Coronavirus And Construction: The Law And Practical Actions
Published date | 09 December 2020 |
Subject Matter | Real Estate and Construction, Coronavirus (COVID-19), Construction & Planning, Litigation, Contracts and Force Majeure, Operational Impacts and Strategy |
Law Firm | Fenwick Elliott LLP |
Author | Mr Jon Miller |
COVID-19 will never need an introduction, and 2020 will be forever dominated by discussing what happened. In construction circles the early months of 2020 were dominated by the need to review contracts and make quick decisions on how to proceed. Jon Miller summarises the key practical points that emerged.
Introduction
The key points to bear in mind re coronavirus and construction contracts are:
- force majeure clauses (unsurprisingly they turn on the wording of the clause);
- notices, and when to give them;
- record keeping/evidence;
- other coronavirus related Relevant Events/Relevant Matters which could give rise to time and money;
- what to do with contracts that are about to be signed.
Force majeure
The contract wording is crucial
There is no established meaning in English law of "force majeure" and every force majeure clause turns on the words used. In broad terms most force majeure clauses:
- suspend the obligation to perform the Contract when a force majeure event has occurred (contrast this with Frustration which discharges the Contract completely)1; and
- the event must be beyond the control of the party relying on the clause.
Force majeure will only apply if there is a force majeure clause in the Contract. Force majeure excuses what would probably otherwise be a breach and effectively suspends temporarily an obligation to perform the Works, but it may not give rise to any compensation/loss and expense (e.g. a JCT Contract), unless the Contract provides otherwise (e.g. NEC3/4).
Force majeure clauses tend to be interpreted literally - they have been described as "An exemption clause that must be construed strictly".2
"Beyond the contractor's control"
Unsurprisingly authors of contracts find it difficult to list every event which may have an impact on the Contract, and force majeure clauses normally contain a list of events, with a sweep-up phrase such as "and any other clause beyond the Contractor's reasonable control". In a case where a clause which exonerated a party to a contract "In the case of strikes, lockouts, civil commotions, or any other causes or accidents beyond the control of the consignee", it was held that "strikes, lockouts" still had to be "beyond the control of the consignee".3
Impossible
In a contract which provided for its cancellation where delivery of goods was "impossible", the fact that new government regulations prevented exports of the goods halfway during a delivery window did not amount to force majeure. The Court held that under the Contract delivery could have taken place prior to the prohibition of products by the Italian Government earlier in the delivery period. In keeping with the principle that the words of any force majeure clause need to be looked at closely, a requirement rendering performance to be "impossible" before it did not have to be performed imposed a very high hurdle which the party relying on the clause could not overcome; they could have delivered the goods prior to the prohibition coming into force.
Prevent/hinder
Another example of the importance of the words used is a clause where delivery was suspended for reasons beyond the buyer's or the seller's control, which ultimately resulted in "preventing or hindering" delivery. The Court gave an indication that "prevention" is a more stringent test to overcome in that:
"'Prevention' in such a clause must refer to physical or legal prevention and not an economical profitableness and that 'hindering' must refer to an interference with the manufacture or delivery from the same cause as 'preventing', but interference of a less degree."
In this case the outbreak of war did not "prevent" or "hinder" the delivery of the goods in question at all as they could be obtained from alternative suppliers, albeit at higher prices.4
More expensive/price rises
The mere fact that performance of a contract may become more expensive, e.g. via the use of alternative agency labour or suppliers, does not amount to force majeure:
"By...
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