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Ebola crisis should prompt force majeure review, says expert

Out-Law Analysis | 09 Sep 2014 | 3:07 pm | 3 min. read

FOCUS: The rapid spread of the Ebola virus in west Africa is already having an impact on projects and business activities there. As the virus spreads, so will that impact, so organisations operating in the region must check 'force majeure' clauses in their contracts and amend them if necessary.

Ebola is already having an effect on businesses. Steel and mining company ArcelorMittal has said that contractors working on one of its iron ore mines in Liberia have declared force majeure and are moving people out of the country because of the outbreak.

Governments and aid organisations are attempting to limit the spread of the outbreak but cases are being reported in Nigeria, Congo and even, albeit unofficially, in the Middle East.

Force majeure clauses can relieve parties of their contractual obligations if there is a major event outside of either party's control. If a workforce becomes sick or is prevented from attending work as a result of travel restrictions, such as those currently being imposed in west Africa, this may be covered by force majeure, but companies should check and, if required, re-negotiate their contracts in order to be sure.

Force majeure can be a difficult concept because it is not precisely defined. Our guide to force majeure is a good starting point for understanding the concept, but the common use of standard contracts means that businesses are not necessarily able to clarify the concept through their own contract drafting.

That means that businesses which might be affected by the Ebola outbreak should look now at what their contracts say and start taking any action they need to defend their position.

Contracts will describe not only what is meant by force majeure but also what procedures need to be followed if a company is claiming that the clause is in effect.

For example the widely used FIDIC 1999 Red Book includes not only a definition but also procedures that must be followed in the event of a force majeure. It says that notices that must be given within 14 days of a business becoming aware of the event or circumstance, or when the party should have become aware of it.

It provides a guide as to the type of events and circumstances to which it might apply, including 'natural catastrophes'. It is not clear if the Ebola outbreak would be classed as a natural catastrophe but there is scope to argue that point.

If a government declares a state of emergency, for example, or prevents people going to work, then this could potentially be relied upon as a force majeure preventing a party from performing the contract. Whilst governments have generally not taken such steps yet, travel restrictions and quarantined areas are examples of how events outside the control of a party may impact the performance of contractual obligations.

It is imperative that after becoming aware of a force majeure potentially impacting the contractual works or obligations, notice should be served to the other party to ensure that contractual rights are protected.

Most contracts provide details of the consequences of a force majeure. The Red Book says that if a party is prevented from performing any of its obligations under the contract by force majeure, and if the notice is properly given, it is entitled to either an extension of time for any delay or its costs should the event fall within one of the defined examples.

Standard form contracts are frequently amended and so it is imperative that parties who are operating in west Africa check their contracts and in particular the definition of and procedures for claiming a force majeure. 

If a party is claiming time and money as a result of Ebola or another unforeseen event it must comply with the relevant procedural requirements for claiming loss and expense or an extension of time and prove that the event in fact caused the alleged period of delay or loss.

Therefore, parties operating in regions such as west Africa should review their contracts and contingency plans and potentially discuss with clients and its supply chain what can be done, rather than what cannot, with a view of agreeing a way forward, rather than a dispute.

If a party wants to invoke a force majeure clause it should be prepared to defend its position if challenged as a third party arbiter may have the final decision as to whether the incident qualifies as a force majeure. Careful consideration should be given to how the virus is impacting the performance of a contract and whether events or circumstances, such as government quarantine areas, are outside the control of a party.

An understanding of the definition and procedures for a force majeure clause could mean the difference between a party's recovery of costs and an extension of time or no entitlement at all. 

Matthew Heywood is a Dubai-based construction specialist at Pinsent Masons, the law firm behind Out-Law.com