A question of causation: force majeure is not a magic cure all for construction claims impacted by coronavirus
As COVID-19 rumbles on and gets under the nerves, finances, materials pipelines and construction projects of all and sundry, even those with a fairly bulletproof outlook on the world are beginning to blanche. For many, works on construction projects are coming to a grinding halt, if not because of an inability to work in itself, because materials suppliers are no longer able to deliver. The focus in terms of potential claims has hinged heavily on force majeure – and indeed there may be some space for that. However, it’s not a magic cure all solution that will apply to all. So what can you do about it?
To recap, there is a lot of focus on COVID-19 being a force majeure event resulting in damages either in time and/or cost. However, in itself, that may not be the case, as one of our construction claims consultants, David, highlights.
For example, if site staff and labour are struck down with COVID-19, thus preventing them from working, then COVID-19 may be considered as force majeure because it is the direct cause of time and cost impacts. However, if COVID-19 is not a direct cause of any damages, but more of an indirect cause, then other avenues need to be considered and the best thing that you can do at this stage is to be prepared.
In what circumstances may COVID-19 not be considered force majeure?
Take for example a Government lockdown, of which there are many at the moment. If these prevent staff and labour from getting to a project, this may not be considered a force majeure event, but a change in legislation.
What if a factory in country B is not able to deliver materials to country A due to its workforce being subject to a lockdown. Is this force majeure? The answer not necessarily, because for an event to be force majeure it usually has to make counting work impossible, not just difficult or expensive). If country B cannot deliver the goods, then somewhere else may.
Even if it was a force majeure event, most contracts make the contractor totally responsible for material supply. You would need to prove that you could not get the material anywhere at all for the situation to change.
- If the contract defines a force majeure event, and if pandemic or similar words are not included, then it has to be interpolated using rules like ejusdem generis which is not simple.
- If force majeure is not defined in the contract but mentioned, then you need to rely on the definitions at law.
- If force majeure is not in the contract, then you have to rely on the law, in common law countries force majeure is not a recognised term, you would need to rely on the doctrine of frustration.
- If you are relying on the law to define force majeure, it has a very high bar to show that it is an unexpected event. Furthermore it has to be an event which makes it impossible for a party to complete its contractual obligations, not just difficult or expensive; impossible. A pandemic from which the world will recover over time does not make it impossible. Of course the longer the situation goes on, the more likely it may become impossible, but a few month delay on a multi-year project is probably not impossible.
- In FIDIC 1999, epidemics allow the contractor to claim time under Sub-Clause 8.4 [Extension of Time for Completion], however, Sub-Clause 19.1 [Force Majeure] does not include epidemics as a force majeure event. This suggests that the authors of the contract did not expect an epidemic to be a force majeure event. To emphasise this point, Sub-Clause 6.7 [Health and Safety] makes the prevention of epidemics the contractor’s responsibility. Notwithstanding this, FIDIC does change the impossibility test slightly by referring to “The party shall, having given notice, be excused performance of such obligations for so long as such Force Majeure prevents it from performing them” under Sub-clause 19.2 [Notice of Force Majeure].
- If COVID-19 is a force majeure claim, then what is the remedy? If the contract does not spell out a remedy, the usual remedy is termination.
What do you need to do?
What needs to be considered is the real cause of a contractor’s delay or cost, and issue appropriate notices for these as well. Whether or not COVID-19 is a force majeure event becomes a bit part of the whole claim when you start tracking through the causal chain and linking it to the loss or damages.
It is also worth considering what force majeure really means even if it does apply. It is often a neutral event in a contract, whereby the contractor may get time, but no money to address the issue. Naturally, in current circumstances, that’s unlikely to be the result you want or need.
What we’re really saying in amongst all of this, is that in this unique set of circumstances, claims are as complicated and nuanced as ever. There is no one size fits all solution. If you are in need of support or advice on what to do, however, here are two pieces of advice:
- Keep all documentation including email and messenger communications
- Seek the advice of an expert claims consultant. If claims were complicated matters before, they’re even more so now. So speak to someone before taking action so that you take the right course of action for you rather than a reactionary approach.