Covid 19: An international construction perspective – England & Wales27 April 2020

Force Majeure and Frustration

Under English law, in rare circumstances parties may be relieved of their contractual obligations and the contract discharged on the grounds of the common law doctrine of frustration. However, a contract will only be frustrated if an intervening act occurs after the formation of the contract which causes it to become impossible or if performance is rendered radically different from the originally contemplated obligation; the intervening act is not the fault of either party; and if the contract did not deal with this potentially frustrating event. A party will remain bound to perform their existing obligations up to the time of the frustrating event.

Alternatively, parties may have recourse to a force majeure provision. The term “force majeure” does not have a specific meaning under English law, and there is no general right to suspend or terminate a contract for a force majeure event. However, many standard form construction contracts include force majeure clauses, which typically provide for the suspension or termination of obligations in the event of a specified event occurring after the contract was entered into which was beyond the parties’ control. For example:

• The 1999 FIDIC contracts define force majeure as an “exceptional event or circumstance” beyond the control of the parties, and refer to a non-exclusive list which includes war, terrorism, riot, radiation and natural catastrophes but not, expressly, a pandemic. In such circumstances a contractor will be entitled to claim an extension of time and, in limited circumstances, payment of costs incurred;
• Meanwhile the JCT Design and Build Contract 2016 form provides that force majeure is a relevant event which may entitle a contractor to an extension of time. However, no examples of force majeure events are given. Similarly, the exercise by the Government of any statutory power that directly affects the execution of the works may entitle the contractor to an extension of time; and
• Finally, under the NEC4 Engineering and Construction Contract a contractor will be entitled to an extension of time and compensation on the occurrence of a “compensation event” – an event which stops the contractor from completing works on time, which neither party could have prevented, and which an experienced contractor would have considered so unlikely to happen that it was not reasonable for them to have allowed for. The NEC recently issued guidance listing a major outbreak of a virus as the type of event that could fall within the definition.

Force majeure clauses are generally construed restrictively, and their interpretation will always depend on the precise wording used. Although the English courts have commented that “epidemics are cases of force majeure”,¹ where a clause does not specifically mention disease, epidemics or pandemics, it may be unclear whether the COVID-19 pandemic qualifies as such an event.