Force Majeure - It’s expected

Middle East director Martin Chapman.

So what is a force majeure clause? Just about all construction contracts contain such a clause and designed to address risks which cannot necessarily be insured and which are outside of the control of the parties to the contract.

Indeed, there exists many definitions of a force majeure clause but the one I prefer is that of Dickson J in the matter of Atlantic Paper and St Anne one in which he said: "An act of God or force majeure clause generally operates to discharge a contracting party when a supervening, sometimes super-natural event beyond the control of either party makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight."

In French law, for a party to a contract to invoke a force majeure clause, the event must pass threetests: it must be external, it must be unpredictable and it must be irresistible.

If the force majeure event passes those three tests, then the party relying on it will normally be exempt from further performance of the contract.

Because it is for the party that wishes to rely on a force majeure clause to prove that the event that has caused (or is causing) non-performance falls into the ambit of force majeure, the clause normally lists the events that fall into the category and typically being: Acts of God, war, belligerent action, hostilities, terrorist acts, governmental decisions, riot, civil commotion, strikes, fire, flood, earthquake epidemic etc. The list goes on.

Contracts draftsmen foresee the unforeseeable, predict the unpredictable, list such unforeseeable and unpredictable events within a clause in the contract and call the events force majeure.

But what if an event that could be construed to be force majeure occurs that is not listed? Well, then there is frustration. If, during the course of the operation of the contract, there arises an intervening event or change of circumstances of so catastrophic or fundamental a nature that makes further performance become effectively impossible, it could be argued that the contract is frustrated and the parties are discharged from their obligations. That is basic law in most countries and it makes perfect sense.

Now, strikes for example do not normally frustrate contracts (nor do wars for that matter) and therefore a force majeure clause that includes for the events of strikes and wars is somewhat more forgiving than basic law.

So, where are we? I know basic law permits the parties to a contract to be excused from further performance if catastrophic or fundamental events make further performance impossible, but if an external, unpredictable and irresistible event arises that makes further performance impossible then that is force majeure.

If you are now thinking that force majeure is almost if not identical to frustration, it may reassure you to know that I am thinking exactly the same.

It seems to me that a force majeure clause is not about unexpected events but about expected events the risks of which contracting parties aren't prepared to take.

However, The Civil Code in the UAE provides in Article 893: "If any cause arises preventing the performance of the contract or the completion of the performance thereof, either of the contracting parties may require that the contract be cancelled or terminated as the case may be," and which can only be described to be an Article of catholic construction.

You don't get any more all-embracing than any cause preventing performance and which would not only include the traditional events normally found in force majeure clauses but might also include a cause such as the current economic climate.

That brings us neatly to the recent splash in the press about Donald Trump whose lawyers are arguing that one of his company's failure to repay a loan arises out of the world-wide recession and which is (they say) an "act of God". Now, let's examine that argument. For a start the world-wide recession was not caused by God but instead by bankers lending money they did not have to entities that could not repay it and thus the argument must fall at the first hurdle. However, and returning to legal principle, there are certain questions that must be answered and being:

1. Is the recession external (i.e. outside of the control of the parties to the contract) and to which the answer must be yes.

2. Was the recession un-predictable and to which the answer must be No (There was a recession in the 1930's and if it has happened before it can happen again).

3. Was the recession irresistible and (given that the parties to the contract can exercise no control over the acts of the bankers or the effects of the recession) to which the answer must be Yes.

In my view, Donald's lawyers will fail in their argument, first in law and second because of commercial considerations. Just think, if Donald's lawyers convince the court that the recession is an Act of God and therefore falls within the category of force majeure then everyone that owes money will jump on the bandwagon and lenders will be in real trouble.

Of course, Donald's argument goes to a loan agreement and which is fundamentally different to a construction contract in the UAE. It seems to me that, in the absence of the unforeseen ability element, all that has to be shown in the UAE (and here's the tricky bit) is a causal link between the event of world-wide recession and the non performance of the contract. In other words, "prevention" must be proved.

As each case will turn on its own facts and as, to the best of my knowledge, there is no objective test for prevention, outcomes will be unpredictable.

That much can be expected.

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