Could provisions in FIDIC contracts giving relief for ‘Force Majeure’ or ‘Exceptional Events’ provide relief to contractors suffering as a result of price escalation? It is well documented that construction and engineering projects around the globe are being affected by extreme and sometimes unprecedented price escalation. This is for many reasons including the Covid-19 pandemic and the Russo-Ukrainian conflict.

Could provisions in FIDIC contracts giving relief for ‘Force Majeure’ or ‘Exceptional Events’ provide relief to contractors suffering as a result of price escalation?

Global construction costs in 2022

It is well documented that construction and engineering projects around the globe are being affected by extreme and sometimes unprecedented price escalation. This is for many reasons including the Covid-19 pandemic and the Russo-Ukrainian conflict.[1]

Contractors are looking to their contracts and the governing law of those contracts to find ways to avoid, spread or share the risk of this price escalation.

For contracts based on FIDIC conditions, the provisions in Sub-Clause 13.7 [Adjustments for Changes in Legislation] and/or Sub-Clause 13.8 [Adjustments for Changes in Cost] could be an answer.[2] This article focuses, however, on whether an (another?) answer may be found in the ‘Force Majeure’ or ‘Exceptional Events’ provisions.

Force Majeure under FIDIC 1999

Under the FIDIC 1999 forms of contract, if either party is prevented from performance of its obligations by Force Majeure (‘FM’) then, subject to giving notice, it may be excused performance of those obligations. The contractor may also be entitled to an extension of time and/or cost.

Definition of FM

Sub-Clause 19.1 contains a definition of FM. It is ‘an exceptional event or circumstance (a) which is beyond a Party’s control, (b) which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party’.

For the definition to be met, these five criteria (‘exceptional event or circumstance’ plus the criteria (a) to (d)) must be satisfied.

The ‘exceptional event or circumstance’ might be the price escalation itself or something else, such as the Russo-Ukrainian conflict or Covid-19, the effect of which is price escalation, and there is scope for argument on this point.

It has been noted in respect of current price escalation in the construction sector that for some countries ‘these are some of the highest rates of inflation we have seen in decades, yet not in the hyperinflationary territory of the Weimar Republic in Germany following World War I, or Zimbabwe from 2007 to 2009’ and ‘Whilst the definition of hyperinflation is loose, for it to materialise, we’d expect significant increases to inflation on a month-on-month basis, above double-digit growth.’[3]   On this basis, it could be argued for some countries that price escalation as currently seen is not exceptional.

If price escalation is the ‘exceptional event or circumstance’, it seems likely that (a) and (d) above will also be satisfied unless, for example, the party in question is a Government with control over or responsibility for the price escalation. Regarding (b) above, the provisions that a contractor can make before entering the contract are generally limited to price and planning and in Sub-Clause 19.1 are expressly limited to what is ‘reasonable’. Foreseeability is not part of the definition. The fact that a contractor may be able to foresee price escalation before entering the contract will not be relevant if nonetheless the contractor could not reasonably have provided against it. Item (c) above, which refers to the event having arisen not being ‘reasonably … avoided or overcome’, appears to exclude from FM an event/circumstance whose effect could reasonably be completely negated. The fact that the effects of an event/circumstance can (or should – see below) be mitigated does not mean that the event cannot be FM.[4]

Sub-Clause 19.1(i) to (v) contains a list of example events or circumstances which, if they otherwise satisfy the definition, could constitute FM. Price escalation (or volatility) does not appear on this list but this is not fatal if it otherwise satisfies the definition. The real significance of this list is that four of the events listed may (subject to other criteria) give the contractor entitlement to money as well as time. If an event – such as price escalation – is not listed there will be no monetary compensation for it (see below).

The requirement for prevention

If the price escalation in question were to satisfy the definition of FM, it would only have contractual effect – and so be of use to the affected party – if it were also to prevent the affected party from performing any of its obligations under the contract.

This requirement for prevention is set out in two provisions.

