FORCEMAJEURE

CLAUSESIN CONSTRUCTION CONTRACTS

BYLOWELLA.WESTERSUND,Q.C., PARTNER FRASERMILNERCASGRAINLLP CALGARY,ALBERTA

TableofContents
I. II. III. IV. V. VI. VII. VIII. PurposeofForceMajeureClauses ......................................................................................... 2 PresentForceMajeureClauseUsage ..................................................................................... 5 RequirementsforForceMajeure.......................................................................................... 11 TriggeringEvents .................................................................................................................. 11 Duration/Mitigation.............................................................................................................. 11 Notice.................................................................................................................................... 14 EffectonContractualObligations......................................................................................... 15 Conclusion............................................................................................................................. 16

FORCEMAJEURECLAUSESIN CONSTRUCTIONCONTRACTS
Theprimarypurposesofconstructioncontractsaretoclarifyresponsibilities(including performanceandpaymentobligations)andtoallocaterisk.Itisinregardtothelatterpurpose thattheconceptofforcemajeureplaysanimportantrole.Suchclausesservetodealwiththe riskofeventswhichfallshortoffrustration.Suchclausescanbesuccessfullyemployedto recognizeindustryorprojectspecificrisks.Bywayofexample,anumberofyearsagothewriter dealtwithapipelineclaimthatarosefromthedelayedcompletionofaseriesofcompressor stationsandaconnectingpipelinethroughthesoutherninteriorofBritishColumbia.Perhaps thebiggestriskonthat,andperhapsonanypipelineproject,wastheinabilitytoreasonably manoeuvreandworkonthepipelinerightaway.Asmatterstranspired,theworkwasdone duringanextremelyrainysummer.Althoughveryunusual,theamountofraindidnotapproach oneinonehundredyearorotherbunchnumbersthatwouldhaveclearlyhaveresultedina forcemajeureeventhavingbeentriggered.Nevertheless,theworkbecameveryslowandvery expensivetocomplete.Onlyafterextensivenegotiationandlitigationpreparationwerethe potentialclaimsarisingfromthecostandtimeofperformanceresolved.Hadtheforcemajeure clauseinthecontractbeendraftedwiththespecificprojectandtypeofworkriskinmind,the disputecouldhavereadilybeenavoided. Atthetimeofwriting,thereareseriousshortagesofbothlabourandcertainmaterialsin Canada,thoughtheshortagesaremoreacuteinsomeareasofthecountrythanothers. OilsandsprojectconstructioninAlberta,preOlympicconstructioninBritishColumbiaand generaleconomicexpansioninSaskatchewanhaveallleadtoshortagesinWesternCanada.On otherhand,thecompetitionforsteel,specialtymetalsandspecialtypressurevessels throughoutNorthAmerica,arguablycausedinpartbycompetitionfromtherapidlyexpanding economiesofbothChinaandIndia,hasfocusedtheneedforthecarefulexaminationand draftingofbothforcemajeureandotherriskallocationclauseswithinconstructioncontracts. TheissueishighlightedinAlbertawherethereisafearthatlabourshortagecouldbeadvanced asaforcemajeureevent.Thesecircumstanceshavesparkedsomeownersoflargeprojectsto specificallyexcludelabourshortageasaneventofforcemajeure.This,apparently,despitesuch shortageneitherfallingwithintheideaofthe"...unexpected,somethingbeyondreasonable ___________________________ LowellA.Westersund,Q.C.,Partner,FraserMilnerCasgrainLLP,Calgary,Alberta Theauthorwishestoacknowledgethecontributions,insights,andresearchassistanceof lawyersandstudentsatFraserMilnerCasgrainLLPwhocontributedtothepreparationofthis article,TomO'Leary,CoryGhitter,andChrisKnight,StudentAtLaw.
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foresightorskill1anddespitethefactthatmanycasesinallthreeofCanada,Englandandthe UnitedStateshaveheldthechangesinmarketconditionsarenotsufficienttofallwithina standardforcemajeureclause.2 Inotherareas,ratherthanfaceargumentsthataforcemajeureeventhasoccurredduetothe materialshortage,riskallocationclauseshavebeenformulatedtospecificallyaddressshortages ofsuchmaterialsassteel.Forexample,aprovisionwrittenonbehalfoftheAmericanInstitute ofSteelConstructionprovidesasfollows:

The subcontract price is based upon the agreed prices and surcharges for the steel types and shapes necessary for the project and posted and made publicly available by [steel mill] on [date]. Notwithstanding anything herein to the contrary, any increases or decreases in the price of the steel ordered by subcontractor for the project, or any additional surcharges imposed on the steel ordered by subcontractor for the project, after [date] shall result in a corresponding dollarfordollarincrease(ordecrease)inthesubcontractprice.3

Itistheintentionofthisarticletohighlightelementsthatrequirecarefulandspecific considerationofthedraftingofforcemajeureclauses.

I.

