Force Majeure in Standard Forms

Force Majeure in Standard Forms

All standard contract used in Malaysia contain a force majeure clause and it is very important that those entering into construction agreement fully understand the reasons for its inclusion and how it should be administered.

A definition of force majeure has been covered in a separate MACONLAW article but can be said to be an exceptional matter or event which was beyond the control of the parties to the contract.

The reason for inclusion of a force majeure clause in a contract is to clearly define the party’s obligations and liabilities in the event of force majeure occurring (as defined in the contract) and to prevent the contract being frustrated in the event that there is no mechanism to extend the time for completion. Examples of force majeure clause in contracts commonly used in Malaysia are given below:

The PWD 203 (or 203A) standard form of contract, sub-clause 43(a) states “upon it becoming reasonably apparent that the progress of works is delayed, the contractor shall forthwith give written notice of the causes of delay to the Superintending Officer, and if the completion of the works is likely to be delayed or has been delayed by force majeure (or any other reasons stated in that clause) then the Superintending Officer shall extend the time for completion of the works.”

The PAM 1998 standard form of contract, sub-clause 23.7(i) lists the relevant event under which a Contractor is entitled to an extension to the time for completion and force majeure is included.

The PAM 2006 standard form of contract, sub-clause 23.8(a) lists the relevant event under which a Contractor is entitled to an extension to the time for completion and force majeure is included.

The CIDB 2000 standard form of contract, sub-clause 24.1(a) allows for the Superintending Officer to extend the time for completion if there is a delay caused by force majeure.

The FIDIC Red Book 1999 Edition Clause 19 defines force majeure and further details procedures for extending the time for completion and in the event of delay extending for more than 84 days the options for termination together with the relief available.

The FIDIC Red Book 4th Edition 1987 does not define force majeure thus it will be defined by the reference to the laws of Malaysia. The Contract does however have a special risks clause under which the Engineer shall determine any extensions to the time for construction and related cost. Refer to sub-clauses 65.1, 65.2. 65.4, 65.5 and 65.6 together with 20.4

As can be seen not all standard forms actually define force majeure and leave this to the jurisdiction of the law. To appreciate this we need to consider how the courts view force majeure. It is also relevant that even where force majeure is defined and it excludes risks which the courts deem to fall under the doctrine on force majeure and they have not been allocated as a risk of the Employer or the Contractor the courts may hold that force majeure has occurred and rule accordingly.

It is very clear that force majeure clauses have potential to affect greatly all parties to a construction contract the contract and as such it is essential that such clauses together with the Malaysian Courts view in respect of force majeure is considered carefully. Force majeure clauses should be construed taking account of the precise words used and with due regard to the nature and general terms of the contract.  Where a party claims an act of force majeure is the cause for them failing to meet their obligations under a contract it remains that parties burden to prove such an event falls under the doctrine.

In Malaysia parties can use the contents of the Contract Act 1950 to assist in establishing if an event falls under the doctrine of force majeure.

The effects of force majeure are also mentioned and elaborated further in Sub-section 57(2) of the Contract Act 1950 states:

“A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.”

Section 66 of the Act goes on to state:

“Obligation of person who has received advantage under void agreement or contract that becomes void.  When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.”

The implications of a force majeure clause in a contract can be large therefore to is important that those party to the contract give due consideration to its content and its interpretation to avoid possible catastrophic outcomes.

MALCONLAW 2010

Advertisements