The rapid spread of the Ebola virus in west Africa is already having an impact on projects and business activities there. As the virus spreads, so will that impact.
For example, in August, steel and mining company ArcelorMittal said that contractors working on one of its iron ore mines in Liberia declared force majeure and are moving people out of the country because of the outbreak. Governments and aid organisations are attempting to limit the spread of the outbreak but cases are being reported more widely in the region and beyond.
Force majeure provisions
Force majeure clauses can relieve parties of their contractual obligations if there is a major event outside either party’s control. If a workforce becomes ill or is prevented from working due to travel restrictions, such as those currently being imposed in west Africa, this may be covered by force majeure, but companies should look now at what their contracts say and consider what action may be required to establish their position.
Force majeure as a concept can prove to be difficult because it is not precisely defined in many jurisdictions. A well-drafted force majeure clause should reduce the level of uncertainty in the meaning of “force majeure” and its consequences. However, across standard form contracts the drafting remains inconsistent.
Contracts will usually describe not only what is meant by force majeure but also what procedures need to be followed if a company is claiming that the clause is in effect. For example, clause 19 of FIDIC’s 1999 Red Book:
- Includes a definition of force majeure, its consequences and the procedures that must be followed.
- Provides that notices must be given within 14 days of a party becoming aware of the event or circumstance, or when the party should have become aware of it.
The clause provides a guide as to the type of events and circumstances the clause anticipates, including “natural catastrophes”. Whether the Ebola outbreak would be classed as a natural catastrophe remains to be tested, but there is certainly scope to argue that point.
If a government declares a state of emergency, for example, or prevents employees going to work, this could potentially be relied upon as a force majeure preventing a party from performing the contract. Although the US state of Connecticut declared a pre-emptive state of emergency over Ebola earlier this month and the Economic Community of West African States (ECOWAS) will hold an emergency meeting in November on measures to contain the virus, governments have generally not taken such steps as yet. However, travel restrictions and quarantined areas are examples of events outside the control of a party that may impact the performance of contractual obligations.
Serving notice of force majeure
It is imperative that after becoming aware of a force majeure potentially impacting the contractual works or obligations, notice should be served on the other party to ensure that contractual rights are protected.
Most contracts provide details of the consequences of a force majeure. The Red Book, at clause 19.4, states that if a party is prevented from performing any of its obligations under the contract by force majeure, and if the notice is properly given, it is entitled to either an extension of time for any delay or its costs should the event fall within one of the defined examples.
Standard form contracts are frequently amended. Accordingly, parties who are operating in west Africa should check their contracts and, in particular, the definition of and procedures for claiming a force majeure. An understanding of the definition and procedures for a force majeure clause could mean the difference between a party’s recovery of costs and an extension of time, or no entitlement at all.
If a party invokes a force majeure clause it should be prepared to prove that the event in fact caused the alleged period of delay or loss and defend its position if challenged. If contested, a third party arbiter may well have the final decision as to whether the incident qualifies as a force majeure.
Next steps
Parties operating within Ebola-affected regions should give careful consideration to how the virus and its consequences are impacting on the performance of their contracts and whether events or circumstances, such as government quarantine areas, are outside a party’s control and are a force majeure. Parties should therefore review their contracts and contingency plans and discuss with clients and supply chains what can be done – rather than what cannot – with a view to agreeing a way forward. Doing nothing may well result in a future dispute.