Sub-Clause 19.2 provides that if a party ‘is or will be prevented from performing any of its obligations under the Contract’ by FM, it shall give notice and ‘shall specify the obligations, the performance of which is or will be prevented’. Having given notice, the party shall ‘be excused performance of such obligations for so long as such [FM] prevents it from performing them’.[5]

Sub-Clause 19.4 provides that if the contractor ‘is prevented from performing any of his obligations under the Contract by [FM] of which notice has been given [under Sub-Clause 19.2] and suffers delay and/or incurs Cost by reason of such [FM]’ then the contractor shall be entitled subject to Sub-Clause 20.1 to an extension of time for any such delay and, in limited circumstances, to additional cost.

These provisions refer to the prevention of ‘any’ obligations[6] so a shutdown of the whole project is not necessary.

If the price escalation falls within the definition of FM set out above, are there circumstances in which it might prevent performance? It is easy enough to see how price escalation may make it more onerous for a contractor to perform its obligations or may cause delay or disruption but at what point can it be said that the price escalation is preventing the contractor’s performance?

In English law, prevention has been interpreted in the context of force majeure as meaning physical or legal prevention and not mere economic unprofitability.[7]  The position may be different in other jurisdictions.

What if the scale of the loss resulting from the price escalation means that a contractor cannot continue to trade? Clearly there is scope for argument about the tipping point after which prevention may occur and that point will be different in each case. It is suggested, however, that it will usually be difficult to show prevention because of price escalation alone.

Entitlement to time and/or cost?

If a contractor is prevented from performing obligations under the contract by FM, has given notice, and suffers delay or incurs Cost by reason of such FM, Sub-Clause 19.4 provides that the contractor shall be entitled subject to Sub-Clause 20.1 to an extension of time and – if the event or circumstance is of the kind listed in Sub-Clause 19.1 sub-paragraphs (i) to (iv) (and in the case of sub-paragraphs (ii) to (iv) occurs in the Country[8]) – to payment of such Cost.

In other words, FM and prevention will only entitle the contractor to an extension of time, unless the FM is on the list of causes giving rise to Cost. These causes include war and, if it occurs in the Country, terrorism, strikes, munitions of war (etc).[9]

A contractor may therefore be entitled to an extension of time for delay caused by price escalation (or Covid-19) if this otherwise satisfies the definition of FM and prevents the contractor, but not to payment of Cost, which would only be available (in the context of the present article) if the contractor can show instead that the FM is war.

Mitigation

Sub-Clause 19.3 requires each party to use ‘reasonable endeavours’ to minimise delay resulting from FM. It does not require mitigation of any other consequence, although most legal systems will require mitigation as a general principle. In terms of price escalation, were this to constitute FM, ‘reasonable endeavours’ might include changing suppliers or transport options, although of course that may not be possible or may have no effect if there is price escalation across the board. The usual rule, subject to the governing law, is that mitigation does not require a party to incur additional cost. The parties may agree, in the interests of the project, to overcome price escalation by changing for example the physical works to avoid, reduce or share the impact of costly items.

No FM but obligations unlawful or impossible

Sub-Clause 19.7 provides that if an event/circumstance outside the control of the parties, which is not necessarily FM, makes it impossible or unlawful for either or both parties to fulfil its/their contractual obligations or which, under the governing law allows the parties to be released from further performance of the contract then, upon notice, the parties shall be discharged from further performance.

It is difficult to see how price escalation could make it unlawful for a party to fulfil its contractual obligations.[10]  Whether price escalation makes it impossible for a party to fulfil its obligations may depend on the meaning given to the word ‘impossible’ in the relevant jurisdiction (it may for example, encompass impracticability because of extreme and unreasonable expense or loss[11]) and the facts (in respect of which there may be a tipping point as mentioned above).

