Force majeure clause ruled to cover Covid-19 pandemic and its effects

Construction contracts lawyers Bae Huey Tan and Glenn Sim of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, said that the ruling confirms the previous view of colleagues that courts are likely to be generous in their interpretation of force majeure clauses in light of the unprecedented circumstances of the pandemic.

In this specific case the court’s interpretation of the force majeure turned on a construction of the ‘extension of time’ clause in the standard form Singapore Institute of Architects Articles and Conditions of Building Contract – Lump Sum Contract (9th Edition) 2010 (the SIA Conditions). However, Bae Huey Tan said the decision has potentially wider implications for how force majeure clauses within other prevalent standard form construction contracts will be interpreted.

Force majeure clauses are contractual clauses which alter parties' obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations.

Depending on their drafting, such clauses may have a variety of consequences, including: excusing the affected party from performing the contract in whole or in part; excusing that party from delay in performance, entitling them to suspend or claim an extension of time for performance; or giving that party a right to terminate.

The Singapore High Court Appellate Division considered the matter of force majeure in the context of a long-running dispute between Ser Kim Koi and the contractors – GTMS Construction Pte Ltd (GTMS) – and architect – Chan Sau Yan – he engaged on a housebuilding project.

One of the issues on appeal was whether Chan Sau Yan had properly granted an extension of time to GTMS under the contract for force majeure to account for the Energy Market Authority’s requirement to install an overground distribution box in connecting the main power supply for the houses. The court held that the authority’s requirement did not constitute a force majeure event within the meaning of the extension of time clause as it was not a radical or external event beyond the contemplation or control of the parties.

In arriving at its decision, the court made some “helpful observations about the operation of force majeure clauses”, according to Glenn Sim.

The court said that the “most important principle” concerning force majeure clauses is the specific enquiry into its “precise construction”, because that is “paramount” to determining the clause’s “precise scope and ambit”.

In this case, the contract did not contain a definition of ‘force majeure’ so the court referred to academic literature and previous judicial pronouncements to determine its meaning. It found that ‘the essence of a force majeure event is a radical event that prevents the performance of the relevant obligation (and not merely making it more onerous), and which is due to circumstances beyond the parties’ control’.

In relation to the scope of the term under the clause, Glenn Sim said the court appeared to take the position that the standalone term, which is one of many grounds for extension of time listed in the SIA Conditions, is a catch-all provision to supplement the more specific grounds for EOT listed in the contract.

Clause 23(1) of the SIA Conditions sets out the grounds for extending and re-calculating the contract period and the date of completion. The first ground listed is ‘force majeure’ and is followed by more specific grounds. Examples of those include ‘exceptionally adverse weather events’ and ‘war, hostilities, insurgency, terrorism, civil commotion, or riots’.

The court said that whilst many of the circumstances set out in the specific grounds could fall within the meaning of force majeure events and circumstances, the fact that they were addressed separately from ‘force majeure’ in the clause showed that force majeure events and circumstances contemplated under the general ‘force majeure’ provision covered circumstances other than those specified in the subsequent provisions.

Giving an example of what it meant, the court cited Covid-19 and its effects as falling within the general ‘force majeure’ provision.

Specifically, it said the term covered “the Covid-19 pandemic and the ‘lock down’ that followed over much of 2020 and 2021, the shortage of labour and materials due to the Covid-19 pandemic lock-downs, the prohibition of travel between countries and the ensuing disruption of supplies and manufacture of goods and material the shortage of labour and materials due to the Covid-19 pandemic lock-downs, the prohibition of travel between countries and the ensuing disruption of supplies and manufacture of goods and material”.

Examples of disruption that would not fall within the force majeure provision include not receiving instructions or drawings from the consultants on time and variations in the permanent and temporary works, according to the court, which determined that those events were relatively common occurrences expected to occur.

The court confirmed that there is no “free-standing principle that a contracting party could only rely on a force majeure clause if it had taken all reasonable steps to avoid the force majeure effects of the event in question”. This is a matter determined through contractual construction, it said. In this case, the extension of time clause expressly required GTMS to show “due diligence and the taking of all reasonable steps … to avoid or reduce the same” before it could rely on any of the grounds for an extension of time listed in clause 23(1).

Bae Huey Tan said: “Given the significant impact the Covid-19 pandemic has had across commercial life, we expect future clauses which exempt contractual performance to similarly provide for or address extensions of time and monetary claims in similar circumstances. Where the contract does not provide explicit relief, this decision of the Singapore High Court Appellate Division provides further support for the position that such events are likely to be construed as force majeure events, subject to the wording of the relevant contract.”