Facts and myths around Force Majeure

Introduction

The need arose in the engineering and legal circles in Egypt and the Arab world, during the past few days, to study the suitability to classify, as a force majeure, the current conditions related to the COVID-19 Pandemic and the negative impact it had on the performance of the contractors in the various construction projects. In light of the different venerable opinions of many colleagues of engineers and lawyers, some of these opinions have been held hostage to incorrect perceptions of force majeure, while such perceptions do not have any basis under the law, the judiciary or jurisprudence, which I will attempt to clarify in this study.

It may be appropriate, at the outset, to emphasize that the spread of COVID-19 is a force majeure event that gives entitlement to an exemption from performance of the obligation, if it results in a negative impact on the contractor's performance of its obligations and to the extent of such impact. It is also appropriate to recall that the force majeure, within the context of contractual obligations and according to the Egyptian Civil Law, is one of three events (in addition to the fortuitous event and the act of third party), together they represent what is known as the extraneous cause, which gives entitlement to an exemption from the performance of the obligation. Such an exemption may have two forms, the first is the extinction of the obligation, if the impossibility is the result of force majeure event/extraneous cause, and the second is the exemption from the damages resulting from the delay in the performance of the obligation, if the delay is the result of the force majeure event/extraneous cause, all as detailed below.

It may also be appropriate to make it clear that in construction contracts, the performance of the obligations is typically required to be over an agreed period of time after the conclusion of the contract, the statement that it is impossible to implement the obligation and that the obligation is distinguished as a result of a force majeure event does not necessarily indicate the impossibility to execute the contracted works and the distinction of the contractor’s relevant obligation, but it can also be said that they indicate the impossibility of carrying out those work within the agreed time, and the distinction of the contractor’s obligation to carry them out within that time, while their execution is possible at a later date.

The above clarification may give the appropriate answer to the frequent question about the reason why the jurisprudence, when talking about force majeure, associated the occurrence of force majeure to the impossibility of execution. Such associated actually exists if we consider, as clarified, that the impossibility of the debtor to carry out their obligation within the agreed time, is the intended impossibility, not the impossibility to carry out the obligation in itself, and that the debtor's delay in carrying out their obligation is the distinction of their obligation, not the distinction of the obligation itself.

At the end of this introduction, I would like to highlight terminology issue that may have caused confusion among some colleagues of engineers and lawyers when discussing the issue of force majeure and its impact on contractual obligations in construction contracts. In the context of the law when using the term “impossibility of execution", the meaning of "execution" is devoted to "the execution of a contractual obligation", while within the context of the construction when using the term "impossibility of execution", the meaning of "execution" may be devoted to "execution activities" carried out by the contractor on the site, and the difference between the two terms is substantial. Therefore, if we want to apply the provisions related to the impossibility of execution as stipulated under the law to the contracting contracts, it should not come to mind that the impossibility of the execution is the impossibility that the contractor carries out the construction activities on the site, rather what is meant is the impossibility that the contractor carry out any of its contractual obligations, such as the contractor’s obligation to complete the works at the agreed time.

Finally, this study on force majeure and its results is a study under the Egyptian civil law, which is nonetheless valid for application to all civil laws in our Arab countries, given the complete similarity between the philosophy and general principles of these laws and the philosophy and general principles of Egyptian civil law, especially with regard to the subject of the study which is force majeure.

The first myth “force majeure necessarily implies the impossibility of execution”. The first fact “force majeure does not necessarily imply impossibility of execution.

This is the first and most widespread of these myths, and the most influential on the rights and obligations of both parties to the contract, namely the owner and the contractor. The impossibility of execution (whether permanent, temporary, or partial), while is one of the potential consequences of force majeure, it is not a condition thereto. According to the Egyptian Civil Law, two conditions need to be fulfilled in any given event in order to be classified as a force majeure: (1) the unforeseeability and (2) unavoidability, (see Court of Cassation awards, Appeal No. 77 of 72 judicial year and Appeal No. 979 of Judicial 47). Therefore, it is not a condition for a given event to be classified as a force majeure to result in impossibility of execution.

