Given the unprecedented events of the last few weeks, many in the industry are wondering what the effect will be on the construction contracts they have entered into. If the government is to enforce a lock down, then depending upon the terms of it, the vast majority of contracts may not be able to be performed. But what will this mean contractually for the parties? The typical lawyer’s answer is, it depends on what your contract says!
A lot of parties will no doubt be frantically checking their contracts to see what the force majeure provisions say. If there is no such clause, then the parties will have to fall back on frustration arguments, which are always very difficult to establish (albeit an enforced government lock-down is probably the closest one can get to successfully pleading such an argument). We have briefly summarised the two arguments below.
What is force majeure?
The terms of your contract may expressly define force majeure, in which case it will depend what the clause says as to whether coronavirus constitutes force majeure. If in doubt, we recommend you get in touch.
The JCT suite of contracts does not define “force majeure” and so there is not much guidance as to what constitutes it. However, the case of Lebeaupin v Richard Crispin & Company (a 1920 case, so exactly 100 years ago) stated that an epidemic would constitute a force majeure event. As coronavirus has been classed as a pandemic (and so is more significant than an epidemic), there is good authority that this will constitute force majeure. However, because of course the coronavirus pandemic is such a recent event, it has not yet been tested in the courts, so there is inevitably a degree of uncertainty.
What are the consequences if it is force majeure?
It should be noted that under unamended JCT contracts, force majeure is a Relevant Event, but not a Relevant Matter, which means that a Contractor will get an extension of time but not loss and expense.
The parties should be careful to serve all relevant notices under their contracts-the JCT contracts typically require notice needs to be given when it becomes reasonably apparent that the progress of the Works is being or is likely to be delayed. This is even more important if the contract has been amended to make such notices a condition precedent to being granted an extension of time.
Further, the JCT Contracts require the Contractor to use their best endeavours to prevent any delay and resulting loss, even where the fault is not their own. Whilst this would plainly not extend to creating a vaccination to prevent coronavirus, “best endeavours” is an onerous obligation, so contractors must do everything they can to prevent delay, certainly whilst there is, at time of writing, no enforced lock down.
Under a JCT D&B 2016 force majeure may give rise ultimately to the parties being able to terminate the contract if the suspension continues for a continuous length of time as stated in the Contract (again so check the provisions of the contract carefully).
If there are no force majeure provisions in your contract, the parties will have to rely upon the common law remedy of frustration. If this is successfully pleaded it discharges the contract completely rather than suspending performance like force majeure. To successfully argue frustration, it would be necessary to show that the frustrating event has made performance of the contract physically or commercially impossible to achieve. Whether this argument would be successful will, it is suspected, depend on how things play out.
If the Contractor stops performance without being able to successfully argue force majeure or frustration, it will likely be a repudiatory breach of contract.
If entering into any new contracts over the coming weeks, we would recommend inserting an express term dealing with how COVID-19 will be dealt with under the contract. We have recently included such clauses over the last couple of weeks.
If you have any queries relating to your construction contracts as a result of recent events, please do not hesitate to get in touch-we would be happy to help.
Sarah Western is a solicitor specialising in construction law. If you have any queries in relation to construction law please do not hesitate to contact her by e-mail – firstname.lastname@example.org or by telephone at 01284 717434.