Legally Bound

Jordan ...Force Majeure needs to be carefully integrated into contracts.

Jordan ...Force Majeure needs to be carefully integrated into contracts.

Does the crisis amount to force majeure?

STUART JORDAN* discusses the contractual implications of the region’s continuing diplomatic crisis between Qatar and the UAE, Saudi Arabia, Bahrain and Egypt.

November 2018

In June last year, there was a flurry of discussion about the impact of the diplomatic crisis on the progress of construction projects and the recognition of such problems in construction contracts. To recap briefly, the “diplomatic crisis” refers to actions by the UAE, Saudi Arabia, Bahrain and Egypt directed at Qatar; including the severing of diplomatic ties, cutting of trading and other commercial activities, travel bans and the imposition of air and sea embargoes.

Many months down the line, we might have anticipated that all discussion in the construction industry about the contractual implications of the crisis would be over. However, this issue will continue to flare up, mostly in the following situations:

• Certain new activities (such as the importing of materials and equipment) on pre-existing projects will be disrupted in ways that the parties failed to predict and plan for;

• Activities will be disrupted in relation to contracts signed after the onset of the diplomatic crisis; and

• Parties naturally want to cover this issue, and potential future problems like it, in future contracts.

When we consider the implications of this in construction contracts, we always start with force majeure – and there have been numerous articles and discussions around the question of “Does the crisis amount to force majeure?” The answer cannot be a straight “yes” or “no” because it will depend on the terms of the relevant contract, its governing law and the law applicable to the place of its performance.

Force majeure itself has no universal definition but is most commonly understood as unexpected events or circumstances which are outside the control of the parties and which make performance impossible. I have, however, seen descriptions in which the event or circumstance is not necessarily unexpected. That would, of course, be a critical factor in any claim for relief almost 18 months after the diplomatic crisis arose.

Force majeure is a concept understood from French law but not necessarily adopted into other jurisprudence complete and unchanged from its original meaning. English law, for example, does not recognise it at all, and has other concepts such as frustration of performance. Any contractual definition must, therefore, include an understanding of relevant applicable law which may itself allow relief from contractual performance in certain circumstances.

The law most relevant to the contractual effect of the crisis is the Qatar Civil Code which explicitly references force majeure. Article 256 states:

“Where the obligor fails to perform the obligation in kind or delays such performance, he shall indemnify any damages suffered by the obligee, unless such non-performance or delay therein was due to a cause beyond his control.”

This looks like a wide allowance for a contractor to claim relief. At face value (and again relevant to the crisis), a contractor would not need to show that the cause was unforeseeable – although in practice, there will be other contract obligations on planning, early warning and mitigation of events, plus time bars on claims which might remove an entitlement for longstanding obstacles.

In any event, parties will want to define force majeure, both because there is no universally-accepted meaning of the term and in order to exclude the application of legislation – which the Qatar Code allows for. Too often, however, those definitions and related provisions are not thought through and fail to address some basic questions such as:

• Is “unexpected” the same as “unforeseeable by a reasonably competent contractor” or is it just “unforeseen by these parties”? Or just by the affected party?

• Must the event make performance of contractual obligations impossible or just more difficult or more expensive or otherwise more onerous?

• Must the event prevent performance of all of a party’s obligations or just some of them? If some, will prevention of any obligations count, however small? Is the party relieved from performance of just those obligations or all of them?

• Does unexpected supply chain failure count?

• If time for completion of works is suspended, does it follow that a claim for disruption cost and prolongation can be made?

In particular, a contract must clarify the relationship between the force majeure provisions and the wider provisions on change management including extensions of time. Conventionally, parties provide that force majeure is solely a means of protecting a contractor from the consequences of late completion, but with no money claim. However, Fidic’s (International Federation of Consulting Engineers) Yellow Book Second Edition provides that, when certain “Exceptional Events” cause a contractor to incur cost (as defined) then the contractor is entitled to claim that cost.

The crisis has been a reminder that force majeure needs to be carefully integrated into contracts.

 

* Stuart Jordan is a partner in the Global Projects group of Baker Botts, a leading international law firm. Jordan’s practice focuses on the oil, gas, power, transport, petrochemical, nuclear and construction industries. He has extensive experience in the Middle East, Russia and the UK.




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