On 18 May 2011 it was reported by www.Fin24.com that Arcelor Mittal, the South African arm of the world's largest steel producer, invoked the force majeure provisions in its supply obligation agreements with its customers due to Transnet's ongoing wage demand strike. At the time it was reported that the strike was in its second week. Arcelor Mittal was quoted as saying that, due to the ongoing Transnet industrial action, "very limited raw material deliveries" including iron ore and coal were being received at ArcelorMittal's facilities, "the company has informed its customers that it has invoked force majeure provisions provided for in the general conditions of sale," in a statement to the JSE (our emphasis).
It is important to take note here that Arcelor Mittal invoked a specific written contractual clause to excuse itself from performance under the contract while the strike was ongoing. This latest article from “First Aid For Contracts” explains why an event may be classified as a force majeure event.
➢ The position in South African law: impossibility versus force majeure
The term force majeure within the context of South African law does not have any precise definition, nor is it recognised as any special doctrine in South African law. Its significance in respect of our law depends on its use as an express provision in a contract. As a result of this, force majeure, and what can be defined as force majeure, is often a ground for confusion and misunderstanding in construction contracts (or other contracts for that matter). Typically, under a force majeure clause, where a party has been prevented from performing its obligations under the contract by an event beyond its control, it will be excused for its delay in performing its obligations under the contract, or, in an extreme case, it may be excused from having to perform the contract at all. In some cases, a party can recover the additional costs it had incurred as the result of the force majeure event as well but this depends on the terms of the contract . Traditionally contractors were excused performance of the contract or obligation effected by the force majeure event and were given an extension of time to avoid the imposition of penalties . When they were excused by employers they would not get any financial recompense, but this has been changed in some modern contract forms.
The expression force majeure covers a wide range of events such as acts of God, strikes, wars, insurrection and so forth. Force majeure clauses in contracts (where they have been included) provide that the event in question must be beyond the control of the party relying on it (or the other party but this would usually be covered by another remedy in the contract) and the contractual provision relating to force majeure must release that party from performance in the event of the occurrence of force majeure. Each standard form contract adopts a different approach to force majeure and accordingly the definitions vary from form to form.
In the absence of an express force majeure clause in a contract governed by South African law, one will have to distinguish between various forms of impossibility. These forms govern the consequences should any such form of impossibility arise during the execution of the contract .
Force majeure in FIDIC
We turn now to examine the escape mechanism for contractual performance provided in the form of a force majeure clause in FIDIC. Clause 19 of any FIDIC contract sets out what constitutes a force majeure event and this clause can be split up into two parts. The first part sets out the 4-point test for an event to fall within the scope of a force majeure event. It reads as follows:
“19.1 In this clause, “Force Majeure” means an exceptional event or circumstances:
(a) which is beyond a Party’s control,
(b) which such Party could not reasonably have provided against for 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.” (Our emphasis)
From this wording it is demonstrated that the inquiry is a factual one and you may be expected to be asked certain pertinent questions if you claim that this exceptional event or circumstances has prevented you from performing under the contract:
• Why could you not control the event or circumstance?
• Did you examine the political, social, economic, healthcare, climatic, geological circumstances prevailing in the country at the time of tender which may have impacted on your ability of performing your obligations? Did you make reasonable allowance for it? If not, why not? This is most probably the most difficult hurdle to clear to establish the presence of a force majeure event.
• What actions did you take in an attempt to avoid or overcome the event or circumstances? This relates back to your common law duty to minimise your damages.
• Why do you aver that you are not in some way or at all responsible for the event occurring?
The second part of this clause lists a series of events as examples (but is not a comprehensive list) which may qualify as a force majeure event, provided that the 4-point test above is satisfied. The events listed are:
“(i) War, hostilities (whether war be declared or not), invasion, act of foreign enemies,
(ii) Rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war,
(iii) Riot, commotion, disorder, strike or lock-out by persons other than the Contractor’s Personnel and other employees of the Contractor or Subcontractors,
(iv) Munitions of war, explosive materials, ionising radiation or contamination by radio activity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio activity, and
(v) Natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity.”
Bearing in mind the position in our law, it should become clear why force majeure provisions have made their way into our contracts. There is nothing to prevent the parties making specific provision in their contract for happenings that would otherwise discharge the contracting party and excuse non-performance. One could say that, by mentioning the possibility the parties have removed the unforseeability element, and by making provision for such events, they have removed the unavoidability element from it. This means that it no longer falls in the rule as set out in the reported court judgment explained earlier and effect will be given to the force majeure clause and each party’s rights should it occur . Accordingly, when the event satisfies the 4-point test set out in FIDIC the parties can be excused from performance for the duration of that event or may even terminate the contract.
If a contract does not contain a force majeure clause it does not render our law powerless in the face of an unforeseen change of circumstances falling short of a form of impossibility, however. In some cases one may be able to prove a tacit term or condition. In construction or relational contracts (such as a service level agreement for example) contracts, which are especially vulnerable to unforeseen changes or circumstances, draftsmen can protect their clients by including in the contract a force majeure, hardship or intervener clause .
Disclaimer: The content of this newsletter does not constitute legal advice. If you have a specific problem please contact MDA Consulting on 011 648 9500, at our Durban office on 031 764 0811 or by email on firstname.lastname@example.org
2 Christoper R. Seppala, International Business Law Journal, 2000, FIDIC’s new standard form contracts, force majeure and termination.
3 Anecdotal. Usually informal without reference to the contract.
4 RH Christie, “The law of contract in South Africa” 5th edition, LexisNexis sets out the distinction between absolute, initial, legal, physical and supervening impossibility. Compared to that, force majeure may altogether discharge a party’s obligations under the contract. South African law has a very uncompromising stance with regard to impossibility, especially the fact that vis ,maior or casus fortuitous has made it uneconomical for a party to carry out his obligations . To illustrate this we refer to the matter of Compaignie Interafricaine de Travaux v South African Transport Services where the following was recorded:
“In a civil engineering contract adverse physical conditions were encountered, resulting in claims by the contractor for additional payment of R65 million. The employer argued that in these circumstances the engineer on its behalf was entitled to terminate the contract. At 253-B-G the Appellate Division rejected this argument.”
5 There are no force majeure clauses in the NEC, GCC 2004 and 2010 and JBCC although other clauses deal with force majeure type events.
6 Christie, RH supra.
7 Christie, R.H p 473.