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Hardship and Force Majeure Clauses in International Construction Contracts

Analyzing the use and effectiveness of hardship and force majeure clauses in international construction contracts.

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Added on  2023-01-10

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This paper explores the effects of force majeure and hardship clauses in international construction contracts, including their implementation in different jurisdictions, legal issues faced by contractual parties, and the legal impact on construction contracts.

Hardship and Force Majeure Clauses in International Construction Contracts

Analyzing the use and effectiveness of hardship and force majeure clauses in international construction contracts.

   Added on 2023-01-10

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HARDSHIP AND FORCE MAJEURE CLAUSES IN
INTERNATIONAL CONSTRUCTION CONTRACTS
Hardship and Force Majeure Clauses in International Construction Contracts_1
TABLE OF CONTENT
1.INTRODUCTION.............................................................................................................................................4
1.1 Research background .............................................................................................................................5
1.2 Research questions.................................................................................................................................8
1.3 Research Aims and Objectives ...............................................................................................................8
1.4 Scope......................................................................................................................................................8
2. LITERATURE REVIEW ..................................................................................................................................10
3.METHODOLOGY...........................................................................................................................................18
3.1 Doctrinal Methodology ........................................................................................................................18
3.2 Black Letter Research Methodology.....................................................................................................18
3.3 Research Strategy.................................................................................................................................19
3.4 Research Approach ..............................................................................................................................20
3.5 Qualitative Research Method...............................................................................................................20
3.6 Data Collection Method........................................................................................................................21
3.7 Research Sample...................................................................................................................................22
3.8Data Collection Methods ......................................................................................................................23
3.8.1 Case Study Research Method .......................................................................................................23
3.8.2 Definition of Case Study.................................................................................................................24
3.8.3 Limitations of the Case Study Method...........................................................................................25
3.8.4 Category of Case Study .................................................................................................................26
3.9Discussion and conclusion.....................................................................................................................26
4.RESULTS ......................................................................................................................................................27
4.1 FIDIC and Occurrence of Force Majeure ..............................................................................................27
4.2 Permanent Inability of Performance ...................................................................................................30
4.3 Notification ..........................................................................................................................................31
4.4 Contract Termination ...........................................................................................................................31
4.5 Financial Settlement ............................................................................................................................32
4.6 Temporary Inability of Performance.....................................................................................................33
4.7 Suspension of the Works......................................................................................................................34
5.DISCUSSION ................................................................................................................................................39
5.1.1 English Law ....................................................................................................................................39
5.1.2 Egyptian Civil Law and Force Majeure...........................................................................................41
5.1.3 Civil Law of Arab Countries and Force Majeure.............................................................................42
5.1.4 European Countries, PPP, TPs, and Force Majeure Provisions (FMPs) ..........................................43
5.1.5 ICC Model Clauses .........................................................................................................................43
5.1.6 ICC Courts of Arbitration ...............................................................................................................44
Hardship and Force Majeure Clauses in International Construction Contracts_2
5.1.7 FIDIC Conditions and Alterations ..................................................................................................45
5.1.8 Force Majeure in the CISG ............................................................................................................46
5.1.9 CISG Prerequisites for Force Majeure and Hardship......................................................................46
