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Within the first two days of conflict in the current military crisis in the Middle East, our clients have already begun receiving and issuing force majeure notices, including on major infrastructure projects in Qatar. This short article highlights some of the important provisions and consequences when dealing with force majeure in construction contracts.
For all contractors currently engaged in projects in the Middle East, reviewing the force majeure provisions (together with the balance of other relevant provisions) is an urgent requirement, particularly given that many such clauses have stringent notification deadlines.
It is also important to remember that force majeure, once invoked, may free both parties under the contract from certain liabilities and obligations, and losses will lie where they have fallen. It is therefore a powerful provision, to be enforced thoughtfully and with proper consideration of the consequences.
What is force majeure?
The term "force majeure" —meaning "superior force" — has its origins in French civil law. Commonly, the term is a convenient label used to refer to clauses that relieve a party from performance of its contractual obligations where that performance is impacted by events outside its control, such as war or natural disasters.
Why do you need a force majeure clause?
In the absence of express provisions in the contract, there are limited circumstances in which the law will come to the aid of a party whose ability to perform its contractual obligations is impacted by external supervening events. In the English common law, when faced with supervening events that prevent performance, parties may look to frustration of purpose to excuse performance. In contrast, the Qatar Civil Code at Article 188 includes an express provision on force majeure. Notwithstanding, it is common practice in construction contracts to include a force majeure clause to relieve a party from performance of its contractual obligations (together with the consequences of non-performance) where that performance is impacted by events outside its control.
What form does a force majeure clause take?
In general, an effective force majeure clause will comprise two main parts: the definition of what constitutes a force majeure event; and the operative provisions which deal with what happens if there is a force majeure event.
What is the definition of a force majeure event?
The starting point for any force majeure clause is to define the force majeure event that will trigger the application of the clause. Some clauses opt for a very wide definition, referring to any "event or circumstances beyond the reasonable control" of the party seeking to rely on the clause.
Another approach is to have an exhaustive definition which lists all the categories of events that are intended to be covered, e.g., war, natural disasters such as earthquakes or floods, and terrorist attacks. The risk associated with such a prescriptive definition, however, is that the parties will not be protected by the force majeure clause if some completely unanticipated event occurs that the parties did not consider at the time they drafted the clause.
For this reason, a common approach is to have an inclusive definition, which lists the events that the parties envisage will be covered by the force majeure clause, but then includes a "catch-all" provision to ensure that the definition does not preclude the application of the clause to other similar events. In some cases, parties opt to be even more precise and specify that certain events will or will not be considered force majeure events in relation to one of the parties to the contract, but not the other.
A key point to remember is that, while many definitions do not require that the relevant event be unforeseeable (given that force majeure events are often foreseeable but cannot be prevented), the event must be one that is beyond the control of the party.
What is the impact of a force majeure event?
If there is in fact in existence an event which falls within the relevant definition of a force majeure event, the party seeking relief from performance will generally be required to show the following:
- It was prevented, hindered, or delayed from performing its contractual obligations as result of the event.
- The event/inability to perform was beyond its control.
- There were no reasonable steps the party could have taken to avoid the event or the consequences (see discussion of mitigation below).
Note that force majeure is not available where performance is possible but simply more expensive than what was originally anticipated.
What are the reporting obligations?
A force majeure clause will usually provide that the party seeking to rely on the force majeure clause must notify the other party of the fact that the force majeure event is impeding its performance within a specified timeframe. The notice will typically be required to include information about the force majeure event and its specific impact on the party's ability to perform its obligations. Often, the notification requirement will be a condition precedent to the ability of the party to rely on the relief provided for under the clause. For this reason, it is important that all procedural requirements are complied with, as failure to do so could bar a party from relying on the clause.
What are the mitigation requirements?
Even if the clause does not expressly impose an obligation on a party to take mitigation measures, in practice, the party may still need to show that it could not mitigate the effects to demonstrate that the force majeure event actually caused the party to be unable to perform its obligations under the contract. Therefore, if alternative modes of performance are provided for under the contract but have not been pursued by a party to mitigate or prevent the impact of the force majeure event, it may become less likely that a court will consider a party's non-performance the result of the force majeure event.
What are the consequences of a force majeure event?
The force majeure clause will also need to deal with what the parties intend to happen if it is accepted that a force majeure event has prevented a party from being able to perform its obligations. Typically, the clause will provide that the parties' obligations under the contract will be suspended until such time as the force majeure event (and its direct effects) have ceased to prevent performance of the contract. Most clauses will provide that if the impact of the force majeure event is not lifted within a certain time(e.g., six or 12 months), then the parties will have the right to terminate the contract. In such cases, the usual scenario in such a no-fault termination is that contractors are entitled to receive payment for work completed to date and demobilization costs, but do not recoup lost profits or other costs arising from the force majeure event. Because the actual amount a contractor may be due in such a termination scenario will be ripe for disputes, excellent record keeping by all parties and, to the extent possible, documenting the status of the works at the time of the declaration of the force majeure event may assist in reducing disputes later.
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.
