Covid-19 and force majeure issues in construction and engineering projects in the UAE and beyond – Part 2
The world changed in just a few weeks. Most of the planet seems to be under restrictions of some sort and each day the conditions change.
In construction and engineering projects governments are trying to maintain normality but delays and disruption are arising as a result of the Covid-19 virus and the emergency measures taken to restrict its' progress. What holds good today may be different tomorrow. In 3 instalments I will address:
1. Introduction to the problem of Covid-19 and construction and engineering projects and suggested action areas in existing projects
2. Force Majeure provisions in construction and engineering contracts and related project agreements and interface with Covid-19 events
3. UAE law concerning Force Majeure in the context of construction and engineering projects and its' interface with Covid-19 events
Force Majeure provisions in construction and engineering contracts and related project agreements and interface with Covid-19 events
The general idea of "force majeure" (literally in English superior force) is well-recognised in most forms of contract for large-scale construction and engineering projects. The basic underlying principle is that a party should not be liable for something where an intervening cause, no fault of their own, unexpectedly obstructs them. This immediately brings to mind natural disasters often called "Acts of God", which may be extreme and unexpected events and "epidemic" is a word most of us will happily add to the non-exclusive list of examples when we are drafting this kind of provision. Force majeure is a concept but it has no precise definition and meaning until the parties to a contract give it one. The concept is recognised in most legal systems but precise definitions are another matter. Economic hardship and payment of monies are usually excluded from this concept.
There is no single form of force majeure provision: they are negotiated and they vary. FIDIC has often been the starting point for many custom made forms and FIDIC sets the bar quite high, requiring that the event or circumstance complained of as force majeure could not have been avoided or overcome (ie a party is prevented from performing – not simply put in a more difficult/costly position to perform). In a well-drafted contract, an event will occur and the parties will know very quickly whether there is available relief. In a poorly-drafted contract there will be uncertainty. The law of the contract will be consulted but arguments as to whether or not the relief applies are more likely to be compounded than settled by reference to the underlying law because the parties will likely find that to be generic as well.
A typical force majeure clause in an EPC Contract or similar project contract will operate along the following lines (paraphrasing and summarising):
Non-performance of a contractual obligation of a party will generally be relieved (forgiven) for the period it is affected by a qualifying instance of force majeure.
force majeure is usually defined as a condition which arises that: could not reasonably have been foreseen, avoided, or overcome and is not within the control of the affected party or resulting from its breach of contract, fault or negligence and delays or interferes with the performance of the affected party's obligations.
The facts will need to be compared against the precise wording of the relief provision. Consider here circumstances where a party is struggling to get workers to the construction site. If the Government did not give instruction for the site to close it may be expected that the contractor must keep working even though labour may become harder to bring to the site. Consider also a situation for example (perhaps later that where we are now in the pandemic) where governments allow lockdowns to be broken by people who have recovered from the virus and are deemed fit to work again. It seems at present we are in a period when emergency measures are hard to predict and may change every few days.
There is normally a non-exclusive list of examples of force majeure and often a list of things that do not constitute force majeure. Often listed as examples of force majeure are: strikes, terrorism, war, embargo, insurrections, riots, natural disasters (Acts of God) including epidemics, some public acts such as expropriation and sometimes failure of official approval processes.
The remedy for force majeure is usually a time extension without monetary compensation. Normally it has no effect on the contract price. There are usually strict notice provisions and duties to mitigate the effects.
In any force majeure claim, the circumstances of the particular case must be considered and the drafting of the contract must be considered. It seems likely that for many contracts there will be little debate that Covid-19 passes many of the initial tests. For many it can properly be regarded as reasonably unforeseen, unavoidable and not the fault of either party. Arguments may arise on foreseeability where a contract has been signed after Covid-19 has emerged. Arguments are more likely to arise around steps taken in mitigation and the period over which the critical path of the works was actually affected. Contracts that are being drafted now will likely have some new words to cover the ongoing effects of the virus, though to the extent that these are foreseeable they would not be classic force majeure any more.
Documenting, collecting contemporaneous evidence and serving appropriate and timely notices with all the required information will be critical to claims allowance.