The governing law

A key consideration with price escalation is likely to be the governing law, which should specifically be considered in the context of Sub-Clause 19.7 and also in general, since it may provide relief from performance in case of price escalation under a variety of principles. These may include exceptional (or changed) circumstances,[12]  hardship[13] or impracticability[14]. The law of some jurisdictions may consider run-away inflation to be a frustrating event which may be remedied by release from performance.[15]  Again, each case will be considered on its merits. A court (tribunal) may consider price escalation to be a normal business risk such that relief is not available.

Exceptional Events under FIDIC 2017

In the 2017 forms, FIDIC does not use the term ‘Force Majeure’ and instead uses the term ‘Exceptional Events’.[16]  The requirement for the event or circumstance to be ‘exceptional’ no longer features in the definition. Apart from this, the provisions in FIDIC 2017 are largely similar to those in FIDIC 1999 and so the considerations identified above will continue to apply.

Conclusion

Whether price escalation affecting a contract based on the FIDIC conditions constitutes FM or an Exceptional Event will need to be assessed on the wording of the relevant provisions (which may include amendments to the standard FIDIC wording) and the facts of each case. Even if price escalation were to fall within the contractual definition of FM, a contractor may struggle to show that it has been prevented from performing its obligations under the contract by FM rather than performance of those obligations simply being rendered more onerous. Even then, as price escalation is not on the list in Sub-Clause 19.1, the contractor will not be entitled to compensation for it (i.e., payment of Cost) but only (if the contractor suffers delay) to an extension of time.[17]  Parties to construction and engineering contracts that are affected by price escalation should take advice on the governing law of their contract as that may provide relief in case of exceptional circumstances or similar. For future contracts, parties will wish to address the issue of price escalation up front, including by considering their supply chain and procurement strategies, and by drafting contractual provisions to address this risk as necessary.

[1]   For information about the various causes and effects see the Turner & Townsend report on its ‘International construction market survey 2022’ here: https://www.turnerandtownsend.com/en/perspectives/international-construction-market-survey-2022/ (last visited 21 July 2022). The report states that, in the 2022 survey results, 38 geographical construction markets suggested that they experienced inflation of 10% or more. Also ‘Rising building material costs have been one of the key drivers of higher construction cost inflation over the last 12 months. Global supply-chain disruptions, high commodity prices, higher shipping costs, and supply shortages have caused this strong price growth. Some of the key materials [with] significant price increases include structural steel beams, reinforcing steel, softwood timber for framing, copper pipe and copper cable.’

[2]   The equivalent provisions in FIDIC 2017 are at Sub-Clauses 13.6 and 13.7 respectively.

[3]   See the Turner & Townsend survey report at footnote 1 above in the section ‘Global economic outlook’.

[4]   See further ‘FIDIC 2017: A Practical Legal Guide’ (2020) Clause 18.

[5]   This excuse from performance does not apply to the obligation of either party to make payments to the other party under the contract.

[6]   Sub-Clause 19.4 of the MDB Harmonised Edition (June 2010) refers to ‘substantial obligations’.

[7]   Tennants (Lancashire) Ltd v. G.S. Wilson & Co Ltd [1917] AC 495.

[8]   ‘Country’ is defined in Sub-Clause 1.1.6.2 as the ‘country in which the Site (or most of it) is located, where the Permanent Works are to be executed’.

[9]  See Sub-Clause 19.1 for the complete list.

[10] Although unlawfulness might arise if, for example, one party to a contract is prohibited from continuing a contractual relationship with the other party as a result of sanctions.

[11] See Knutson ‘FIDIC An Analysis of International Construction Contracts’ (Kluwer Law, 2005) at p237 in relation to the law of Malaysia and the reference to Kung Swee Heng v. Paritam Kaur [1948] M.L.J. 170 in which Hill J referred to the definition adopted by the American Law Institute: ‘Impossibility means not strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss.’

