In the UK, construction law is made up of several bodies of law, making it a complex area of practice. This is the third in a series of articles which seek to provide an overview of some frequently asked questions in the construction industry and in relation to the laws which govern it. Specifically, we take a look at queries related to the impact of the conflict in Ukraine here:
1. What is a force majeure clause?
Where included in a contract, a force majeure clause excuses a party from their performance obligations. The clause will only apply in circumstances where events, out with a parties’ control, prevent them from fulfilling their performance obligations.
Whilst some standard form contracts define what acts or circumstances are included (or excluded) under a force majeure provision, defining a qualifying event is not always simple.
Generally, force majeure clauses will exclude events that are foreseeable. However, there may also be a difficulty in defining what is reasonably foreseeable, or in other words, not reasonably contemplated by parties at the time the contract was entered into.
2. Can the impact of the conflict in Ukraine, and any material shortages that arise from which, amount to the successful application of a force majeure clause?
As noted, the starting point when assessing the applicability of most force majeure provisions is to consider whether the circumstance which arose, and prevented performance of contractual obligations, was foreseeable.
If the circumstance is deemed foreseeable at the time the contract was entered into, then the provision would fall. However, in this instance, should it be determined that the conflict could not have been reasonably contemplated by parties at the time the contract was entered into, then the provision may still apply.
If the foreseeability ‘test’ is passed, then parties must consider whether the event does in fact prevent them from carrying out their obligations under the contract.
For many in the construction industry, the most significant impact felt as a consequence of the conflict has been the steep rise in material and fuel costs, and the resulting reduction in the availability of materials. Whilst this undoubtedly increases the financial burden on parties, the fact that a contract has become more expensive or onerous to perform is unlikely on its own to be sufficient to the extent that a force majeure provision would take hold, and thus, excusing a party from their performance obligations. Therefore, in the circumstances, it seems that it would be difficult for parties to successfully rely on the provision in relation to the conflict.
3. Where materials are procurable, albeit at a higher price than the original contract sum, can the difference in price be claimed for under the contract?
Whether or not increased costs can be claimed under the contract will depend entirely on the provisions of that particular agreement.
Some contracts will afford parties the opportunity to increase charges, insofar as inflation is concerned, where a price fluctuation provision is included.
Further, some standard form contracts suggest that a “Change” can be made to the specified materials in the event that they are no longer procurable. However, that does not account for a change in cost.
As with any construction project, the precise facts and circumstances are important when considering many of the foregoing issues, so it is always important to involve your solicitor early in the process.
For advice on your contractual rights/obligations, or alternatively for any advice in relation to dispute resolution, please feel free to get in touch with a member of our specialist Construction Law team.
This article was co-written by Josh Grieveson, Trainee Solicitor.