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Insight

Can a contractor claim force majeure in respect of its construction contracts due to delays caused by the coronavirus outbreak?

Simon Sloane
05/03/2020

Although English common law does not recognise the right to claim force majeure (FM) most shipbuilding and offshore construction contracts contain an express contractual right to claim FM in prescribed situations.

Under the LOGIC Form 2018, Clause 14 allows a party to declare FM where the party has failed to fulfil a term or condition of the contract because it was delayed or temporarily prevented from such fulfilment by an FM occurrence as defined within Clause 14.2, and which is beyond the control of the party and without fault or negligence of the Party affected.

Clause 14.2 sets out a list of seven, limited, well-defined FM events to which the contractual right to declare FM is limited. Four of the event are the typical 'war and civil risks exclusions' typically found in commercial and insurance contracts, one event includes natural catastrophes excluding weather patterns, while the sixth deals with 'maritime and aviation disasters'.

The seventh event will be of interest as it relates to changes " …to any general or local Statute, Ordinance, Decree, or other Law, or any regulation or bye-law of any local or other duly constituted authority or the introduction of any such Statute, Ordinance, Decree, Law, regulation or bye-law" (the "change in law or ordinance" event).  

Such language would appear to be sufficient to cover restrictions imposed by local, regional and national authorities on working conditions such as quarantine measures and city lock-downs to combat the Covid-19 virus. It may cause the contractor to be unable to staff the construction project sufficiently to enable it to comply with the works schedule, thereby causing delay or temporarily preventing its performance.
 
However, in order to rely successfully on such an FM event the contractor will need to provide prompt notice of the FM event in accordance with the relevant FM clause and then prove:

(i) the existence of the FM event; and
(ii) the FM event delayed or temporarily disrupted the contractor's work schedule; and
(iii) the effect of the FM event on the works schedule was beyond the contractor's control and it is without fault.

We anticipate owners will argue that any delay or prevention caused to the work schedule was due to the contractor's failure to make adequate contingency plans as soon as the virus became public knowledge. Accordingly, it was the failure to prepare contingency plans rather than the FM event 'change in laws or ordinance' that caused the delay or temporary prevention.

As with every potential dispute the outcome will depend on its unique facts but a contractor should take all necessary steps now to ensure it can prove the above (i) – (iii) requirements with supporting document. In addition, it should document fully:

(i) the impact any 'change in laws or ordinances' has had on its work schedule and
(ii) the detailed contingency plans it has attempted to put in place to address such changes

Simon Sloane is a Partner and leads Fieldfisher's International Arbitration Group

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