The West African Ebola crisis and Force Majeure (Rob Currall)
Since its outbreak in Guinea in December 2013, the Ebola crisis in West Africa has rarely been out of the headlines. Some 5,000 deaths have been reported as at the date of this article, with Guinea, Liberia and Sierra Leone having been worst affected, as well as a smaller number of cases being reported in Nigeria, Mali and Senegal.
The economic repercussions of the pandemic have already made themselves felt and are likely to continue for some time, with many airlines having suspended flights to West Africa and the World Bank predicting a hit of around 3.3 % on the region’s economy in a report published in October 2014. The development of energy and infrastructure projects has also been affected, with some contractors having taken precautionary measures, including the installation of screening stations and medical facilities on site, in order to reduce the likelihood of further contamination amongst their workers. In August 2014 ArcelorMittal, the major global steel producer, announced that it would curtail some of its iron ore mining operations in Liberia as a result of contractors declaring ‘force majeure’.
The concept of Force Majeure
Force majeure is a civil law concept which has worked its way into many commercial contracts governed by the laws of common law jurisdictions. The difficulty of terminating a contract governed by English law (which is commonly used as the governing law in commercial contracts worldwide) using the remedy of frustration has led to reliance on force majeure as a useful way to avoid liability for contractual obligations on a ‘no-fault’ basis where these have been rendered impossible by extenuating circumstances. As force majeure does not have a clear definition under common law, its meaning in a contractual context will depend entirely on the position agreed between the parties, making it an important point of negotiation.
During negotiation of construction contracts, force majeure can be a particularly contentious issue, with most disagreements relating to what qualifies as force majeure. In general, contractors will seek to broaden the scope of force majeure as much as possible, as contractors are more likely to rely on force majeure given their more extensive obligations to deliver goods and services.
In energy and infrastructure projects, both sponsors and lenders will be concerned with avoiding any holes in the ‘back to backing’ of the project documents. The aim is to avoid situations whereby a project company is liable to grant relief for force majeure to contractor but, because of a disparity in force majeure provisions across the suite of project documents, is unable to obtain the equivalent relief for force majeure. The relief in question may take the form of an extension of time or additional costs or both. The cost consequences would then need to be absorbed by contingency of some sort, and the timing mismatch will delay expected project revenues and have a detrimental effect on a project sponsor’s ability to repay its debt financing.
Ebola and Force Majeure in construction contracts
While construction contracts for individual projects will be negotiated toward differing positions, the FIDIC family of contracts (which are frequently used for projects in African markets) are a very useful guide to a typical set of force majeure provisions. FIDIC provides a general definition of force majeure as follows:
(i) the event or circumstance must be one for which neither party is responsible;
(ii) the event was not something that the affected party could have provided against at the time of entering into the contract;
(iii) the event is beyond the reasonable control of the affected party; and
(iv) the event was not substantially attributable to the other party.
The FIDIC suite of contracts then supplements the definition with an indicative list of events that may be counted as force majeure, which includes war, industrial action and extreme weather events. While epidemics and outbreaks of infectious diseases are not specifically listed, it should be noted that this is not an exhaustive list.
Applying the above limbs of the FIDIC definition to the current Ebola crisis, limbs (i), (iii) and (iv) would be easily satisfied, however, for projects that are currently under negotiation in the region, it might be difficult to argue that the Ebola pandemic was something that could not reasonably have been provided against, given its extent and its coverage in media across the world.
Contrary to common perceptions, foreseeability is not a component of the FIDIC definition of Force Majeure, and this is something to which parties should be alive. The aim of the FIDIC provisions is to ensure that parties cannot declare Force Majeure for issues which are within their control. Furthermore, most contractual Force Majeure provisions require the party affected by it to take reasonable steps to mitigate the effects on the performance of its obligations. Calling Force Majeure is a sensitive process and from a commercial perspective contractors will be wary of gaining a reputation for suspending work unnecessarily. The likelihood of contractors simply downing tools is remote.
Conclusion ‘ increased attention to force majeure?
Parties negotiating contracts for projects in the West Africa region would be well-advised to pay particular attention to force majeure clauses. We can expect to see a tension between contractors focussing on getting protection in contractors for the Ebola pandemic (and other epidemics in general) and employers seeking to ensure that contractors who commit to the region are not easily let ‘off the hook’. In the absence of any recent case law on the subject to provide useful guidance as to judicial interpretations, force majeure clauses are likely to occupy greater attention of parties negotiating the contractual framework of projects in West Africa and more widely.