Is a contractor entitled to an extension of time if construction works are delayed due to the impact of coronavirus (COVID-19)?

Is a contractor entitled to an extension of time if construction works are delayed due to the impact of coronavirus (COVID-19)?

Produced in partnership with Abdul-Lateef Jinadu of Keating Chambers

The answer depends entirely on the contract between the parties. Standard form contracts provide for the granting of extensions of time and these usually include a provision for force majeure which would include the effects of coronavirus (COVID-19).

The JCT standard forms of building contract contain an extension of time provision which defines the contractor’s entitlement to an extension of time by reference to ‘relevant events’. The definition of relevant events includes ‘force majeure’. The JCT standard forms do not contain a definition of force majeure, therefore, it is necessary to consider the common law position as it pertains to frustration.

In Davis Contractors v Fareham UDC, the House of Lords gave what is now regarded as the classic definition of the doctrine when it said that frustration:

‘…occurs wherever the law recognises that without 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. Non haec in foedera veni. It was not this that I promised to do.’

A force majeure clause will be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract.

In deciding whether a contract has been frustrated, the data for decision are, on the one hand, the terms and construction of the contract, read in the light of the then existing circumstances, and on the other hand, the events which have occurred. It is not hardship or inconvenience or material loss which calls the principle of frustration into play unless there is a radical change in the obligation. In Davis Contractors Ltd, the House of Lords held that delay due partly to bad weather and partly to an unforeseen shortage of labour caused by the unexpected lag in the demobilisation of troops after the war did not constitute force majeure. However, in Sir Lindsay Parkinson & Co Ltd v Commissioners of Works, abnormal delay was found to constitute force majeure. In giving judgment, Asquith LJ laid down the following principles:

‘A contract often provides that in the event of “delay” through specified causes, the contract is not to be dissolved, but merely suspended, yet such a provision has been held not to apply where the delay was so abnormal, so pre-emptive, as to fall outside what the parties could possibly have contemplated in the suspension clause. In other words “delay” though literally describing what has occurred, has been read as limited to normal, moderate delay, and as not extending to an interruption so differing in degree and magnitude from anything which could have been contemplated as to differ from it in kind.’

While the question of frustration will often be a question of degree and a mixed one of fact and law, an important illustration of the application of the principle in analogous circumstances is Lebeaupin v Richard Crispin and Company where the court adopted a definition of force majeure which included epidemics which is likely to be useful guidance as to how courts will interpret the phrase in the present circumstances. The date of the decision is notable as it was given during the immediate aftermath of the Spanish flu pandemic.

The Infrastructure Conditions of Contract, 2014 edition provides, at clause 9.4, for the granting of an extension of time for the completion of the works or any section of the works where delay is caused by any of the grounds set out in sub-clause 8.4(b) (Contractor to rectify), sub-clause 8.5 (Employer’s Risks) or sub-clause 8.7 (Shared Risks).

One of the shared risks identified in sub-clause 8.5 is force majeure. In addition, included in the definitions of shared risk is ‘other special circumstances of any kind whatsoever which may occur’. Neither of these terms is defined in the standard form.

In the FIDIC suite of contracts, the grounds on which an extension of time will be granted depend upon the FIDIC book in question. Under the Red Book, consequences of force majeure may give rise to an entitlement to an extension of time plus cost. In the FIDIC contracts, force majeure (referred to as an ‘Exceptional Event’ in the 2017 editions) is defined. It is defined as an exceptional event or circumstance that is beyond a party’s control, could not reasonable have been provided against or avoided and is not attributable to either party.

In the NEC3 and NEC4 standard forms, the compensation events include clause 60.1(19) which provides for a compensation event if an event stops the contractor completing the works or stops the contractor completing the works by the date shown on the accepted programme, and which neither party could prevent, an experienced contractor would have judged at the contract date to have such a small chance of occurring that it would have been unreasonable for them to have allowed for it and is not one of the other compensation events stated in this contract and is not an additional employer’s risks stated in the contract data.

In the absence of a contractual provision granting an extension of time, the common law principles in respect of frustration set out above will apply.

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