Introduction
In view of the current pandemic, the construction sector is faced with unprecedented downturns, leading to a number of projects being delayed or cancelled. The employee and subcontractor labour health, social distancing in construction sites as well as the worker’s furlough still constitute significant risks even almost two years after the outbreak of Covid-19. While many construction companies have invoked force majeure, especially from the outset of the pandemic, in order to gain contractual relief for impacted projects, it is time that such invocation’s validity be reassessed.
1. Definition of unforeseen and unforeseeable circumstance
The term “unforeseen circumstances” includes events that the parties would never imagine to have occurred during the execution of the contract as well as events, for which there was a possibility to come up, but the manner of their occurrence, and their effects upon the operations carried out was unexpected. Further, an unforeseeable circumstance is not defined by the possibility rather the probability of its occurrence.
2. Is Covid-19 still classified as a force majeure event or specific stipulation is required?
a. Case-law overview
Often, a contractual clause, which includes Covid-19 in the scope of force majeure events explicitly, will deal with the impacts of the pandemic more appropriately rather than a traditional force majeure clause. This is even more so, if we consider that force majeure clause’s catch-all provisions are interpreted narrowly to only cover “things of the same kind or nature as the particular matters mentioned” (Kel Kim Corp. v. Cent. Mkts., Inc., 519 N.E.2d, at 296-97 N.Y. 1987).
Additionally, there is another point, namely the time factor, which will be introduced through the case-law and will be further elaborated in conjunction with the space factor in section 2.b. According to a CIETAC Arbitration Award of 2005 (L-Lysine case, China 5 March 2005 CIETAC Arbitration proceding), it was rejected that SARS constituted a force majeure incident (under Art. 79 CISG), given that the epidemic’s outbreak had happened two months prior to the signing of the contract in question. Moreover, Courts have determined in the past the following; firstly, an event does not qualify for being an unforeseeable circumstance in cases where the epidemic existed at the time of concluding the contract. Specifically, in 2009 the Court of Appeal of Saint-Denis de la Réunion held that "the epidemic of chikungunya began in January 2006 and cannot be considered an unforeseeable event justifying rescission of the contract in August after a hiring that took place on 4 June" (Court of Appeal of Saint-Denis de la Réunion, Dec. 29 2009, no. 08/02114; see also Court of Appeal of Besancon, Jan.8, 2014, no. 12/02291).
Secondly, an event is not considered unavoidable in cases where the epidemic in question is already known. Particularly, in 2018 the Court of Appeal of Basse-Terre held that the epidemic of chikungunya does not constitute unforeseeable or, especially, unavoidable event, considering that “in all cases this disease can be mitigated with analgesics and is generally curable, (as the claimants did not suggest that they had any particular medical vulnerability and as the hotel was able to fulfill its services during the period” (Court of Appeal of Basse-Terre, Dec. 17/00739; see also Nancy Court of Appeal, Nov 22, 2010, no. 09/00003).
b. The case of Covid-19
Covid-19’s widespread nature and severity renders the situation without precedent. Therefore, it is completely reasonable for courts and tribunals to be highly likely to consider that in certain cases the conditions of a force majeure event have been met. Apart from contractual matters, a few decisions have already upheld the qualification of Covid-19 epidemic as a force majeure incident, in particular to justify the absence of appearance (regarding the hearing of a foreigner placed in administrative custody: Court of Appeal of Colmar, 16 March 2020, no. 20/01142; regarding the hearing of a person involuntarily hospitalized: Court of Appeal of Bordeaux, 19 March 2020, no. 20/01415).
The first force majeure prerequisite that an event be independent of the will of the debtor is unlikely to be an issue in the context of the current pandemic. For such a claim to be successful, however, the other two prerequisites of force majeure should be met as well, namely unforeseeability and unavoidability.
Particularly, as far as unforeseeability is concerned, the following should be noted; if the contract was concluded after the start of the pandemic, it may be difficult to be considered unforeseeable. Further, it may not suffice that the contract was concluded prior to the pandemic, since epidemics despite being infrequent, they constitute recurrent phenomena (see plague, Spanish flu, SRAS, etc.). Thus, it could be argued that such a phenomenon is, in principle, foreseeable.