In confirmation of the above, Article 215 of the Egyptian Civil Code explicitly states that: "When specific performance by the debtor is impossible, he will be ordered to pay damages for non-performance of his obligation, unless he establishes that the impossibility of performance arose from an extraneous cause beyond his control. The same principle will apply, if the debtor is late in the performance of his obligation.” To well understand the article, the second part thereof can be reworded as follows: If the debtor is late in performing his obligation, he will be ordered to pay damages for such delay, unless he proves that the delay in performing the obligation resulted from an extraneous cause beyond his control. Accordingly, Article 215 in its second part does not address the impossibility as a consequence of the force majeure even, but rather deals with the delay as a consequence thereof and gives the same stipulation as in the case of impossibility, which is the exemption from performance of the obligation.

In the same context, Al-Sanhouri says in his explanation of construction contract, specifically in the contractor’s obligation not to delay the completion of the work, that: “The obligation to complete the work within the agreed time or within the reasonable time is an obligation to achieve a result and not an obligation of due diligence, it is not sufficient to exempt the contractor from the responsibility to prove that he exerted the diligence of the usual person to complete the work on time, nonetheless he was not able to do so, but rather, to be exempted from his responsibility, he must prove the extraneous cause. If he proves force majeure, fortuitous event or the act of others, the causality is not fulfilled and his responsibility is not materialized. Al-Sanhouri explanation clearly indicates that the consequence of force majeure may be delaying the completion of the works without rendering it impossible. Evidently, in the context of construction contracts, it is sufficient to say that the force majeure delays the obligations that the contractor’s execution rates for the various activities are negatively affected by the force majeure, even if all the activities performed by the contractor are continuing without interruption or impossibility, and without the contractor withdrawing from the site, which is the most common situation under current conditions.

The second myth “The major difference between the force majeure event and the exceptional circumstances is the severity of its consequences.” The second fact, “the major difference between the force majeure event and the exceptional event is in the nature of its consequences.”

In the context of contractual obligations, the provisions of force majeure (being one of the cases of extraneous cause) are stipulated in two articles, one of which is Article 215 and has already been addressed, and the other is Article 373 which states that: “An obligation is extinguished if the debtor establishes that its performance has become impossible by reason of extraneous causes beyond his control."

The provisions of exceptional circumstances are stipulated in its general ruling in Article 147: "When, however, as a result of exceptional and unforeseeable events of a general character, the performance of the contractual obligation, without becoming impossible, becomes excessively onerous in such way as to threaten the debtor with exorbitant loss, the judge may according to the circumstances, and after taking into consideration the interests of both parties, reduce to reasonable limits, the obligation that has become excessive. Any agreement to the contrary is void." Moreover, the provisions of exceptional circumstances in its special form applicable to the construction contracts are stipulated under Article 658 stating that:" When, however, as a result of exceptional events of a general character which could not be foreseen at the time the contract was concluded, the economic equilibrium between the respective obligations of the master and of the contractor breaks down, and the basis on which the financial estimates for the contract were computed has consequently disappeared, the judge may grant an increase of the price or order the termination of the contract.”

It seems that the reason for this incorrect perception with regard such major difference is that Article 147 states that "the performance of the contractual obligation, without becoming impossible, becomes excessively onerous ", while the impossibility was referred to in the context of provisions relating to force majeure as shown. If this perception was true, and it is definitely not true, then one incident would have, according to this perception, been classified either as an exceptional event (if it did not lead to the impossibility) or a force majeure (if it led to the impossibility), and therefore the debtor can claim for the remedies the law stipulates for either cases, but not both cases.

