Force Majeure Clauses

INTRODUCTION

Force majeure clauses are almost always included in project agreements. However, they are rarely given much thought until one or more parties seek to rely on them. However, in the current global environment it is appropriate to examine their application.

WHAT IS FORCE MAJEURE?

Force majeure is a civil law concept that has no real meaning under the common law. However, force majeure clauses are used in contracts because the only similar common law concept - the doctrine of frustration - has limited application, because for it to apply the performance of a contract must be radically different from what was intended by the parties. In addition, even if the doctrine does apply, the consequences are unlikely to be those contemplated by the parties. An example of how difficult it is to show frustration is that many of the leading cases relate to the abdication of King Edward VII before his coronation and the impact that had on contracts entered into in anticipation of the coronation ceremony.

In circumstances where a project company wants to minimise any opportunity for extension of time claims, it could consider not including a force majeure clause and instead rely on the doctrine of frustration. However, before making a determination to rely on frustration, a project company must consider how frustration is applied in the relevant jurisdiction and, in particular, whether the common law application has been altered by legislation.

Given force majeure clauses are creatures of contract, their interpretation will be governed by the normal rules of contractual construction. Force majeure provisions will be construed strictly and in the event of any ambiguity the contra proferentem rule will apply. Contra proferentem literally means "against the party putting forward". In this context, it means that the clause will be interpreted against the interests of the party that drafted it. The parties may contract out of this rule.

The rule of ejusdem generis, which literally means "of the same class", may also be relevant. In other words, when general wording follows a specific list of events, the general wording will be interpreted in light of the specific list of events. In this context it means that when a broad "catch-all" phrase, such as "anything beyond the reasonable control of the parties", follows a list of more specific force majeure events, the catch-all phrase will be limited to events analogous to the listed events.

Importantly...