Due to the strict deadlines and responsibilities of each party, one of the industries most affected by COVID-19 is the construction industry.
As COVID-19 affects countries all over the world and across all industries, many foreign contractors may be currently developing construction projects in Spain.
In the construction industry, it is quite common for a project to be faced with facts that can be described as fortuitous events or force majeure, precisely because these are long-term contracts, in which unforeseen events often occur, both for the developer and for the builder. For that reason, in this article, we turn our attention to the concept of force majeure.
Force majeure and fortuitous events
Force majeure has been described as "an unforeseeable event beyond the control of any of the parties to the Contract, the effect of which is to release the parties from performing their remaining obligations under the Contract".
In other words, force majeure clauses allow a party to suspend the performance of the relevant contractual obligations when circumstances arise that are beyond their control.
Article 1,105 of the Spanish Civil Code deals with fortuitous events and force majeure stating that "outside the cases expressly mentioned in the law, and those in which the obligation should require it, no one shall be liable for events which cannot be foreseen or which, being foreseen, should be inevitable".
Consequently, in construction contracts governed under Spanish law, even if no force majeure clause is explicitly agreed, Spanish law allows for the exoneration of responsibility, when the following requirements are met:
- It must be a fact not attributable to the guilt or negligence of the non-performing party
- It must involve compliance with an impossible act
- It must be unforeseen, or being foreseen, but inevitable; and
- The fortuitous or unavoidable event must be cause and result in a breach of the obligation.
With reference to the effects of the fortuitous events and force majeure, it shall be detailed the following three (3) scenarios:
- Partial impossibility of fulfilling the contract;
- Temporary impossibility of fulfilling the contract;
- Definitive and total impossibility of performing the contract.
The most appropriate measure to keep in mind as a result of COVID-19 may be to apply for a temporary impossibility of fulfilling the contract based on COVID-19.
However, the fact that the contractor finds the works more expensive (i.e. lack of material supplies from different regions) or time consuming to complete as a result of COVID-19 will not, of itself, trigger an ability to reply on force majeure. The contractor will need to show that it was impossible for it to perform its obligations under the contract directly as a result of COVID-19.
On the other hand, regarding construction contracts which have yet to be entered into (or those which have only been entered into after COVID-19 was known), force majeure or its equivalent will undoubtedly not be applicable (it may be considered that parties already knew about the existence of COVID-19, which means that it is not "unforeseeable").
Due to the current restrictions caused by COVID-19, we strongly recommend the following practices and legal measures with regard to construction projects:
- Full review of the construction agreement. The main section to review is any section on force majeure, applicable law, suspension of the construction contract and extension of time (EOT).
Regarding force majeure, for contracts which entered into force before COVID-19 was known, force majeure rules may be used.
With reference to the suspension of the construction project, some contracts meet this stipulation stating the possibility of suspending the project for different unforeseen causes, related to the force majeure.
The other section to review is the law applicable to the construction contract. It is probable that, if the construction project is in Spain, this contract is governed by Spanish law. In this regard, the Spanish Civil Code may be applicable to this scenario and the suspension or non-performing of the obligations may be covered by force majeure.
- Contact the counterparty as soon as possible in order to trying mitigating the unforeseen events. In this regard, it would be beneficial to re-schedule.
- Collection of evidence and publications from World International Institutions, European Union, Spanish and Local Authorities where the construction project is being executing in order to prove the impossibility of developing the construction works.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.