Force Majeure on the fringes of the pandemic lockdowns
Director | Attorney
The COVID-19 pandemic-induced lockdown in South Africa has brought the legal considerations of force majeure into sharp focus across multiple industries, particularly in engineering and construction circles. At a recent virtual meeting series led by FIDIC, the International Federation of Consulting Engineers, force majeure dominated over 80% of the discussion topics.
Legal professionals and commercial courts alike have been forced to examine the application of the concept in various situations to understand how the clause would apply to contractual relationships affected by the pandemic. Worldwide, courts are testing and will likely continue to shape the application of force majeure well after the government lockdown is over. And recent decisions in Europe and the USA have highlighted how courts may expect parties to apply the rules of force majeure.
A force majeure clause makes allowance for an event that is beyond the reasonable control of one or more parties and it may be particularly drafted with different details, depending on the applicable agreement. While notionally, the COVID-19 pandemic and resultant government lockdowns could raise the possibility a force majeure event, careful consideration should be given to evaluate whether it does, in fact, prohibit or restrict performance of either party – meaning that each agreement and its provisions relating to force majeure must be carefully evaluated against the prevailing circumstances before simply relying on the provisions of the clause.
Once either party claims that delivery or performance is not possible or will be disrupted due to an alleged force majeure event, the merits must be assessed. Non-performing parties – which would otherwise simply have been in breach were the alleged force majeure event not present – cannot simply escape their liabilities. On the other hand, performance cannot be contractually enforced by another contracting party in circumstances where the alleged force majeure event factually prevents or restricts performance or delivery.
In the specific case of standard form contracts pertaining to engineering professionals, FIDIC issued guidance on a variety of COVID-19 related scenarios that could trigger a force majeure event or an exceptional event and provided responses and steps to be taken to determine the application and possible remedies from such processes. While the guidance is provided in response to the global pandemic, all the steps can be applied well after the expected end of the government lockdown period. FIDIC guideline memos can be accessed here.
So, what steps should companies, contractors and professionals take to enforce delivery or performance, or to assess the risks in current contracts or agreements?
Firstly, the COVID-19 pandemic is a lesson for corporates that every single contract should be reassessed and tightened up to cover both parties for such future exceptional occurrences. There are a number of mechanisms that can be introduced to mitigate the liabilities of parties by drafting contractual provisions tailored for specific circumstances related to the industry, geographical locations or other applicable aspects concerning the contractual arrangement. The different lockdown stages devised by the South African government provide a template for considerations such as curfews, limits on certain industry activities, the effect of safety procedures on delivery times, import and export limitations, and travel restrictions.
Secondly, contract parties are encouraged to seek legal assistance in order to evaluate the circumstances against the contractual rights and obligations when a force majeure event is claimed, and to ensure that the prescribing contractual procedure is followed. In the case of construction contracts, it is more likely that the time of completion and costs would be impacted, so it is vital that any claim under a force majeure clause or other clause in a construction agreement that the circumstances and other major facts be taken into consideration. Those factors may include:
- Change in laws
- Directions given by authorities
- Stricter Health and Safety rules for construction sites, resulting in extra expenditure
- Lockdown levels
- Restrictions on the number of personnel permitted on site
Recent court decisions and experiences ought to serve as signal to businesses that while COVID-19 could be considered a force majeure event as a defense to claims of breach of contractual obligations in the commercial context, some instances will demand a strong causal connection between the claimed force majeure event and the litigant’s failure to perform.
Even under the current circumstances there may be good cause for parties who attempt to uphold their financial obligations.
For assistance in resolving contractual disputes or for a comprehensive risk assessment of agreements that contain force majeure clauses, contact our team. Click here