October 27, 2020
The Covid-19 pandemic has become a prevalent example of an unforeseeable, but widespread, event that has impacted many construction contracts across the globe. Many contractors have found during the pandemic that despite the disruptive and often devastating effects experienced due to the pandemic, they are not protected by their Force Majeure contract clauses due to the wording of said clauses being too narrow. The pandemic has therefore highlighted the importance of Force Majeure clauses, and their wording.
What is Force Majeure
Force Majeure is a concept that relieves a party from performance of its contractual obligations, where that performance is impacted by events outside of its control.
There is no common law or equitable doctrine of Force Majeure, and as such, the concept is purely contractual in nature. It follows that the breadth of the concept will solely rely on the terms of the relevant clauses in a contract. In the absence of a Force Majeure clause, there are very limited circumstances in which the law will relieve a party of their contractual obligations when impacted by events outside of their control.
One exception to this rule is the doctrine of frustration, which shall apply in limited circumstances where the occurrence of the event is beyond a party’s control and has so radically changed the situation in which the contract is to be performed that the contract should be regarded as coming to an end. If frustration applies, then the contract in question is regarded as coming to an end.
Force Majeure clauses operate when the contract is ongoing and are often included in contracts to allocate the risk of certain intervening events. This results in Force Majeure clauses being very beneficial in their operation, as they cannot only be limited to the period of time in which the party is impacted by the relevant event, but they can also be limited to the obligations of the party that is impacted, while the unaffected parties’ obligations continue.
This does not mean that the impacted party can solely rely on a Force Majeure clause to absolve them of their responsibilities when an event is outside of their control, as there may be measures that could be taken to reduce the consequences of said event which are the responsibility of a party.
More often than not, Force Majeure clauses will include a condition that for the impacted party to receive the benefit of the Force Majeure provisions, they must take steps to mitigate any consequential delay, disruption or damages.
Clause Construction
An effective Force Majeure clause will have two key elements:
- the definition of what constitutes a ‘Force Majeure Event’; and
- the operative provisions which deal with what happens if a Force Majeure Event occurs.
Force Majeure Events
The definition of what constitutes a Force Majeure Event in a given contract is key to a party which wishes to call upon the relevant Force Majeure contractual provisions.
Descriptive clauses can vary from opened ended ‘catch all’ clauses to limited lists, or hybrids in between. Open ended clauses will include wording such as ‘neither party shall be liable for any delays or failures in performance resulting from acts beyond its reasonable control’.
These clauses may be seen as favourable as they cover all basis, however they can lead to uncertainty which in turn often leads to disputes.
Alternatively, descriptive clauses can be narrowed to include limited circumstances, with a conclusive list of events which qualify. However, there is a varying degree to these clauses, as they may include general categories of events such as ‘natural disaster’ or ‘act of war’ which are more inclusive in nature, or they can include stricter more defined terms such as ‘bushfires’, ‘flooding’, ‘terrorist attacks in [the location of contract operation]’.
These clauses provide surety in the terms that they cover, but can also bring risks of a party not being covered due to a completely unanticipated event occurring that the parties did not envisage at the time the contract was entered into. A prime example of this being the Covid-19 pandemic.
Clauses may also be engineered to include exclusions of events that expressly do not fall within the definition of a Force Majeure Event for the purposes of the Contract, or for events that are deemed to be foreseeable. Due to this varying degree of scope, the wording of the Force Majeure clauses is crucial and should be reviewed with care when entering into potential contracts.
It is further important to consider the wording of the clauses in the context of the scope of works relating to the contract, as there may be some events that impact specific construction activities but not others.
What happens when the event occurs?
As Force Majeure is solely a contractual concept, the provisions surrounding what is to occur when a Force Majeure Event arises are entirely based on the wording of the relevant clause.
Generally, they include suspension of works and commonly require that notice be given to the other party, which many include (but not necessarily be limited to):
- the nature of the Force Majeure Event;
- the anticipated consequences;
- the anticipated duration of said consequences; and
- action to be taken to mitigate said consequences.
Not all Force Majeure Events will impact all parties, and some impacts may be felt worse by some (depending on the nature of the Force Majeure Event and the nature of the scope of works under the contract). As such, an impacted party will often have to demonstrate not only that a Force Majeure Event has occurred, but that the occurrence of the event has (or will) have negative impacts on the party’s ability to carry out the performance of their obligations.
How to protect from future exclusions
The Covid-19 pandemic has highlighted the importance of Force Majeure clauses in construction contracts and the need to ensure that they are tailored to maximise the protections to all parties.
Moving forward, it is important to ensure that prior to entering into any contract the relevant parties:
- check the definition of what constitutes a ‘Force Majeure Event’;
- consider said definition against the scope of works and location of the contract;
- ensure there are adequate provisions that dictate what is to occur if a Force Majeure Event does occur; and
- check the wording of both the Force Majeure Event definition and the related provisions to ensure there is no uncertainty and all parties agree to their execution and protections.
The above is content is for information purposes only. Should you require assistance with any of your legal matters, please do not hesitate to contact Lamont Project & Constructions Lawyers.
Lamont Project & Construction Lawyers
The Team at Lamont Project & Construction Lawyers have the knowledge and experience to assist both Principals and Contractors with any Force Majeure issues, including:
- the drafting and/or review of relevant clauses prior to the execution of a contract;
- the drafting and lodgement of notifications of a Force Majeure Event;
- providing advice and assisting in the preparation of Force Majeure claims; and
- any disputes that may arise in relation to Force Majeure Events.
Please contact us if you have any questions.
Contact: Francesca Barnes
Phone: 0466 407 184
Email: [email protected] or [email protected]
Address: Suite 1, Level 1, 349 Coronation Drive, Milton QLD 4064
Postal address: PO BOX 1133, Milton QLD 4064