Introduction – force majeure
Clarity about obligations, risks and to what extend the parties are liable are items of key concern when entering into a contractual relationship. Such clarity can be challenged in case of outside, unexpected events that are out of a party’s control which could not have been taken into consideration at the time of the contract becoming effective. This type of event is often referred to as a force majeure event that makes performance impossible for one or both parties. As large-scale construction contracts are often sensitive to changes by operating with highly complex scopes and time schedules, it should be a key commercial concern for the parties to regulate force majeure events and the consequences hereof.
Does your contract regulate force majeure events?
Naturally, the contract and its terms have a say in what events can be categorized as force majeure events. In contracts the question is often dealt with by a force majeure-clause setting out which events are so called force majeure events and what the consequences of such events occurring should be.
Even though the contract is silent on the matter, force majeure can be a part of the contractual relationship between the parties depending on the choice of law as some countries have a so-called force majeure doctrine. Regardless hereof it is always advisable to have clarity on what obligations the parties have and in which circumstances they are relieved from carrying out their obligations under the contract. Thus, a well-considered force majeure-clause should be of interest to both parties.
If your contract is not covering force majeure whether by a clause or by choice of law, it might be that you can draw on other contractual mechanisms. Most large-scale construction contracts regulate circumstances of changes in law in the country of execution of the works, and a contract party might thus be able to raise a claim in case that the force majeure event causes change in law affecting performance.
What to consider
How force majeure should be dealt with contractually and commercially depends on which type of contract you are dealing with and on what side of the table you sit. In large-scale construction contracts it is often the interest of the employer to regulate force majeure as a limited, exhaustive list of events as it most likely will be the contractor, being under a performance obligation, that is affected by and may have an interest in claiming force majeure.
On the contrary the contractor will often seek to widen the area of application of the force majeure clause by having a broad definition thereof and a non-exhaustive list of events that may constitute force majeure.
Some considerations when drafting the force majeure clause:
- How, if at all, is force majeure governed by the applicable background law;
- Should the list of examples of force majeure events indeed be examples, or an exhaustive list;
- Should force majeure be defined geographically, only being applicable to events occurring in certain areas;
- When arisen, should the contractor be entitled to extension of time, cost and/or profit in all events and for the entire period being affected by force majeure, and/or;
- When should a party be allowed to terminate the contract for force majeure, if at all?
Please note that the above considerations are only high-level suggestions on how to approach the challenge of force majeure. If you are interested in a detailed assessment of the application of force majeure or have questions specific to your project, please feel free to reach out to us at CONTACT@JUMBOCG.COM.