Nonetheless, foreseeability requires a further analysis. This requirement needs to be examined under the light of a spatio-temporal perspective. There could be at least four different occasions depending on the time of the contract’s conclusion, i.e.:
(i) Prior to 31 December 2019
(ii) on or after 31 December 2019 but before 13 March 2020 (when the pandemic was declared by WHO) or when the health crisis occured in the public domain in the relevant country, whichever happened first
(iii) during the state of emergency of the relevant jurisdiction (i.e., the period during which extraordinary measures were implemented in the jurisdiction) and
(iv) after the state of emergency has ended
Concerning the condition of unavoidability, the party in default is required to have taken all appropriate measures in order to perform the contract or to limit the pandemic’s impact. Additionally, impossibility to perform the contract must have resulted directly from the pandemic’s occurrence (Court of Appeal of Toulouse, Oct. 3, 2019, no. 19/01579; Court of Appeal of Paris, March 17, 2016, no. 15/042363).
3. Approach of Covid-19’s case particularly under the FIDIC context
The FIDIC Suite grapples with the matter of unforeseeability in two Sub-Clauses, though from a different aspect in each of them; sub-clause 4.12 and sub-clause 18.1. “Unforeseeable” is defined in the FIDIC Books as “Not reasonably foreseeable by an experienced contractor by the Base Date”. This definition, however, seems to be pertinent with the interpretation of the sub-clause, which particularly includes this specific term, i.e. sub-clause 4.12 and is apparently related to unforeseeable physical conditions(*). Therefore, it seems more appropriate that the issue of force majeure and specifically, whether Covid-19 should be assessed as a force majeure incident, be addressed under the light of sub-clause 18.1, which provides for a non-exclusive list of exceptional events. To constitute an exceptional event, the following need to have occurred:
(i) There must be an event or circumstance;
(ii) The event/circumstance must be beyond the control of the party affected;
(iii) The party affected could not have foreseen or provided against the event/circumstance before entering into the contract nor avoided it once it had arisen;
(iv) The event/circumstance was not the fault of the party; about which,
(v) proper notice in accordance with relevant sub-clause has been given
Although FIDIC editions name some exceptional events, these do not include specific reference to events such as “epidemic” or “pandemic”. The list, however, is specifically supposed to stipulate only some examples, whereas the key is that the aforementioned prerequisites are satisfied.
In the case of Covid-19, the third prerequisite is not met if the contract has been concluded after the relevant dates, especially after the time, when the WHO declared the pandemic. In other words, the parties could expect that Covid-19 could have possibly and probably affect the contract’s performance.
Conclusion
To conclude, in the framework of international construction contracts, the risk of a pandemic’s occurrence, as is Covid-19, is more possible than the contracting parties can imagine at the time of conclusion. It is therefore recommended that a specific force majeure clause be stipulated, which includes Covid-19 specifically. Also, for the sake of minimizing an emergency event’s catastrophic impact on construction projects in general, it is urged that the parties use explicit contracting language, in order for invalid and subsequently unsuccessful force majeure claims to be avoided.
(*) Sub-Clause 4.12 Yellow and Red Book: “physical conditions” means natural physical conditions and physical obstructions (natural or man-made) and pollutants, which the Contractor encounters at the Site during execution of the Works, including sub-surface and hydrological conditions but excluding climatic conditions at the Site and the effects of those climatic conditions”. Despite that Silver Book refers to Unforeseeable Difficulties in Sub-Clause 4.12, the particular provision on sub-clause 4.12 as well as relevant case-law confirm that this article concentrates on the risk of ground conditions. See Sub-Clause 4.12 in Particular Provisions “…it is usually preferable for the risk of unforeseen ground conditions to be allocated to the Employer”; see also PBS Energo AS v Bester Generacion UK Ltd & Anr [2020] EWHC 223 (TCC) (07 February 2020)