Not so very long ago, in a world still very familiar to us, force majeure clauses in construction contracts were largely boilerplate given little serious consideration.
After all, most parties imagined a force majeure event as an earthquake, hurricane or political insurrection.
“Force majeure clauses were virtually never the priority. More pressing and essential terms and conditions remained at the forefront, including core terms related to price, scope and schedule,” Edward Lynde, partner with Fasken Martineau DuMoulin LLP, told the Daily Commercial News.
“Accordingly, force majeure clauses fell into the basket of semi-important clauses placed on the backburner while the more important terms were identified, negotiated and drafted to suit the specific needs and intentions of the parties.”
Then, like a Death Star, COVID-19 arrived in our orbit in 2019. The resultant government shutdowns, labour restrictions due to health and safety concerns, and supply chain interruptions seemed to be fit for purpose and potential triggers for litigation under force majeure, write Bennett Jones LLP partners Richard Swan and Preet Gill, and articling student Phoebe Goldig.
They describe a force majeure clause as one that allows the affected party or parties, “temporary relief from the performance of some or all contractual obligations, and from the consequences of a failure to perform those obligations, where performance is rendered effectively impossible by unforeseen, extraordinary events or circumstances beyond the control of the affected parties.”
Much discussion resulted concerning the invocation of force majeure clauses due to events during the COVID pandemic.
As Lynde describes, these centred on, “whether certain events were actually beyond the control of the parties, how performance had been impacted, and what the corresponding ramifications might be under pre-existing construction contracts.”
He pointed out, “force majeure is not found in the common law, but rather is entirely a creature of contract.”
This means, once again, that attention must be paid to the specificity of the causes and relief being proposed.
Questions Lynde suggests need addressing include: identification of force majeure event; the relief proposed for either party, including duration; notification requirements; and other consequential obligations on the parties.
Several cases have come before the court attempting to invoke force majeure. Many have familiar threads relating to revenue decreases and business slowdowns or shutdowns suffered by one party caused by COVID-related government restrictions. Although not specific to construction, they serve as a guide regarding the attitude of the courts.
However, the courts have not looked favourably on these applications and have turned directly to the contract details outlining the basis of force majeure and possible consequences.
For example, Swan, Gill and Goldig describe how in Porter Airlines Inc. vs. Nieuport Aviation Infrastructure Partner, Porter claimed their licence agreement was “not just financially more onerous but it became entirely unviable economically.”
However, the court concluded, “the fact that a contractual obligation has become more expensive to perform, even dramatically more expensive, is not a ground to relieve the party of its obligation on the ground of force majeure.”
Consequently, Lynde notes force majeure clauses are now “flying first class,” meaning they are now mentioned more often in current contracts and are among the first sections to be “reviewed, considered and negotiated.”
Adam Lewinberg, also a partner with Fasken, told the Daily Commercial News insurance might be a factor in terms of requests for time extensions and relief from performance obligations.
“Because force majeure events overlap considerably with insurable events, often payment from an owner to a contractor does not make sense for many force majeure events.”
But while insurance coverage for a pandemic inclusion could be a solution, Lewinberg suggests such coverage might be “prohibitively expensive.”
Going forward, parties to construction contracts should seek clarity concerning force majeure events and any forms of financial relief addressing their individual needs. While contractors and suppliers may seek leniency, owners and developers may be resistant.
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com
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