While acknowledging that the event that leads to the impossibility of implementation can be classified as a force majeure, if it fulfills the two conditions of force majeure, the fact is that the major difference between exceptional circumstances and force majeure is not related to the severity of the consequence of the event in the sense that if such consequence is impossibility, the event is a force majeure, and if it is merely exhaustion for the debtor, it is an exceptional circumstances, but it relates primarily to the nature of this impact. Accordingly, and provided that the required conditions are met in each event, if the consequence of this event relates to the ability to perform contractual obligations, the event is classified as a force majeure, if such consequence relates to the financial estimate of the contract, the event is classified as exceptional.circumstances and if the consequences of this event are delays to performance of the contractor’s obligations and failure of the financial balance of the contract, the event is classified as an exceptional circumstances and as a force majeure at the same time.

This difference is clear from the texts of the articles related to force majeure and exceptional circumstances. While the provisions of the articles related to force majeure events are limited to the ability to perform the obligation and exemption from it, the provisions of the articles related to exceptional circumstances are address completely different financial considerations such as "serious loss", "collapse of the economic balance" and "financial estimate of the contract”. Not only that, but also the provisions of exceptional circumstances in their special application on construction contracts (Article 658), when they empowered the judge to terminate the contract, they, in effect, stipulate that the performance of the obligations under the contract are rendered impossible by cause of such exceptional circumstances. This confirms once again that it is not correct to rely on the impossibility of execution as a major factor in classifying the event as a force majeure event or an exceptional circumstances event, especially within the context of construction contracts.

In addition to the foregoing, we indicated in the previous point that an event can still be classified as a force majeure, if its conditions are fulfilled, even if the consequence of this event is merely delaying the contractor in performing his obligation, without it being impossible for him to perform the obligation. Therefore if the event subject to classification does not result in impossibility of performance and yet the force majeure conditions are met, the perception that assumes that the “impossibility” is decisive factor in classifying the event either as a force majeure or exceptional circumstances will stand helpless as for the classification of that event, and it will only be for it to look at the nature of the consequence of the event to classify the event. It will be acceptable in this case and provided that the conditions required by the law are met, that the event is classified either as a force majeure if it delays the contractor in the performance of its obligations, or an exceptional circumstances, if it causes collapse to the financial balance of the contract or as force majeure and exceptional circumstances at the same time, if it results in both consequences.

The third myth “Contractors are exempted from performing their obligations due to the COVID-19 event.” The third fact “Contractors are exempted from performing the obligation that is negatively affected by the COVID-19 event and to the extent of such effect.

The current COVID-19 event, while satisfying the conditions of force majeure (unforeseeable and unavailability) and despite that the fulfilling these two conditions is necessary, it is yet not sufficient to exempt the contractor from his contractual obligations, but rather this event exempts the contractor from performing any contractual obligation, if it results in a negative impact on the contractor's performance of such obligation and within the limits of such effect.

Consequently, it can be said that each project must be studied separately, in terms of the extent it is affected by this event, and it can be envisaged that the impact of this event could be minimal, when there is no negative impact on the contractor, and therefore the contractor is not exempted from any obligation. For instance, when the work under execution during the event period is testing and commissioning (which may extend for several months) it is quite likely that the contractor will not be affected at all by this event due to the nature of the testing and commissioning work that requires limited quantities of materials and a little number of labors, and therefore, the contractor is not affected by the restrictions to the movement of labor and goods and no protection measures are required for involved personnel. It is also envisaged that the impact of this event will be at its maximum when the work is completely suspended. For instance, when the work is entirely dependent on the presence of foreign experts or technicians, and they are repatriated to their home country until the event comes to an end, the work on the site will stop completely until things settle down and experts and technicians return to the site.

Finally, it is conceivable that the impact of this event will be in a middle area between its maximum and minimum levels, which is the most common case, where implementation rates decrease, while the work continues on site, as in the case of projects in which work is carried out over twenty-four hours, then hours of work decrease in line with the curfews declared, or in the case of projects whose nature requires taking the necessary health precautions related to daily sterilization and reducing labor intensity.

It follows that the contractor who relies on COVID-19 as a force majeure event must specify the obligations for which exemption is requested and prove that, for each of such obligations, the causality between the force majeure event and the contractor's inability to perform the obligation or his delay in performance thereof.