Have we underestimated the potential impact of infectious diseases like COVID-19 on our industries?

Stock Legal International > Corona Virus > Have we underestimated the potential impact of infectious diseases like COVID-19 on our industries?

A Construction Force Majeure Perspective

by John Stocker

In the wake of the spread of the Coronavirus Disease of 2019 (or (by its technical name COVID-19) which the globe is grappling with how to manage and prevent further spread, one cannot help but think governments and corporations are woefully unprepared. What is most concerning is the speed at which COVID-19 has spread across the globe.

One also cannot fathom, at this stage, the extent of the indirect consequences of such a pandemic both in terms of health and wellbeing as well as economically speaking. A 27% plunge in the oil price as well as £130 billion being erased from the FTSE 100 market cap demonstrates that it’s not just the risk to our health that’s at stake but also to our pockets, investments and businesses.

If the pandemic is here to stay, most human capital intensive industries might see dramatic effects of quarantine or self isolation in the long term and working from home might become a necessary evil but what is the prognosis for industries that can’t be done from our homes? For example how will the construction industry be affected by such an epidemic given quarantine might dramatically affect the rate of progress of any developments. A provision or arrangement of force majeure in a contract might be the solution to protect construction parties but what does this really mean.

“Force Majeure” is French for superior force and such a clause in contract essentially frees either party from performance where an extraordinary event or circumstance beyond the control of the parties such as a strike, war, riot, earthquake of similar arises. A Force Majeure clause sometimes, but not always, includes reference to pandemics or epidemics.

However, English law unlike many other civil law countries, has no universal implied doctrine of force majeure. One should also be aware that the clause may operate in conjunction with the extension of time and/or relief compensation event provisions in the construction contract.

Therefore, like many of the other operative and risk allocation provisions in a construction contract, whether the provision is included, how it is formed as well as how it operates with the other time critical provisions contained therein, is critical.

An example of an open force majeure definition would for example might include: 

Force Majeure” means an event beyond the control of the  Party from complying with any of its obligations under this Contract, including but not limited to: an act of God, war, rebellion …”

By forming the clause in such a manner (by the listed items being included but not definitive), a global pandemic might be considered, and could be argued to fall within, the relief offered by the clause.

However, not all clauses are formed in such a flexible manner and interpretation might fall on how the clause is formed in the agreement. One should be warned that the use of an unconsidered and/or boilerplate, or ill advised use of a poorly worded and formed version of the clause, may give rise to severe unintended consequences. Of course, one must consider that the extent, and the effects, of any pandemic on progress might be debatable and hence the difficulty of applying pre-agreed logic to this instance.

Whether one sees the current panic over COVID-19 as being unnecessary or alternatively you prefer to buy enough toilet paper to get you into the next century, we cannot discount the economic uncertainties and effects beyond mere health and our ability to sustain quarantined productivity at home.

Having suitable, well-drafted and clear force majeure provisions in contracts for construction might be necessary to ensure some operators don’t profit from a global pandemic at the cost of others.

One cannot also ignore the affect that such a pandemic might have on notice periods, supply chain management as well as changes to specifications and variations that may become necessary to protect against the spread of a deadly virus.

John Stocker is a specialist construction, engineering and major projects lawyer with 18 years of experience advising in the field and who speaks regularly at conferences and seminars and has published several articles.

John is admitted to practice in England and Wales (2003) and in the High Court of South Africa (2002).

John Stocker

+44 (0) 20 8877 0425

+44 (0) 759 274 7332

johnrstocker@me.com

Leave a Reply

Your email address will not be published. Required fields are marked *