5.1.10 Applicability.................................................................................................................................47
5.1.11 The UNIDROIT and Force Majeure ..............................................................................................47
5.2 Hardship Clauses in Construction Contracts.........................................................................................48
5.2.1 Hardship in French Law..................................................................................................................48
5.2.2 Hardship in US Law........................................................................................................................49
5.2.3 Hardship in Thai Law......................................................................................................................49
5.3.1 Legal issues faced by contractual parties.......................................................................................52
5.3.2 Case Study: Force Majeure and COVID-19.....................................................................................53
5.3.3 Legal impact of force majeure on construction contracts ............................................................54
6.RECOMMENDATIONS..................................................................................................................................56
7.CONCLUSION ..............................................................................................................................................59
Hardship and Force Majeure Clauses in International Construction Contracts_3
INTRODUCTION
This file id based on a clause of force majeure and hardship clause that is the part of
international contracts for construction. In chapter 2 of hardship clause is covered with majeure and
majeure clause. Also there doctrine related to law has been explained and analysed. Further in
chapter 3 literature review is done for foreign jurisdiction. Then methodology has to been discussed
with various case laws. In the third chapter 4 all objectives has been covered in relation to force
majeure. In chapter 5 results has been discussed with lieu and its analysis. Under chapter 6 general
recommendations has to be adopted in a country in regarding of force majeure. In the chapter 7
majeure and hardship clause is covered with ability over performing duty in the end.
This paper highlights the effects of the force majeure and hardship clause in international
construction contracts. Chapter 1 talks about the general information regarding force majeure and
hardship clause. It also talks about the origin of these two concepts. Moreover, it lays out 3
objectives to further analyse the implementation of these legal doctrines. The first is the
implementation of force majeure and hardship clause in different jurisdictions, legal issues faced
by the contractual parties in the presence of such clauses, and lastly, the legal impact of force
majeure and hardship clause on construction contracts.
Chapter 2 is based on a literature study which includes case laws, articles, academic books
and literature from foreign jurisdictions. Construction contracts in International law and the
doctrine of force majeure and principles of hardship clause are also consulted. Chapter 3 discusses
the research methodology carried out to fulfil the above mentioned objectives. The methods
include qualitative research along with various case studies.
A deep analysis is given in Chapter 4 which covers each objective one by one. Common
and civil laws of various jurisdiction have been analysed with respect to force majeure and
hardship clause. It also mentions legal effects on contracting parties and construction contract.
Chapter 5 narrate results generated in lieu of the analyses done in the previous chapter. Chapter 6
Hardship and Force Majeure Clauses in International Construction Contracts_4
outlays general recommendations in which two methods are described which can be adopted by
the countries not depending much on force majeure.
The conclusion of the research is presented in Chapter 7. The significance of force majeure
and hardship clause in various jurisdictions, along with its effects, which may impact on the
continuation of the contract and the parties’ ability to perform their duties, is discussed.
All of this seven different chapters within the dissertation will allow to understand the
topic in detail about the contract which is quite important within the project. It will certainly
benefit them to accomplish their goals and target. In any of the circumstances, it is necessary to
understand that organisation should be able to perform their part of work. The detail description
about each of the information will certainly guide the organisation that how they are required to
take any of the decision through which goals can be accomplished.
Research background
This dissertation aims to explore the challenges faced by contractual parties within the
paradigm of the construction industry concerning Force Majeure and Hardship. In French, force
majeure means ‘superior force.’ It is a provision of a contract permitting a party for the
termination of the performance regarding its obligations because of the emergence of certain
circumstances, which made performance impossible and out of the control of one party.1 The
construction industries are still uncertain about the meaning and impact of force majeure and
hardship clauses. Therefore, this dissertation highlights the legal consequences of force majeure
and hardship clause. Due to its unclear meaning and impact, various jurisdictions implement
these clauses in different ways, as per their common and civil laws of the land. Hence, this
research unfolds the significance of common and civil laws concerning force majeure and
hardship clauses in different jurisdictions. The researcher found a significant gap in the existing
research related to the law of different countries and the method of treating force majeure and
hardship clauses in common and civil law of different jurisdictions. One such example could be
1
? Tai, ‘Force majeure and excuses in smart contracts’ 2018
Hardship and Force Majeure Clauses in International Construction Contracts_5
taken of a French and English legal system. The French jurisdiction compensate the parties
because the force majeure exempts them from paying damages. Whereas in English law, ‘Force
Majeure’ does not have precise and clear meanings. A clear and precise definition with
provisions is needed mentioning all the rights and remedies of contracting parties. In addition to
that, the study also mentions the provisions of ICC, UNIDROIT and Arbitration tribunals etc.,
which too involves force majeure and hardship clause when dealing with other states.
