FIDIC Red Book 1999 – The Force Majeure Clause

FIDIC Red Book 1999 – The Force Majeure Clause

The definition of force majeure provided in the FIDIC Red Book 1999 Edition form in Clause 19 is widely drawn. Sub-Clause 19.1 defines a force majeure event as one:

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.

Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (A) to (D) above are satisfied:

1) munitions of war, explosive materials, ionising radiation or contamination by radioactivity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radioactivity, and

2) natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity.

3) war, hostilities (whether war be declared or not), invasion, act of foreign enemies,

4) rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war,

5) riot, commotion, disorder, strike or lockout by persons other than the Contractor’s Personnel and other employees of the Contractor and Sub-Contractors.

There is a broad definition of force majeure and it should be remembered that the examples listed above are not an exhaustive list but, reflect the basic premise of a force majeure clause, namely that it serves to exempt a party from performance on occurrence of a force majeure event.

A problem which has been identified with the FIDIC Red Book 1999 Edition is that there is a risk of a potential overlap and/or contradiction between Sub-Clause 19.1 and the courts definition of force majeure under Malaysian Law. Indeed incorporating a clause such as Clause 19 into a contract not only duplicates what is usually provided for under law but also enlarges the scope of the meaning and application of force majeure. This could result in the Parties getting into a contradictory situation.

There was no specific force majeure clause in the Red Book FIDIC 4th Edition. However, the Contractor was afforded some protection by Clause 65, which dealt with special risks including the outbreak of war, and Clause 66, which dealt with payment when the Contractor was released from performance of its contractual obligations. The scheme of the FIDIC form is that the party affected, which is usually the Contractor but could also be the Employer, is entitled to such an extension of time as is due and (with exceptions) additional cost where a “force majeure” occurs.

For Clause 19 to apply, the force majeure event must prevent a Party from performing any of its obligations under the Contract. The now classic example of this is the refusal of the courts to grant relief as a consequence of the Suez crisis during the 1950’s. Those who had entered into contracts to ship goods were not prevented from carrying out their contractual obligations as they could go via an alternative route even though the closure of the Suez Canal made the performance of that contract far more onerous it did not make it impossible.

Sub-Clause 19.7 of the FIDIC Red Book 1999 Edition is also of interest. Here, the parties will be released from performance (and the Contractor entitled to specific payment) if (i) any irresistible event (not limited to force majeure) makes it impossible or unlawful for the parties to fulfil their contractual obligations, or (ii) the governing law so provides. It acts as a fall-back provision for extreme events (i.e., events render the contractual performance of the contract illegal or impossible) which do not fit within the strict definition of force majeure laid out under Sub-Clause 19.1. It also grants the party seeking exoneration the right to rely on any alternative relief which may be contained in the law governing the contract.

If common law applies as it does in Malaysia, the affected party will be able to rely on the common law concept of frustration, which occurs whenever the law recognises that without the default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. To claim frustration, it is not be enough for a Contractor to establish that new circumstances have rendered its contractual performance more onerous or even dangerously uneconomic. For frustration to be held by the courts as grounds for termination, it is requirement that a radical turn of events completely changes the nature of the contractual obligations. It is a difficult test to fulfil, but not as difficult as that of Sub-Clause 19.4 (force majeure) or the first limb of Sub-Clause 19.7 which both refer to the concept of impossibility (or illegality).

What is common to both the notion of frustration and that of force majeure as interpreted under common law though, is that no relief will be granted in case of economic unbalance. An illustration concerning the interpretation of a force majeure clause under common law can be found in the case of Thames Valley Power Limited v Total Gas & Power Limited, [2006]. Where the Court held that the force majeure event has to have caused the Contractor to be unable to carry out his obligations under the Contract and the fact that it is much more expensive, even greatly more expensive for it to do so, does not mean that it cannot do so.

MALCONLAW 2011

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