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01 May 2020

COVID-19: Force Majeure or Alternative Contractual Remedies?

by Robert Oakes, Legal Director - South Africa

As COVID-19 began its rapid spread around the world, force majeure was the hot-topic in construction law.

However, Force Majeure does not necessarily provide the only basis, or the optimum basis, for relief.  Certain jurisdictions recognise Force Majeure as a definable event and a basis for claim.  Other jurisdictions may not.  

Force Majeure Provisions

Most substantial construction projects are governed by detailed conditions of contract which often contain Force Majeure clauses.  A good example of this is the FIDIC 1999 suite of contracts.  But the FIDIC Force Majeure conditions do not give automatic or total financial and time relief from the effects of Force Majeure.

The conditions of contract are likely to be the first port of call for a tribunal assessing a contractor’s claim and those conditions may add to or detract from the general law of the jurisdiction relating to Force Majeure.  The conditions need to be studied and applied with care.

In our article dated [24/02/20] entitled [Contractors affected by COVID-19 – is invoking Force Majeure the easier way to obtain relief and compensation?] Systech Law addressed the subject of Force Majeure in detail and we do not repeat our analysis in that article here.

Define the Event: Causation

Global experience with the current COVID-19 pandemic has shown that two basic issues need to be considered.

First, the disease itself may be regarded as an “event” or “circumstance” under the terms of the contract.  For example, key personnel may be directly affected resulting in the absence from the site or project offices of important decision makers.  Or a widespread local outbreak may mean that essential skilled labour is unavailable through illness, or trade unions may encourage labour to remain away from site for health and safety reasons.

Secondly, most governments have reacted to the pandemic by introducing restrictions on travel, both internationally and nationally, and in other areas of life and business.  But not all governments have adopted the same measures.  Contrast, for example, the severe lockdown imposed in South Africa with the more relaxed approach, with no lockdown, in Sweden.  The UK has adopted a middle course by comparison. 

Some governments have recognized the commercial risks involved in widespread reliance on Force Majeure to avoid contractual obligations, the President of South Africa, for example, publicly addressing the nation to discourage such reliance.  However, without specific legislation it is difficult to see how such statements could be enforced.

Having identified the event relied upon it is important to trace the consequences which form the detail of the claim in response to that event.  It may, of course, be prudent to rely on more than one event eg the pandemic itself and legislation designed to address it. 

Entitlement

A further significant consideration is to determine the best route to entitlement for both extensions of time and additional cost recovery.

The outbreak of COVID-19 and the government’s response are very unlikely to be found to be a breach of contract by either party.  Accordingly, a simple reliance on the recovery of damages and relief from time obligations will rarely be available.

It is necessary to consider what relief is expressly available under relevant conditions of the contract.

Taking the FIDIC 1999 Yellow Book conditions as an example, what potential routes might there be to relief?

Obviously, the Force Majeure provisions, in Clause 19, provide one possible route.  However, two difficulties immediately present themselves.  First, disease, illness, epidemic and pandemic are not listed as specific examples of exceptional events or circumstances constituting Force Majeure.  That does not preclude COVID-19 as the list given is non-exclusive.  But it creates uncertainty.  Secondly, only some kinds of Force Majeure give an entitlement to the recovery of additional cost incurred, whereas extensions of time may be claimed for any kind of Force Majeure.  

It seems probable that both the disease itself and the government response, in the form of new legislation, may be regarded as Force Majeure.

But other alternative contractual provisions should be considered.  Clause 13.7 of the FIDIC conditions provides a route to an entitlement to an extension of time and the recovery of additional cost where there has been a change in the laws of the country where the project is being carried out.  Whilst this provision gives no relief in respect of the disease itself, it does provide a route if delay is caused by the government’s reactive regulations and other legislation.

Further, clause 8.4(d) provides time (but not cost) relief in the event of “unforeseeable shortages in the availability of personnel or Goods caused by epidemic [likely to be interpreted as including a more widespread “pandemic”] or governmental actions” as does clause 8.5 where delays are caused by legally constituted public authorities.

Clearly, every contract is different and the particular conditions applicable need to be considered carefully to identify applicable terms.  Not all projects will be subject to, for example, clause 13.7 of the FIDIC conditions although the particular contract may contain similar provisions.

Notices

If the route to recovery depends on the contractual provisions, as it is likely to, considerable care must be taken with ensuring that the notice requirements in the contract are followed.  Different provisions giving potential routes to relief or recovery may contain differing notice requirements and failure to comply with those requirements may be fatal to the claim.

Conclusions

Remember that claims arising from COVID-19 and associated legislation are most likely to be contractual claims reliant upon the terms of the contract.

So read the contract conditions carefully, analyse what is the true cause of the loss of time or money and adopt the contractual routes available.  That will not necessarily mean relying on one provision only.

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