The study will further elaborate the applicability of these clauses with the help of rulings
of the courts to determine as to what legal consequences are faced by the construction contracts
due to such clauses.
On the contrary, a hardship clause is also a part of a contract but it covers unforeseen
events, which can be political, and economic. For example, because of oil prices significant
increase or a political upheaval, a party is unable to deliver the goods on time.2 Hardship is a
method for the rescission on condition that a few conditions have been satisfied or for the
restoration of the equilibrium, thus, hardship facilitates the parties for renegotiation or any other
remedy.
It is necessary to understand that whenever any of the dissertation is needed to be conducted
then there are lots of grounds which needs to be covered so that goals and target can be
accomplished. Looking at the situation and the requirement of dissertation, academic literature will
be conducted which are essential with the file. It is needed because it will help to support that
arguments which has been presented in the file. Secondly, articles from books, law journals and
other some of the important text notes will be reviews which is essential as all of those sources can
play the vital role in finding the data which are required within the individual dissertation.
Nevertheless, any of the dissertation cannot be completed till the time period where proper
information is collected from the individuals. It is helpful for each of the person who is connected
with organisation because they will get the opportunity to find the accurate position of the company
through which positive decisions can be taken. There are some of the interview question will be
asked from the employees or the expertise of the organisation through which proper information can
be collected that what are the necessary contract terms which must be followed by organisation. It
2
? Chyla, ‘The Rise of Hardship Clause in International Contract Law’ 2018
Hardship and Force Majeure Clauses in International Construction Contracts_6
will certainly allow them to accomplish their goals and target on specific time period. In addition,
some of the case studies will be focused which are similar in nature because that will provide proper
information that how any of the similar sort of the issues can be resolved.
Secondly, this dissertation also highlights the legal issues faced by the contracting parties
due to force majeure and hardship clause. Evidence from stakeholders suggests that the major
issues for parties, particularly, those parties who have been engaged in a long-term complex
contract, have been unforeseeable changed circumstances. The situation affects international
trade and overseas parties' involvement and their interests significantly.3 Such legal
consequences could be of inflation, change in economic or political environment etc. Moreover,
the research also focuses on the international law principles which will go along the concepts of
force majeure and hardship clause. Legal concepts like the model of inviolability or pacta sunt
servanda of a contract always places the burden of unforeseen types of changes or circumstances
upon the party on which it tumbles. Nonetheless, historically, Roman used impossibilium nulla
est obligation rule7 or while performing impossible there is no obligation.4 Notwithstanding, with
time, things have become more complex, in the past, the issues were simple such as the killing of
a sold cattle or slave or the destruction of the crop, which was to be delivered. In order to cater
such circumstances, this research also examines an aspect of drafting of the construction contract
correctly. If force majeure clauses have been drafted adequately, then, they protect the
contracting parties from events’ consequences and put forth various remedies, as a result.
Notwithstanding, there has been inconsistency, in the bespoke forms and the standard in the
drafting of force majeure clauses.5
3
? Duminica and Aleca ‘Considerations concerning the regulation of the theory of unforeseeability in
comparative law’ 2012
4
? Schwenzer ‘Force majeure and hardship in international sales contracts’ 2008
5
? Polkinghorne and Rosenberg, ‘Expecting the unexpected: The force majeure clause’ 2015
Hardship and Force Majeure Clauses in International Construction Contracts_7
Lastly, this research unfolds the legal impacts that a force majeure and hardship clause
can have on international construction contracts. The unforeseen events might include civil war
or an earthquake in any involved country or between two countries. If it is related to
procurement, then, the construction contractor has to buy products and material on higher prices
from other countries. 6 The foundation of the bargain is affected by changes in the economic and
political environment as well as natural disasters.7 Not only this increase his expenditure but it
also affects the timeframe of the project leading to affect other contracts of the same contractor.7
Therefore, those event not only affect the existing contracts but also future contracts of the
contractor too.
Construction contracts, in almost all long-term contracts, have many unforeseeable risks.
During the execution of long-term contracts, circumstances might not remain the same, thus,
there is a possibility of alteration in the contract. In situations, where the equilibrium of the
contract has been extremely frustrated that none of the parties can execute the contract, then, one
party is considered 'hardship’ according to international commercial contracts’ practices.
Construction contracts, because of their characteristics, are generally long-term contracts;
therefore, economic and natural conditions may affect them very easily. As a result, they always
carry a possibility of alterations during the contracts' execution. Therefore, this dissertation aims
to focus on the legal consequences in unforeseen events like COVID-19 etc., on the construction
contracts. The seriousness of the alteration decides the nature of remedies. It covers all such legal
impacts like temporary or permanent termination of the construction contracts. For example, if
the parties willingly agree to deal with this change as per their contract or if the required change
is not fundamentally adept to frustrate the equilibrium, then, it would be probable to adapt the
contract by the contractual clauses concerning alterations.
6
? Monichino, ‘Plummeting Market Prices: Frustration, Force Majeure, or Hardship?’ 2015
7
? Ridder and Weller, ‘Unforeseen circumstances, hardship, impossibility and force majeure under German
contract law’ 2014
Hardship and Force Majeure Clauses in International Construction Contracts_8

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