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Coronavirus - Overview of Force Majeure in the construction sector - the UK

  • United Kingdom
  • Coronavirus

11-03-2020

 As the World Health Organisation (WHO) has increased its global risk assessment for Covid-19 to ‘very high’, the impact on construction and engineering projects remains extremely uncertain.

In the next few weeks, we may see more government-imposed restrictions, significant supply chain disruption, and critical employee welfare issues. Past disease outbreaks and pandemics have triggered force majeure and termination of work on current projects. The market volatility and lack of certainty will cause clients to postpone planned projects. Those projects which attempt to struggle on will face labour concerns as company restrictions could result in staff suspending work, whether or not the contract allows them to do so.

The contractual position is far from clear and this note provides some clarity about the rights of parties to terminate their contract for force majeure or frustration under English law. For more information on interim measures see our note on Coronavirus – the Impact on Construction and Engineering Projects

Force Majeure 101

Force majeure, as the spelling suggests, is a French Civil Code concept and provides that if a party to a contract is prevented from performing its obligations, then there is no place for damages.  Art 1148 of the French Civil Code stipulates that a force majeure event must be:

(a)      unforeseeable;

(b)      render performance impossible; and

(c)      be outside of the control of the party invoking suspension of the relevant contractual obligation.

There is no concept or definition of force majeure under English law, although force majeure clauses are often included in contracts.  A leading legal text describes a force majeure clause as:

a contractual term by which one (or both) of the parties 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”.

The major contracts in the JCT 2016 suite provide for force majeure; the standard form contracts use the term but do not define it.  The NEC suite also covers the concept, but uses the more straightforward “acts of prevention”.

There is no consistent drafting of force majeure clauses.  Some clauses provide a  (non-exhaustive) list of specific examples of force majeure events. 

The NEC suite does not use a list but adopts a three stage test which is another common approach.  The test is met if the event:

(1)      stops the contractor from completing the works;

(2)      neither party could prevent the event; and

(3)      an experienced contractor would have judged the event (at the contract date) to have such a small chance of occurring that it would have been unreasonable for the contractor to have allowed for it.

FIDIC takes a similar approach, but also provides a non-exhaustive list of example circumstances – although interestingly, and perhaps worryingly, epidemic is not one of them.

As with previous pandemics, Covid-19 could be a force majeure event in contracts entered into prior to January 2020. Even though the WHO put coronaviruses among its top 8 threats in 2016, the consequences and impact of this virus were not foreseeable nor was its spread within the parties’ control. For contracts entered into after January 2020, the position is far less clear.

Remedies for force majeure

Additional time - most contracts will allow the contract administrator to grant the contractor an extension to the date or time for completion if it is prevented from carrying out the works under the contract by reason of a force majeure event. Despite the current uncertainties, the parties must still comply with any specific process for notices and estimates/quotations.  This process will relieve the contractor from liability for liquidated or delay damages for late completion arising from Covid-19.

Additional money – some contracts may also allow the contractor to claim its extra costs arising specifically from the force majeure event; although not all. NEC treats time and money together under their compensation event procedure whereas JCT does not include it in their list of relevant matters. The FIDIC Silver Book makes a distinction between the costs that the contractor can recover depending on different kinds of force majeure events and where they occur.

Suspension and Termination – most contracts entitle the employer or the contract administrator to postpone or suspend the works for events of force majeure. Such suspensions cannot continue indefinitely and the contracts also provide that where there is prolonged force majeure, a mutual contractual right of termination exists.  As the clauses and remedies vary it is important to review your contract carefully.  For example, the trigger could be a single continuous or multiple discontinuous periods of suspension for   the same notified force majeure event; the process may differ as will the consequences for the parties.

Minimising the Impact

As well as a general duty to minimise or mitigate your losses under English common law, force majeure clauses often impose an additional duty to use all reasonable endeavours to minimise any delay in the performance of the contract as a result of the force majeure. We expect that any discussions relating to the current Covid-19 outbreak and whether there is a contractual right to relief due to force majeure, the focus will not be on prevention but on mitigation. Measures will need to be reviewed based on the actual risk where the project is taking place (ideally on objective data), not on the existence of the virus elsewhere nor on the fear factor (or subjective opinions).

A Brief Refresher on Frustration

If your contract does not include an express risk allocation for events similar to force majeure, by way of relief from the consequences of the virus, you may need to consider alternative routes to determine suitable next steps  and to escape sanction/obtain relief.  In such circumstances, the English common law doctrine of frustration may be invoked, which provides some protection to the party who would otherwise be in default.

Frustration is an extremely limited concept. It requires an event which is not attributable to either of the parties, and which has made performance impossible, illegal or totally different to that expected at the contract date. 

The English courts have made it very clear that parties will not be entitled to relief from performance for frustration merely when performance is rendered more difficult, time-consuming or expensive. For frustration to apply, the parties will essentially be relying on a government-imposed restriction on labour, goods or materials which makes completing the project illegal or impossible. Frustration does not apply where there are only temporary restrictions.

Read more articles on our Coronavirus hub.