IS THE 2019 COVID-19 A CASE OF FORCE MAJEURE UNDER FIDIC SILVER BOOK 1999 (FOR EPC/TURNKEY PROJECTS)?. PRACTICAL STEPS FOR UGANDAN CONTRACTORS
By Angualia Daniel
The outbreak of Coronavirus which was declared a global pandemic by the World Health Organizationhas impacted the entire world since January 2020. The Government of Uganda has come up with aggressive measures to combat the spread of COVID-19 including; quarantines, imposing international travel restrictions, banning of public transport among others. The fear of contracting the virus has caused and continues to cause strain on many supplies, contractors and service providers thus making them unable to fulfillsome of their contractual obligations. Main contractors in the construction industry are supported by several subcontractors and suppliers without which, they can hardly fulfill their contractual obligations under the respective head or main contracts.
This article provides an overview of:the concept of force majeure and its treatment under the FIDIC Silver Book 1999 (for EPC/turnkey projects) being the most commonly used standard form contract in the construction industry, and whether the spread of COVID-19 is likely to give rise to relief under the relevant provisions of the FIDIC Silver Book.
2.0 What is Force Majeure?
Force majeure is a clause inserted in the contractthat is intended to excusea party from performing his or her contractual obligations due to an event that the parties could not have anticipated or beyond their control. The effect is that both parties are excused or discharged from the performance of their contractual obligations during the occurrence of the act. If a contract cannot be fulfilled due to force majeure, the obligations may be exempted in whole or in part depending on the impact of the forcemajeure … Force majeure as used in this article means objective situations which cannot be foreseen, avoided or overcome.
Force majeure is addressed in clause 19 of the first edition of the FIDIC Silver Book published in 1999. Clause 19.1 contains the definition of “Force Majeure” and has two parts: a definition of what the term covers, and some examples of what it includes.
The definition of “Force Majeure” then consists of four criteria, all of which must be satisfied for an event or circumstance to amount to Force Majeure: (i). an exceptional event or circumstances beyond the affected party’s control has occurred; (ii). the affected party could not reasonably have provided against the event or circumstance before entering into the contract; (iii). the same party also could not reasonably have avoided or overcome the event or circumstance once it arose; and (iv). the event or circumstance is not substantially the result of an act or omission by the counterparty.
Clause 19.1 then goes on to give some examples of events or circumstances which may constitute Force Majeure (if the above conditions are also satisfied), although none of them include epidemics or anything similar.
3.0 Can the 2019 COVID-19be a Case of forcemajeureunderFIDIC Silver book 1999
It is our assertion that the spread of COVID-19 can be argued to amount to Force Majeure under clause 19.1 of FIDIC Silver book 1999depending on the circumstances as explained below:
(i). COVID – 19 was outside the affected party’s control; (ii). that party could not reasonably have provided against it before entering into the contract (it would be difficult for any party to a construction contract to have taken any measures to prevent the spread of COVID-19 before entering into the contract); (iii). the affected party also could not reasonably have avoided or overcome the spread of the coronavirus. It originated from China and has since spread to the whole world beyond any control. (iv). clearly, no counterparty in the construction contract can be blamed for the virus.
The effect of force majeure is to excuse the parties from the performance of the contract. Under clause 19.2, the affected party is only excused from a failure to perform its contractual obligations if and to the extent it is or will be prevented from performing those obligations due to Force Majeure. It is not enough to rely on COVID-19 as an excuse for nonperformance of the contract without clearly showing how the virus has prevented you from performance of the contract in light of the prevailing situation in Uganda. The party seeking to rely on it to evoke force majeure must as a requirement first give all notices under the construction contract.
At the moment, it may be easier to evoke force majeureunder clause 19.1 of FIDIC Silver book 1999 on grounds of COVID-19 in Countries where there is total lock down but not in Uganda as at the time of writing this article (28th March 2020). Imposition of lockdowns constitutes Force Majeure under clause 19.1, although it still may not help in connection with clause 19.2, which requires that the Force Majeure has prevented the affected party from performing some of its contractual obligations. There has to be a direct connection between COVID-19 and nonperformance of the obligations under the construction contract.
The relevant example from the current situation in Uganda is where; a contractor is unable to deploy desired number of workers to a worksite because of banning public transport or other means of transport carrying more than three people. Has the contractor been prevented from carrying out its contractual obligations, or has it simply been prevented from performing the contract in the manner it intended (e.g. by utilisinglabour from a particular region)? The latter may not be sufficient if the contractor has available alternative method of fulfilling its contractual obligations (e.g. by; carrying workers in the desired quantity of three per vehicle using several trips or employing labour from another region.
Clause 19.4 of the FIDIC Silver Book provides for general rule in terms of the relief available. The relief available to the affected party following Force Majeure is limited to an extension of the time for performing the affected obligations. The time extension must correspond to the period of the time for which the party evoking force majeure was unable to perform and not any other relief. Force majeure does not involve compensation for the affected party for any additional costs which it may occur, save in certain circumstances where force majeure continues for a long period of time leading to termination. The rights under such circumstances if any will be discussed another day.
4.0 Practical steps for Ugandan contractors
The potential business disruptions from the outbreak of COVID-19 cannot be underestimated given its effect on construction supplies and labour. There is need for all contractors, subcontractors, suppliers and other stakeholders to take urgent practical steps to minimize the impact of COVID-19. Such measures will generally minimise potential loses and damages that may arise in future law suits. Below are some of the urgent practical steps we advise under the circumstances;
- Critically analyze if the performance of your construction contract has or will be prevented due to the COVID-19 and understand the steps to be followed to benefit from the relieve without breaching the contract.
- If you have another form of construction contract, ascertain if the contract provides for force majeure clauses and circumstances and steps to follow in order to benefit from the relief. If the contract is silent on the matter, review with the aim of inserting express infection disease/epidemic wording clauses into new contracts.
- All construction contracts are subject to renegotiation and amendments. Consider reviewing the contract with your construction legal specialist with the view of amending it so as to make mitigation measures as result of COVID-19 without necessarily breaching your current contractual obligations.
- Critically analyse your contracts with your construction legal specialists to ascertain if the contracts contain cost protection measures that relate to force majeure events so as to mitigate the effects of the event, sourcing materialsor workers from elsewhere.
- Analyze your insurance policies to ascertain the extent of cover available to your construction contracts under the prevailing situation.
- If your company is already affected by the outbreak, critically review your credit agreements to assess the implications under your construction contracts.
If you have any questions about the issues raised in this article, please do not hesitate to reach out to us:
Angualia Busiku & Co. Advocates
BMK House, 4th Floor, Suite No.402,
Plot 4-5 Nyabong Road, (Hotel Africana),
P.O.Box 27689 Kampala.