Force Majeure and Contract frustration

Should your project suffer a significant disruption event, what remedies are available in contractual law?

1. Force majeure clauses

Force majeure is generally defined as “The occurrence of an event that is beyond the parties involved in the contracts control, which could not have been foreseen at the time of signing the contract and prevents one of the parties from fulfilling their contractual obligations.”

It is not obligatory for contracts to contain a force majeure clause, but many do. For example, JCT Design and Build Contracts refer to force majeure under clause 2.26.14; where it is defined as a ‘Relevant Event’ that may provide a contractor with a time extension, but not a ‘Relevant Matter’ entitling them to compensation for loss or expenses.

On the other hand, NEC 4 contracts do not refer specifically to force majeure but contain other provisions within Clause 60.1(19), which refer to events that could not have been foreseen at the date of making the contract and which prevent a contractor from completing the works to schedule.

It is very likely that these provisions will have notice requirements, or other obligations on the affected party to do everything possible to reduce and prevent delays, which must also be fulfilled in order for the clause to be effective.

Most importantly however it will be down to the specific wording of each contract as to what can be claimed as a force majeure event.

2. Frustration of contract

Where no definition or mention of force majeure exists in a contract, it may be possible to avoid contractual liability through the legal concept of ‘frustration of contract’. This again relates to an unexpected event taking place, making it physically or commercially impossible to fulfil the contract. This is a less well used area of contract law in respect of building contracts as most are robust enough to cover common situations, but it could be relevant in the absence of a more specific section in an unusual event.

There may also be other options to consider in the event of a significant disruption in the fulfilment of a contract such as extending contract durations and renegotiating terms.

If you require assistance in understanding your insurance requirements under contract call our offices for further information.

By Oliver Boatwright-Smith Dip Cii Technical Broking Manager