FRUSTRATION AND FORCE MAJEURE

Henry Hathaway, Consultant Silver Shemmings Ash LLP

The uncertainty relating to Brexit is proving to be minor in comparison to what occurred when the word Coronavirus became part of daily vocabulary. At the time of writing, arguably the Construction Industry faces the largest challenge possible, with numerous interconnected factors. As an industry where cashflow and disputes were already common issues, we are now in a situation where construction companies now face hard decisions to secure their futures.

In addition to coronavirus, force majeure and frustration have also emerged into our daily lexicon, with hope they can be used as a talisman against issues caused by the pandemic. However, they may not offer the relief that the users would like or want.

Frustration of a contract is a term that is widely misunderstood; to be ‘frustrated’ the subject matter of the contract must be destroyed or consist of an action no longer capable of being performed. Added difficulties, including cost and delays in performing contracts, do not lead to a legal description of frustration. It is therefore unlikely that any construction contract will be able to use this as a get-out clause.

The French term “force majeure” does not have any meaning under the English Law; unless the terminology and meaning are included as a provision in the contract, it will not be relevant. So, the first step of deciding if force majeure is applicable is to check whether force majeure is an operable term of the contract itself. If a contract expressly sets out what constitutes a force majeure event, for example stating that a pandemic or an epidemic will be such an event, then one would expect a straightforward application.

Looking at the JCT suite of contracts, an extension of time under clause 2.26.14 of the JCT Design and Build Contract 2016 can be granted in the event of a force majeure event. Unfortunately, this is as far as the JCT terms go to explain the term; no further assistance is provided.

It is important to note that under JCT time and money are split, the effect of this is that even if force majeure is an arguable position to pursue in respect of time, there are no provisions under the contract for a force majeure event to assist in the recovery of losses of money.

In cases of ambiguity, we always check case law precedents, which are not in abundance in this case. However, the ones that are existent suggest that it is entirely plausible and arguable to say that the current circumstances would constitute an Act of God. What is very important is the foreseeability of an event at the time of entering into the contract; contractors entering into a contract now could not use the pandemic as a force majeure event, as it is patently not ‘unforeseen’. Where parties are currently negotiating terms of contracts, they must take steps to integrate the new reality of the pandemic and social distancing within their tendering.

If a Contractor does meet the definition of a force majeure, it faces more issues and far greater tests. If a party’s wording does fall within the terminology, there remains the test of causation. The alleged event must be the sole cause of the failure to perform, which is not always clear cut in construction. The issue that the construction industry faces is the concept of social distancing or disruption relating to the performance of the remaining parts of the contract. Just because a contract has become more difficult or expensive to perform, does not mean frustration or force majeure can be claimed. It is these circumstances that will likely prove to be financially most difficult in the industry.

Government advice and the interrelationship between the Coronavirus Act 2020, various regulations and political statements are also proving difficult to align and are incredibly at odds to cross reference and rely upon. Where parties consider there is an entitlement to redress of all the effects of Coronavirus on account of there being a change in the law, then the immediate question will be to ask what provisions specifically apply?

Contractors face an uncertain time ahead in respect of how the current circumstances will evolve, however; the primary key to discharging current contracts is to understand and create certainty in respect of what is known and what is capable of resolution.

Author Henry Hathaway is a Consultant Solicitor with Silver Shemmings Ash and is a qualified Civil Engineer from Trinity College Dublin. Tel: 00 44 207 167 6602 - Email: henryhathaway@silverllp.com