he is relying on and that he has been prevented, hindered or delayed (as the case may be) from performing the contract by reason of the event. Subject to the terms of the contract, he must also prove that the event in question was beyond his control and that there were no further steps he could have taken to avoid or mitigate the consequences: Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd ’s Rep 323. In that case a clause that included ‘strikes beyond [its] control’ did not bite if the party seeking to rely on the clause could have settled the strikes by taking reasonable steps.

The standard form construction contracts deal with force majeure differently as illustrated by comparing NEC3, JCT 2011 and the FIDIC Red Book.

NEC3

The term force majeure is not used in NEC3, however cl 19.1 (Prevention) is the equivalent. Clause 19.1 states:

‘ If an event occurs which

• stops the Contractor completing the works or

• stops the Contractor completing the works by the date shown on the Accepted Programme,

and which

• neither Party could prevent and

• an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that

it would have been unreasonable for him to have allowed for it,

the Project Manager gives an instruction to the Contractor stating how he is to deal with the event’.

Such an event is a compensation event (cl 60.1(19)) and a ground upon which the employer may terminate (cl 91.7). Clause 91.7 requires that the event must stop the works completing by the date shown on the Accepted Programme and ‘is forecast to delay Completion by more than 13 weeks.’

The NEC3 Prevention clause is generally regarded as providing a more generous approach for the contractor than a typical force majeure clause, since it puts the onus on the employer to decide how such events should be dealt with and entitles the contractor to both time and money where such events arise. As many employers are uncomfortable with the prospect of considering whether an event is one which it would have been reasonable for a contractor to allow for, these provisions are often deleted by employers, with the result that the contractor may have no effective remedy in the event of force majeure.

JCT

The JCT form clause references are to JCT 2011 With Quantities which includes express reference to force majeure; but it is not defined, which gives rise to potential uncertainty about its scope. In the absence of such a definition Keating on Construction Contracts (9th edn, para 20-118) suggests that the court would follow Lebeaupin v Crispin when attempting to define what a force majeure event would include.

Force majeure is listed as a relevant event which entitles the contractor to an extension of time (cl 2.29.14). It is not identified as a relevant matter for the purposes of recovering loss and expense. It sits alongside other events which could ordinarily be considered as force majeure such as ‘exceptionally adverse weather conditions’ (cl 2.29.9), ‘civil commotion’ (cl 2.29.11), or ‘strike’ (cl 2.29.12).

It may also be a ground for termination (cl 8.11). Clause 8.11.1 provides that if before practical completion, the whole or substantially the whole of the uncompleted works is suspended for the period specified in the contract particulars by reason of various events including force majeure, then either party may give notice of termination.

FIDIC

Clause 19 of the Red Book states:

‘ In this Clause, “ ‘Force Majeure” means an exceptional event or circumstance:

a) which is beyond the Party’s control,

b) which such Party could not reasonably have provided against before entering into the Contract,

c) which, having arisen, such Party could not reasonably have avoided or overcome, and

d) which is not substantially attributable to the other Party.

Force majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) to (d) above are satisfied:

i. war, hostilities (whether war be declared or not), invasion, act of foreign enemies,

ii. rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war,

iii. riot, commotion, disorder, strike or lockout by persons other than the Contractor ’s Personnel and other employees

of the Contractor and Sub-Contractors,

iv. munitions of war, explosive materials, ionising 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

v. natural catastrophes such as earthquakes, hurricane, typhoon or volcanic activity.’

Read on their own, sub-clauses (a) to (d) could be seen as providing a broad definition of force majeure, however, in line with Lebeaupin v Crispin , reading these with the subsequent sub-clauses I to V may well limit the definition of force majeure.

Clause 19.4 provides that the Contractor can recover an extension of time and can on the occurrence of events I to IV recover cost subject to (in relation to I to IV) these occurring in the country in which the site is located. Clause 19.6 provides that either party may give notice of termination if the execution of substantially all the works is prevented for a continuous period of 84 days by reason of force majeure or for multiple periods totalling more than 140 days.

Summary

These are just examples of some of the standard forms’ treatment of force majeure. It makes sense to consider carefully at drafting stage what parties wish force majeure to look like – as always, it is about who bears the risk. The devil is, as they say, in the detail.

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