[12] Meaning events or circumstances which, without rendering the performance of an obligation impossible, make it excessively onerous to a point of breaking the economic equilibrium of a contract. In this case, the court (tribunal) may reduce the obligation in question to reasonable limits. See Knutson ‘FIDIC An Analysis of International Construction Contracts’ (Kluwer Law, 2005) at p34 in relation to the law of Egypt.

[13] See Klee ‘International Construction Contract Law’ (Wiley, 2015) at p40 in relation to the law of Brazil and Germany.

[14] See Klee ‘International Construction Contract Law’ (Wiley, 2015) at p41 in relation to US cases.

[15] See Knutson ‘FIDIC An Analysis of International Construction Contracts’ (Kluwer Law, 2005) at p183 in relation to the law of India.

[16] Clause 18 of the Red Book 2017.

[17] Subject to compliance with notice requirements.

Clause 18 replaces "Force Majeure" with "Exceptional Events," aiming for clarity in civil law jurisdictions. Strikes and lockouts are now distinct from riots. The clause maintains natural catastrophes and clarifies that invoking it results in contract termination.

“Exceptional Events” has replaced “Force Majeure” and the provision is now clause 18 rather than clause 19, but otherwise little has changed.

FIDIC appear to have decided that the term “force majeure” brought with it too much baggage for those using it in civil law jurisdictions. Many users have pre-conceptions about what force majeure is and is not and perhaps did not consider what FIDIC meant by the term. With the new term, users should approach the provision with a more open mind.

One result of the change in term is that the word “exceptional” no longer features in the definition: Force Majeure meant an exceptional event or circumstance. Of course, it would seem perverse to argue that an Exceptional Event did not have to be exceptional; but it is also true that a defined term means what it is said to mean, not whatever the chosen term implies.

One improvement introduced into 18.1 is that strikes and lockouts have been separated out. As these might properly be regarded as the most common form of event that entitle the Contractor to both time and money, it is right that they are not buried in the more exotic “riot” item.

The anomaly of having a list of events, all of which give rise to time and money except for one remains. The natural catastrophes item is still on the list. Was there any real doubt that earthquakes, tsunamis, volcanic activity, hurricanes and typhoons were force majeure?

Clause 18.6 is Release from Performance under the Law. The question in relation to the equivalent clause of the 1999 form was whether it relieved a contractor of individual obligations that were legally or physically impossible; or only of the Contract as a whole. It seems clearer that this is an all-or-nothing clause: if it is invoked, the result is termination of the Contract.

Clause 18 – Exceptional Events by Edward Corbett.

Clause 19 covers Force Majeure and release from performance, with broader definitions than typical laws. It prescribes detailed insurance requirements, reducing flexibility. The Contractor bears most obligations, necessitating careful amendments and professional advice to avoid misunderstandings and ensure proper incorporation into contracts.

The insurance requirements both in Clause 19 and the related tender information in the Contract Data are now considerably more prescriptive.

The positive aspect may be that this will lead to a more careful consideration of what is, in many applications, a key aspect of the Contract.

Against that, there is a concern that the requirements here are now too prescriptive and do not allow more flexibility against the known potentially wide and varied applications of these forms. The use of the term “insuring Party” in Clause 18 of the 1999 Edition, allowed for flexibility in the allocation of insurance obligations as between the Parties. At the same time those obligations applied with equal effect, depending on the Party to which the obligations were assigned.

The new provisions in what is now Clause 19 have done away with the “insuring Party” approach; almost all the obligations are on the Contractor. In applications where that is not to be the intended position, it will now mean careful amendment to Clause 19 itself.

Furthermore, the earlier flexible approach also allowed for the terms of what was then Clause 18 to be overridden by specific insurance terms agreed between the Parties before the date of the Letter of Acceptance. That further flexibility is also now lost, at least within the new Clause 19. The mechanism now lies in adding “memoranda” to the Letter of Acceptance; see the asterisked footnote against the heading on the form of the Letter of Acceptance which incorrectly refers to Sub-Clause 1.1.51. It should refer to the defined term of “Letter of Acceptance” which is at Sub-Clause 1.1.50, and which does refer to the possibility of including, “annexed memoranda comprising agreements between the Parties”. Hardly the language of clarity.

