The case Damac – Dubai Property Sales Purchase Agreements – What is Force Majeure in General

Damac, said:

“We understand that this is a serious and unfortunate situation, but one which is completely outside Damac Properties’ control.

Dubai-based lawyer, Edward Sunna, head of construction and engineering, Al Tamimi and Company, who has been approached by the investors group to represent them, agreed that a ‘force majeure’ is mainly called for in the event of a natural disaster like an earthquake, hurricane or similar forces of nature.”I’m not sure what Damac intends to do but calling for a ‘force majeure’ in this situation is a little strange. I don’t see them getting very far with this,” he said.Damac declined to make any further comment on the story

Force majeure are almost always included in sales and purchase agreements Dubai developers.

For example Terms and Conditions Nakheel ( a wide definition of Force Majeure)

17. FORCE MAJEURE out of a contract from Nakheel

“Event of Force Majeure” means an act of God including but not limited to fire, flood, earthquake, windstorm or
other natural disaster; act of any sovereign including but not limited to war, invasion, act of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, nationalisation, requisition, destruction or damage to property by or under the order of any government or public or local authority or imposition of government sanction embargo or similar action;labour dispute including but not limited to strike, lockout or boycott; interruption or failure of utility service including but not limited to electric power, gas, water or telephone service; failure of the transportation of any personnel, equipment, machinery or material required by the Seller for completion of the Building; delay for any reason by any contractor or subcontractor in carrying out their works or any matter; or cause beyond the control of the Seller.

Should an Event of Force Majeure have occurred that has delayed the Completion Date, the Seller shall upon becoming aware of such delay promptly notify the Buyer and inform the Buyer of the revised Completion Date or an estimate of the duration of the delay, followed by a revised Completion Date when same can be determined.

Should an Event of Force Majeure delay the Completion Date by a period of in excess of one (1) year the Buyer may elect to terminate this Agreement by notice to the Seller and the Seller shall refund all monies paid by the Buyer. (means=without any compensation !!!)
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or see “Force Majeure” in a full contract Nakheel:
http://residents.internationalcity.ae/images/download_attachmenta550.asp?ArticleCode=ART17460&AttachmentID=ART00004

But Force Majeure should not be used as a “catch all phrase” in contracts.

A study shows how this clause should be used in a proper contract.
http://www.mallesons.com/publications/Asian_Projects_and_Construction_Update/Asian_Projects_and_Construction_Update_26_October_2002.pdf
original published :
http://www.mallesons.com/publications/Asian_Projects_and_Construction_Update/6366675W.htm

Introduction

Force majeure clauses are almost always included in project agreements. However, they are rarely given much thought unless and until one or more parties seek to rely on them. However, in the current global environment it is appropriate to examine their application.

What is force majeure?

Force majeure is a civil law concept that has no real meaning under the common law.

However, force majeure clauses are used in contracts because the only similar common law concept – the doctrine of frustration – is of limited application because for it to apply the performance of a contract must be radically different from what was intended by the parties.

In addition, even if the doctrine does apply, the consequences are unlikely to be those contemplated by the parties.

An example of how difficult it is to show frustration is that many of the leading cases relate to the abdication of King Edward VIII before his coronation and the impact that had on contracts entered into in anticipation of the coronation ceremony.

In circumstances where a project company wants to minimise any opportunity for extension of time claims it could consider not including a force majeure clause and instead relying on the doctrine of frustration.

However, before making a determination to rely on frustration a project company must consider how frustration is applied in the relevant jurisdiction and, in particular, whether the common law application has been altered by legislation.

Given force majeure clauses are creatures of contract their interpretation will be governed by the normal rules of contractual construction.

Force majeure provisions will be construed strictly and in the event of any ambiguity the contra proferentem rule will apply.
Contra proferentem literally means “against the party putting forward”. In this context, it means that the clause will be interpreted against the interests of the party that drafted it.

The parties may contract out of this rule.

The rule of ejusdem generis which literally means “of the same class” may also be relevant.

In other words, when general wording follows a specific list of events, the general wording will be interpreted in light of the specific list of events.
In this context it means that when a broad ‘catch-all’ phrase, such as ‘anything beyond the reasonable control of the parties’, follows a list of more specific force majeure events the catch all phrase will be limited to events analogous to the listed events.

Importantly, parties cannot invoke a force majeure clause if they are relying on their own acts or omissions.

