The news in recent months has been dominated by the outbreak of the coronavirus in China, the distressing accounts of the people affected and the steps being used to contain its spread.
While at this time the UK remains largely unaffected, the number of cases reported in the UK and Northern Europe in recent weeks has increased such that vigilance remains high. We have seen reports of the extreme quarantine measures being taken by many countries to fight the spread of the infection and the impact this is having on the movement of goods and people. This has led one of our contractor clients to pose the sensible but somewhat disquieting question of what would happen under their building contract, if, due to an outbreak in their labour force or the risk of one, they or a relevant UK authority took the step to shut the site down.
It may or may not surprise you to learn that the ramifications differ depending on the contract being using. Taking the JCT suite as an example, there is no specific reference to pandemics, epidemics or anything of that ilk. However, if we consider the effect of infection counter measures on the continuation of works, it seems fair to assume that what we are really discussing are ‘Relevant Events’. Among the standard list of Relevant Events in the JCT there are two that potentially respond to our scenario. These are:
- “Force Majeure”
- “the exercise after the Base Date by the United Kingdom Government or any Local or Public Authority of any statutory power that is not occasioned by a default of the Contractor or any Contractor’s Person but which directly affects the execution of the Works”*
The term “force majeure” is not defined in the majority of contracts, but it is commonly understood to mean an event beyond the control of the parties that affects the ability to perform the obligations under the contract. If a worksite were to be shut down due to an illness like coronavirus, it seems a credible proposition that a contractor could claim an extension of time under this provision. However, this would not be a certainty. The narrow application of force majeure requires that performance be rendered impossible, not merely difficult. So if, for example, it were not the site that was affected but a key port or supply hub then even though the movement of necessary labour and materials would be impacted this might not be sufficient to qualify as a force majeure event.
Probably a safer bet then arguing over the interpretation of force majeure would be to rely on the Relevant Event that arises from government intervention. It is not a great stretch of the imagination to see how a contractor could claim an extension of time under this clause were an authority (central government, local authority or a department with delegated powers) to decide to shut down a site on grounds of public safety. For example under the Public Health (Control of Disease) Act 1984 a local authority has the power to:
- seek orders requiring a person to be medically examined or detained in hospital;
- request that a person not attend work for the purpose of preventing the spread of disease; and
- bring an action for a criminal offence where someone has caused people to be exposed to risk of infection.
However, even if an extension of time is granted, this does not give the contractor any entitlement to recover loss and expense. Disease does not fall into one of JCT’s categories of “Relevant Matters” or, for that matter, equivalent provisions in many of the standard form contracts used in the UK. The FIDIC red book is one of the few exceptions that does make specific reference to epidemics (although the word is undefined and therefore presumably has its common meaning of being a disease in a community).
Meanwhile the NEC makes use of compensation events for which the key tests are:
- does the event stop works being completed on time;
- could either party have prevented it; and
- would an experienced contractor have judged the chance of it occurring being so small that it is unreasonable to have made provision for it.
The test in several FIDIC contracts is also whether the event in question is something that could have been foreseen and a common amendment to building contracts is to specify that the force majeure event must have been “unpredictable”.
The introduction of this foreseeability element should concern contractors given the increasing public awareness of coronavirus. The point may be raised that all contractors are now sufficiently aware of the danger and should be taking reasonable steps to manage/mitigate any impact. You may recall similar points being raised at the height of the Brexit uncertainty. Foreseeability is after all a “slippery concept” to use the exact words of the Judge in Canary Wharf (BP1) Ltd and other companies v European Medicines Agency  EWHC, the case which settled whether Brexit was a sufficient event to frustrate a lease (it was not). It is also worth remembering that the common law doctrine of Frustration, while difficult to prove, does provide the possibility to argue that a contract should be discharged entirely because unexpected events have rendered the contract’s objectives impossible to achieve.
It is to be hoped that the above remains a hypothetical question only, but if parties to a building contract were minded to include specific provisions for dealing with epidemics such as coronavirus it would be in the author’s opinion appropriate to give it the status of a Relevant Event and not a Relevant Matter: the rationale being that Relevant Matters should be reserved to those matters for which the Employer is solely responsible. An event like coronavirus is a “neutral” event, so a fair compromise is that the contractor be entitled to an extension of time, but not to compensation, for any loss and expense it suffers.
* Taken from JCT Design and Build 2016 ed.