There is a concern that even where the Parties essentially remain within the outline of the Clause 19 terms, many typical insurance policies may not match the now much more specific requirements within Clause 19. What remains to be seen is whether or not those Parties will correctly react and go down the memorandum/addendum route. Failing that, the Clause 19 terms will apply: the scope for misunderstandings to arise is very real. It seems a pity that the earlier, more fail-safe way of dealing with this has now been lost.

In going to a more prescriptive basis, it is perhaps a missed opportunity that Clause 19 did not at least address the insurance requirements and implications against the possibility of:

• Joint names insurance cover extending to all parties for their Site interests, particularly Subcontractors of any tier and other contractors of the Employer, as may be applicable.
• The Works forming a part of a larger project, all at or about the Site.
• The presence of significant existing property of the Employer at or about the Site.

To the extent applicable via the Contract Data, the new requirements relating to professional indemnity insurance in Sub-Clause 19.2.3 will deserve careful review by a tendering Contractor with his professional insurance advisor. Various factors are likely to be problematic, such as:

• the basis of the required cover;
• the absence of the usual protection where such cover is no longer available at reasonable market rates; and
• the requirement to extend such professional indemnity insurance to fitness for purpose.

Conclusion

In summary, the more extensive and prescriptive nature of Clause 19 and the associated Contract Data is a positive development, if the outcome is that Parties will consider the requirements carefully and take the necessary professional insurance advice.

The potential downsides are twofold:

• the provisions of Clause 19 may well need amending even where the Parties intend to remain within its structure; and
• the route to ensuring that such amendment is properly incorporated into any Contract is now not so clear and lacks the earlier and more fail-safe provision to allow amendments specifically agreed between the Parties to prevail over what is now Clause 19.

Please get in touch at joanne.clarke@howardkennedy.com or victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

What relief does FIDIC provide when bank accounts are frozen as a result of war, hostilities, rebellion, terrorism etc.? Maybe not as much as you think. Tensions in Africa and the Middle East have seen the implementation of numerous international financial sanctions. While these sanction regimes vary in execution and enforcement they often freeze assets and prevent financial transactions. These restrictions may impact on the Employer’s performance of its payment obligations under the Contract. This can have serious consequences where the Contractor is entitled to suspend or terminate on notice for non-payment. Many parties automatically assume that financial sanctions will be recognised as force majeure. However, this may not be the case.

What relief does FIDIC provide when bank accounts are frozen as a result of war, hostilities, rebellion, terrorism etc.? Maybe not as much as you think.

Tensions in Africa and the Middle East have seen the implementation of numerous international financial sanctions. While these sanction regimes vary in execution and enforcement they often freeze assets and prevent financial transactions. These restrictions may impact on the Employer’s performance of its payment obligations under the Contract. This can have serious consequences where the Contractor is entitled to suspend or terminate on notice for non-payment. Many parties automatically assume that financial sanctions will be recognised as force majeure. However, this may not be the case.

Contractual definition of Force Majeure

“Force Majeure” as defined under the FIDIC form of contract is strictly prescribed.

Sub-Clause 19.1 defines a Force Majeure event or circumstance as one which is “exceptional” and:

“(a) which is beyond a Party’s control;

(b) which such Party could not reasonably have provided against before entering into the Contract;

(c) which, having arisen, such Party could not reasonably have avoided or overcome; and

(d) which is not substantially attributable to the other Party.”

One might assume that financial sanctions resulting from war, hostilities, rebellion, terrorism etc. would generally meet these requirements. However, Sub-Clause 19.2 expressly excludes from the definition of Force Majeure any payment obligations between the parties. It states:

“Notwithstanding any other provision of this Clause, Force Majeure shall not apply to obligations of either Party to make payments to the other Party under the Contract”.