General force majeure provisions

Traditionally, force majeure clauses, in referring to circumstances beyond the control of the parties, were intended to deal with unforseen acts of God or of governments and regulatory authorities.

More recently, force majeure clauses have been drafted to cover a wider range of circumstances that might impact on the commercial interests of the parties to the contract.

It is now quite common for force majeure clauses to deal not only with impossibility of performance but also with questions of commercial impracticability.

By itself the term ‘force majeure’ has been construed to cover acts of God1; war and strikes2, even where the strike is anticipated; embargoes, refusals to grant licences3; and abnormal weather conditions4.

The underlying test in relation to most force majeure provisions is whether a particular event was within the contemplation of the parties when they made the contract.

The event must also have been outside the control of the contracting party.

Despite the current trend to expressly provide for specific force majeure events, case law actually grants an extensive meaning to the term force majeure when it occurs in commercial contracts.

There are generally three essential elements to force majeure:

it can occur with or without human intervention;

it cannot have reasonably been foreseen by the parties; and

it was completely beyond the parties control and they could not have prevented its consequences.

For instance, Bailhache J. in Matsoukis v Priestman5 held that force majeure covered dislocation of business owing to a universal coal strike, access to machinery, but not bad weather, football matches or a funeral. I

n Lebeaupin v Crispin6 force majeure was held to mean all circumstances beyond the will of man, and which it is not in his power to control. Therefore, war, floods, epidemics and strikes are all cases of force majeure.

There is an important caveat to the above and that is, parties cannot invoke a force majeure clause if they are relying on their own acts or omissions.

Additionally, the force majeure event must be a legal or physical restraint and not merely an economic one.

‘Circumstances beyond the control of the person concerned’

The phrase ‘circumstances beyond the control of the person concerned’ has not been subject to detailed examination by the courts.

The courts simply assume that the phrase is given its common and everyday meaning.
The phrase has been judicially held to refer to occurrences which neither the person concerned, nor any person acting on their behalf to do the act or take the step, could prevent.

Recent practice has significantly expanded the scope of such clauses to cover a wider range of circumstances that might impact on the commercial interests of the parties to the contract.

Reynolds JA in Caltex Oil v Howard Smith Industries Pty Ltd9 stated that the phrase ‘other circumstances beyond the control of the parties’ would include an industrial strike.
Therefore, specific reference to ‘strikes’ may be unnecessary in force majeure provisions where the above phrase appears, although it is still advisable to include it.

The Australian unreported case of Asia Pacific Resources Pty Ltd v Forestry Tasmania (No. 210) noted that as a general rule a party cannot invoke a force majeure clause due to ‘circumstances beyond the control of the parties’ which, to the knowledge of the party seeking to rely upon the clause, were in existence at the time the contract was made.

This case must be contrasted against Reardon Smith Line Ltd v Ministry of Agriculture, Fisheries and Food11 which held that there was no settled rule of construction that prevents a party to a force majeure clause from relying on events in existence at the time the contract was entered into as events beyond that party’s control.

Kerr J in Trade and Transport Inc v Iion Kaiun Kaisha Ltd, The Angelia12 referred to Reardon Smith and then stated that ordinarily a party would be debarred from relying upon a pre-existing causes as an excepted peril if:

(i) the pre-existing cause was inevitably doomed to operate on the contract; and

(ii) the existence of facts which show that the excepted cause is bound to operate is known to the parties at the time of contract, or at least to the party who seeks to rely on the exception;

His Honour then added as an alternative to (ii);

(iii) if the existence of such facts should reasonably have been known to the party seeking to rely upon them and would have been expected by the other party to the contract to be so known.

Given the above, it seems that causes beyond the control of the parties which were known at the date of contracting may excuse performance only where they were of a temporary nature and are not doomed to operate on the contract.

The way forward

If a project company decides it wants to include a force majeure provision in its project agreements the best way to limit the application of that clause is by defining a closed list of events that constitute force majeure for that contract.

In other words, it should not include the catch all “any event beyond the reasonable control of the parties including….”.
Given force majeure is a creation of contract, the courts are unlikely to expand on the definition given by the parties.

Obviously, this restricted approach is most appropriate when the counterparty has time critical obligations eg: in an EPC contract.
However, where it is the project company that has time critical obligations eg: in an offtake agreement, the project company should adopt a more encompassing definition including the traditional catch all phrase.