Covid-19 and Construction Contracts – Your Questions Answered
Reading time: 4 Minutes
By Finola McCarthy and Alison Bearpark.
9 April 2020
On 24 February 2020, our Corporate and Commercial colleagues discussed the application of force majeure in commercial contracts.
In this article, our construction team look at force majeure clauses from a construction perspective and answer some frequently asked questions, such as the status of the Government’s announcement on 27 March 2020 to the application of the Building Control Regulations to essential works.
What if force majeure is in my contract but it is not defined?
The actual effect of a force majeure clause will depend on the precise wording used in a contract. Often contracts will list examples of what may constitute an event of force majeure, such as war, terrorism, disease and extreme weather events. Covid-19 will not be specifically catered for in an existing building contract but it may be caught in some force majeure clauses depending on the exact wording. On occasion, force majeure is included in a contract but not defined. For example, the delay events listed in the standard form RIAI 2017 Building Contracts (“RIAI”) includes where “the Works be delayed by force majeure”. As the concept of force majeure has no legal meaning in common law, the meaning of “force majeure” in contracts such as the RIAI is open to interpretation by reference to the contract as a whole (including any particular conditions) and what the parties intended. In the absence of any contractual guidance, there is scope for argument to be made either way regarding the legitimacy (or not) of a claim for an extension of time for force majeure under such contracts. Claims under these types of contracts may lead to disputes between the parties and there is little court guidance to assist in interpreting force majeure.
In Coastal (Bermuda) Petroleum Ltd v VTT Vulcan Petroleum SA (No 2), the English Court of Appeal held that force majeure clauses should be interpreted by reference to the words used by the parties, rather than their general intention. This decision aligns with the current position around the interpretation of exclusion clauses. Force majeure clauses are exclusion clauses (seeking to exclude a defaulting party from liability under a contract) and courts tend to give a strict interpretation to such clauses. Exclusion clauses have come under scrutiny by the courts and statute. The current position is that for such an exclusion clause to be valid and enforceable it must meet the following criteria:
- the clause must be properly incorporated into the contract between the parties (i.e. contained in a signed contract); and
- the clause on its drafting must exclude or limit the liability that has arisen.
Does the Government’s announcement on 27 March 2020 constitute a change in law?
The answer will depend on the precise wording in your contract. How broad are the relevant definitions in the contract and what does the relevant clause say in terms of the allocation of risk for a change in law?
In the Public Works Contracts, “Law” has quite narrow definition and means “enactments and statutory instruments, each as defined by the Interpretation Act 2005, and regulations, directives and decision of the European Union having direct effect in Ireland”.
On the other hand, clause 4 in the unamended RIAI refers to the cost of the performance of the Contract being increased as a result of “any legislative enactment, rule or order or the exercise by the Government of powers vested in it…”. It is somewhat unclear what the“exercise by the Government of powers vested in it” means but it is sufficiently broad to allow a contractor to argue that it includes the Government’s announcement on 27 March 2020.
If I am providing essential services, do the provisions of the Building Regulations apply as normal?
No, the following regulations provide temporary relief to works that are being carried out in response to COVID-19:
- On 7 April 2020, the Building Control Regulations 2020 were signed into law. These regulations provide temporary relief from the application of certain parts of the Building Control Regulations 1997 to works that are being carried out in response to COVID-19.
- The Building Control Act 1990 (Section 5) Order 2020 also relieves parties engaged in essential works from the requirements of Part L (Conservation of Fuel and Energy) of the Second Schedule of the Building Regulations 1997.
It is also worth noting that the Safety, Health and Welfare at Work (Construction) (Amendment) Regulations 2020 extend the validity of safety awareness registration cards (required under the Safety, Health and Welfare at Work (Construction) Regulations 2013) which cannot be renewed as a result of the Covid-19.
What will it mean for my contract if the EU Commission publicly announce that the Covid-19 pandemic is a case of “Force Majeure”?
The European Construction Industry Federation has asked the EU Commission to, among other things, publicly announce, that the Covid-19 pandemic is a case of “Force Majeure”. The EU Commission has yet to respond to this request but, similar to the issue of force majeure certificates by the China Council for the Promotion of International Trade, regardless of such an announcement the party seeking to rely on the force majeure event must prove the coronavirus is a force majeure event by reference to the terms of its contract.
What if there is no force majeure clause in my contract?
If a contract does not specifically include a force majeure clause, relief for force majeure cannot be claimed. If this is the case, other contractual reliefs may apply. Please check your contract to see if there are any change in law provisions, rights of suspensions or other delay events which may assist.
Aside from contractual reliefs, the doctrine of frustration may apply. The doctrine of frustration enables a contract to be discharged when, due to an unforeseeable event, that contract is either physically or commercially impossible to fulfil or the obligations to be performed under the contract are radically different to that agreed at the point of entering into the contract. While frustration and force majeure are similar, it is open to the parties to define what force majeure means and when it comes into effect. Frustration, on the other hand, is a principle of contract law which does not need to be specifically written into a contract to be availed of. In Ireland and the UK, the threshold for the frustration of a contract is very high.
How do I establish that the works were “prevented” by the event of force majeure?
In some contracts, a force majeure clause may only be triggered when a party is prevented from fulfilling its contractual obligations. In the NEC suite of contracts, clause 60.1(19) states that a contractor may be entitled to a compensation event if an event occurs which “…neither Party could prevent…”.
It appears from case law that a party seeking to rely on clauses such as the NEC’s clause 60.1(19) would need to show that performance of its obligations is legally or physically impossible and not just more onerous or unprofitable.
In the UK (which is of persuasive influence), the English courts have decided that only events that prevent, rather than hinder or render more onerous, a contracting party’s performance are true force majeure events as a matter of English law.
In Thames Valley Power Ltd v Total Gas & Power Ltd, a force majeure clause in a gas supply contract provided for contractual obligations to be released in the event of inability to perform. Total sought to invoke the clause when gas prices rose dramatically. The High Court held that a force majeure clause will not apply where performance has merely become economically more burdensome, even where it has become dramatically more expensive. To constitute a force majeure event, there would have to be an event that would make Total unable to supply the gas.
The ECJ took a less strict approach in Internationale Handelsgesellschaft v Einfuhr-und-Vorratsstelle. Here the ECJ regarded the concept of force majeure as not limited to cases of absolute impossibility. It said that force majeure could also be understood in the sense of unusual circumstances that were outside the control of the relevant party and the consequences of which, in spite of the exercise of due care, could not be avoided except at the cost of “excessive sacrifice”.
Where a contract requires a party to be prevented from fulfilling its contractual obligations it cannot invoke force majeure where the obligations under the contract remains physically and legally possible to perform, even if it has become unprofitable or less profitable. Alternatively, some clauses may just refer to the obligations being “hindered” or “delayed” and so the threshold may not be as high.
 Sub-clause 30(a)
  2 Lloyd's Rep. 383
 In Pegler v Wang (UK) Limited (2000) BLR 218, the judge stated that if the defendant had wanted to exclude liability for certain matters then it should have done so expressly.
 Davis Contractors Ltd v Fareham UDC  UKHL 3
 Ringsend Property Ltd. v. Donatex Limited  IEHC 568
 In Tennants (Lancashire) Ltd v G.S. Wilson & Co. Ltd. ( A.C. 495)
National Bank of Kazakhstan and another v The Bank of New York Mellon SA/NV, London Branch  EWCA Civ 1390
  EWHC 2208
 Internationale Handelsgesellschaft v Einfuhr-und-Vorratsstelle C-11/70