Therefore, it would appear that financial sanctions preventing the payments under the Contract are not covered by Force Majeure as defined in Sub-Clause 19.1. This could have serious consequences, as the Contractor would be entitled to suspend or terminate on notice for non-payment under Sub-Clauses 16.1 and 16.2.

Does Sub-Clause 19.7 (Release from Performance under the Law) offer a solution?

Sub-Clause 19.7 applies to events or circumstances outside of the control of the Parties (which render contractual performance impossible or unlawful) regardless of whether or not they fall within the definition of Force Majeure laid out under the Contract. It states (with emphasis added):

“Notwithstanding any other provision of this Clause, if any event or circum­stance outside the control of the Parties (including, but not limited to, Force Majeure) arises which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations or which, under the law governing the Contract, entitles the Parties to be released from further performance of the Contract, then upon notice by either Party to the other Party of such event or circum­stance:

(a) the Parties shall be discharged from further performance, without prejudice to the rights of either Party in respect of any previous breach of the Contract, and

(b) the sum payable by the Employer to the Contractor shall be the same as would have been payable under Sub-Clause 19.6 [Optional Termination, Payment and Release] if the Contract had been terminated under Sub-Clause 19.6.”

The imposition of financial sanctions will almost certainly be outside of the Parties’ control, and may well render performance of the Employer’s payment obligations impossible, so it is worth studying the Sub-Clause in more detail.

Impossible or Unlawful

The use of the words “impossible or unlawful” under Sub-Clause 19.7 suggests a higher threshold is intended than, for example, mere “prevention” under Sub-Clause 19.2. Therefore, when claiming that performance has been rendered impossible or unlawful it may not be enough for a party to establish that new circumstances have rendered its contractual performance merely more onerous or uneconomic. On the basis that the Sub-Clause should not be invoked lightly given its severe consequences, many will argue that it has to be actually and absolutely impossible or unlawful for the event or circumstance to excuse non-performance. So, if there was any way that a diligent party could have still performed its obligations then this clause will not apply. Although there is no precedent in relation to Sub-Clause 19.7 on this specific point known to the author, there is authority relating to the common law doctrine of frustration, which is closely connected and arguably analogous to contractual impossibility. It is generally considered that in order for a contract to become frustrated an event which renders performance radically different must have occurred after the formation of the contract (the “radical change in obligation” test[1]). In Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2] the Court of Appeal in Singapore recently examined the test and held that in order for a contract to become frustrated literal impossibility of performing the contract is not required. It is sufficient that the obligation has become “radically or fundamentally different” from the one agreed to. Thus, it found that although a mere increase in cost will not result in a frustrating event, an astronomical increase might. It is not clear from the judgment whether the judges considered the earlier case of Tsakiroglou & Co Ltd v Noblee Thorl GmbH[3] where the House of Lords held that a contract was not frustrated when performance became more difficult and expensive by the closure of the Suez canal but not impossible. This is an area of law yet to be tested openly in the context of FIDIC and we would be interested to hear your views on it.

In any event, Parties affected by financial sanctions resulting from war, hostilities, rebellion, terrorism etc. should still consider whether other measures could be taken that would allow performance under the Contract. It might be possible to circumvent the sanctions in some lawful way. For example, depending on the sanction regime the sanctions may not apply to various branches and subsidiaries. Also, some countries (including the United Kingdom and the United States) have procedures in place for companies to request exemptions from the sanction regime. Further, some sanction regimes may exclude from their scope contractual obligations created before the conflict began. Finally, it may be possible to agree variations to the Contract to remedy the situation.

Of course, financial sanctions are often intended to apply for a limited time, and therefore the Employer’s performance of its payment obligations under the Contract is not likely to be impossible permanently, only temporarily so. This raises two questions:

1. is a temporary impossibility sufficient for the purposes of Sub-Clause 19.7; and
2. if so, is there a temporary fix available?

