Force majeure or frustration? The implications of COVID-19 on your building contract18/03/20
What is force majeure and what is the position under standard building contracts?
A force majeure clause typically excuses one or both parties from performance of the contract in some way following the occurrence of certain events. Its underlying principle is that on the occurrence of certain events which are outside a party's control, that party is excused from, or entitled to suspend performance of all or part of its obligations. That party will not be liable for its failure to perform the obligations, in accordance with the clause.
Under English law, there is no general doctrine of “force majeure” which means the common law doctrine of frustration may apply. However, frustration only applies in limited circumstances where performance has become impossible.
This uncertainty can leave many questions unanswered:
- what counts as a ‘force majeure’ event or ‘other cause beyond the parties’ control’?
- Do the courts have any specific principles in respect of events of force majeure?
- Whether the event must be ‘beyond the reasonable control’ of the parties
- Does the event have to prevent performance? Or only make it more onerous or difficult?
- The meaning of ‘fault’
- Does the force majeure event have to be unforeseeable?
What is the position under standard building contracts?
This note explains the implications that Covid-19 may have when look at building contracts from a force majeure perspective.
JCT (Design and Build 2016)
Force majeure is a Relevant Event in the JCT 2016 contracts; giving rise to a potential extension of time. It is important to note that ‘force majeure’ is not a defined term in the JCT and there is no reported case law on the meaning of force majeure under the JCT forms.
If before practical completion of the works or a substantial part of the uncompleted works is suspended, for the relevant continuous period of the length stated in the contract, then the contractor’s employment can be terminated by the employer if there is a force majeure event. The contractor may be required to prepare and submit the account provide the Employer with all documents necessary documents.
In summary, Relevant Events that cause delay to the works may give rise to a right to an extension of time. They do not, however, offer any protection for additional loss and/or expense suffered by the contactor unless they are also a Relevant Matter.
It is difficult to see much scope under the standard JCT form for Covid-19 itself to result in any entitlement to any other Relevant Matter. However, the outbreak might result in acts of prevention, such as delayed instructions or designs, which would be a Relevant Matter and provide a basis for claiming loss and/or expense.
“Force majeure” is not a defined term in the NEC suite but the NEC ‘prevention’ criteria sets out criteria to establish whether a force majeure event has occurred.
The NEC engineering and construction contract (NEC3 /NEC4 ECC) provide three criteria which must be satisfied for force majeure to have occurred:
- the event must either have stopped the Contractor completing the works or caused a delay (by reference to the Accepted Programme);
- neither party could have prevented it; and
- an experienced contractor would have judged at the Contract Date to have had such a small chance of occurring that it would have been unreasonable for the Contractor to have allowed for it.
The criteria above if met will be deemed as a compensation event under the NEC forms, giving rise to an entitlement to both time and money.
If you would like to discuss any of the options above or how we may assist you to implement these, please do not hesitate to get in touch.