In order to establish whether contractual performance has been rendered impossible or unlawful the courts will look at all the facts of the case including the degree and duration of the impossibility. If the event or circumstance is of a temporary nature it may not be considered by an adjudicator, arbitrator or judge to be sufficiently impossible or unlawful to permanently discharge the Parties from performance. However, it is worth noting that this is by no means a foregone conclusion. Under the common law doctrine of frustration (mentioned earlier) events and circumstances causing temporary disruption, such as war, have regularly frustrated contracts thus bringing them to an end[4].

In respect of the second question, it is unfortunate that Sub-Clause 19.7 does not make express provision for a temporary fix to the temporary impossibility of the Employer’s performance of its payment obligations under the Contract. The only solution provided is a permanent discharge from further performance and not mere suspension. However, if performance of the obligation could reasonably be suspended or deferred until the sanctions were lifted, a practical approach would be to excuse (by agreement) a party of the obligation temporarily from any liability for non-performance, as long as the sanctions are in place. Sub-Clause 14.8 could compensate the Contractor for non-payment in financing charges.

Contractual Obligations

The next consideration is whether all of a party’s “contractual obligations” must be impossible or unlawful to fulfil for Sub-Clause 19.7 to apply or whether just one or more will suffice, i.e. is it sufficient for the Employer merely to be unable to fulfil its payment obligations under the Contract?

There is commentary which says that “the provisions in clause 19.7 are expressly applicable to all obligations and can therefore be evoked where, for example, the employer’s payment obligations are impeded by causes which fulfil … 19.7”.[5]

The view that not all contractual obligations need to be impossible or unlawful is supported in the case of Codelfa Construction Pty Limited v SRA of New South Wales[6] where the court held that the contract had been frustrated by an injunction against night time working which restricted the contractor’s ability to perform his time obligations under the contract (where time was made of the essence).

This approach is also favoured by others. For example, the ICC Force Majeure Clause 2003 (a standard form clause drafted by the ICC for express incorporation into contracts by the parties) excuses a party from contractual performance and relives that party of any liability in damages “where a party to a contract fails to perform one or more of its contractual duties” because of an impediment outside of its control.

Under the Governing Law of the Contract

The words “under the law governing the Contract” in Sub-Clause 19.7 indicate that the governing law of the Contract may itself allow the Parties to be released from further performance under the Contract quite independently from the Contract. This is more common in civil law jurisdictions than common law jurisdictions.

Shall be Discharged from Further Performance

Only when all the particular circumstances are met does Sub-Clause 19.7 envisage that (upon notice) the Parties will be “discharged from further performance” of the Contract. Read with Sub-Clause 19.6 it seems likely that this means that the parties are discharged from all further performance including that which has not been affected by the impossibility or unlawfulness.

The Sum Payable by the Employer to the Contractor

Where the Parties are discharged from performance, “the sum payable by the Employer to the Contractor shall be the same as would have been payable under Sub-Clause 19.6”. This means that the Employer must still find a way to pay the Contractor for the work done and the debts owed. Essentially, the Employer is left with the same problem, he has no money with which to pay.

Conclusion

Where an Employer’s bank accounts are frozen as a result of financial sanctions resulting from war, hostilities, rebellion, terrorism etc. there is a risk that the Contractor may suspend or terminate on notice for non-payment, and claim interest on the unpaid sums. An Employer would be wrong to assume that Force Majeure will excuse him from his respective payment obligations under the Contract. Sub-Clause 19.7 may discharge him from further performance, thus ending the Contract, but that will not complete the project and he will still be left with the debts for the work done or the sums owed under Sub-Clause 19.6. In summary, FIDIC, as it is currently drafted, provides little or no relief.

[1] Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696

[2] [2014] SGCA 35

[3] [1962] AC 93

[4] See for example, Avery v Bowden (1856) 5 E & B 714 and Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32.

[5] Samuelsson and Iwar, FIDIC an analysis of international contracts (2005) Kluwer International Law at pp. 298-299.

[6] (1982) 149 CLR 337.