PurposeofForceMajeureClauses

Forcemajeureclausesexisttoexcludeliabilitywhereunforeseeneventsbeyondaparty's controlpreventtheperformanceofitscontractualobligations.TheSupremeCourtofCanadain AtlanticPaperStockLtd.v.St.AnneNackwawicPulp&PaperCo.,4theleadingCanadianforce majeuredecision,describethepurposeofforcemajeureclausesasfollows:

[A force majeure clause] generally operates to discharge a contracting party when a supervening, sometimes supernatural, event, beyond the control of either party, makes performance impossible. The common thread is that of theunexpected, something beyond reasonable human foresightandskill.5

Theterm"forcemajeure"hasbeenvariouslydescribedelsewhereasmeaningan"irresistible force",an"unforeseenevent",an"overpoweringforce",or"afactoraccidentwhichhuman prudencecanneitherforeseenorprevent."6Putanotherway,forcemajeureeventsare generallyconsideredtobeevents"beyondthecontrolandwithoutthefaultornegligence"of thepartyexcused.7

1 2

AtlanticPaperStockLtd.v.St.AnneNackwawicPulp&PaperCo.,(1975),56D.L.R.(3d)409(S.C.C.)[AtlanticPaper]. AtlanticPaper,ibid.;Tennants(Lancashire)Limitedv.C.S.Wilson&CompanyLimited[1917]A.C.495(H.L.);Brauer&Co.Ltd.v.JamesClark

(RushMaterials),Ltd.,[1952]2AllE.R.497(C.A.);Re:TomJones&SonsLtd.v.TheQueeninRightofOntario(1981),119D.L.R. (3d)684(Ont.H.C.);NorthernIndianaPublicServiceCompanyv.CarnonCountyCoalCompany,799F.2d265(1986); LanghamHillPetroleum,Inc.v.SouthernFuelsCo.813F.2d1327Cert.denied,108S.Ct.99(1987);Blythe&Co.v.Richards Turpin&Co.(1916),85.JK.B.1425.

3 4 5 6 7

AscitedinLyman,infranote14at35. AtlanticPaper,supranote1. Ibid.at411. JohnS.Kirkham,"ForceMajeureDoesItReallyWork?"(1984)30RockyMountainMineralLawInst.6at3. UnitedStatesv.BrooksCallawayCo.,318U.S.120at1234(1943). 2

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Whilethe"irresistible"forcescontemplatedbyforcemajeureclausestypicallyincludesuch thingsaswars,naturaldisasters(andother"actsofGod")theycanalsoincludemore conventionalcommercialeventssuchasthefailureofsupplies,formsoflabourunrestand equipmentfailure. Theterm"forcemajeure"isderivedfromcivilianlawandencompassesaconceptnow entrenchedinseverallegaltraditions,includingthelexmercatoria.8Itspresencein AngloAmericancontractlawcanbedirectlytracedtoFrenchCodeCivil.9Forcemajeureis basedontheconceptthatitisfairtoallowapartytoescapecontractualobligationswithout faultwhensatisfactionofthoseobligationsismadeimpossible.Ratherthanbeingauniversally applicableconceptasinFrenchjurisprudence,however,"forcemajeure"intheAngloAmerican traditionisapurelycontractualrighttothesuspensionorreleaseofone'scontractual obligationsuponthehappeningofcertaindefinedevents. Thoughrelatedtothecommonlawdoctrineofcontractualfrustration,forcemajeurecanbe appliedmuchmorebroadlyandflexibly.Thelate19thcenturyQueen'sBenchdecisioninJacobs v.CreditLyonnaise10illustratesthispoint.There,thedefendantshippersclaimedforcemajeure afteritfailedtodeliverespartoshipmentsowingtoawarthathadbrokenoutinAlgeria.Under Frenchlaw,theninforceinAlgeria,thedefendantwouldnothavebeensubjecttoclaimsof damages"when,bymeansofasuperiorforce(forcemajeure)oranaccident,theobligorhas beenpreventedfromgivingordoingthatwhichhewasboundtogiveordo."11TheEnglish CourtfoundthatwhileFrenchlawmayhavegivenrelief,Englishlawappliedandtherewasno equivalentcommonlawprinciple(includingfrustration)thatcouldgroundrelief.Whilethe interveningwarhaddisruptedperformance,itdidnotdestroythe"entiresubjectmatter"ofthe contractortheunderlyingrationalforthebargainaswasrequiredforreliefunderthedoctrine offrustration.Thecontractdidnotprovideforcemajeure,andthedefendantshipperswere heldliable. AboutthesametimeandlikelyinrecognitionoftheharshnessoftheresultinJacobs,explicit forcemajeureprovisionsbegantoappearregularlyinEnglishcontracts.12Theemergenceof contractualforcemajeureprovisionsarose,atleastinpart,asameanstoproviderelieffrom contractualobligationswhereperformanceisrenderedimpossibleorunfeasible,butwherethe stricttechnicalrequirementsforadefenceoffrustrationarenotmet.

8 9

C.f.,PrinciplesofInternationalCommercialContracts,UNIDROIT,1994,Art.7.1.7. C.f.,Arts.1148,1348,1631,1730,1733,1754,1755,1784,1929,1934and1954C.civ. (1884)12Q.B.D.589(C.A.)[Jacobs]. Art.1148C.civ.ascitedintheheadnoteof[18811885]AllERRep151,analternatereportofJacobs,ibid. Inthissense,thereliefgainedthroughAngloAmericanforcemajeureclausesisbestconsideredasonlyindirectlyrelatingtoforcemajeure

10 11 12

relieffoundinciviliancodes.ThishasimplicationsforCanadianlawyerswhiletheQubecCodecontainsnumerousreferences toforcemajeure,theconceptsthereinareonlyindirectlyrelatedtocontractualforcemajeureclauses.See,c.f.SirGuenter Treitel,FrustrationandForcemajeure2ded.(London:Sweet&Maxwell,2004)at12021. 3

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Whiletheuseofsuchclausesisnowoflongstandingusageincommonlawjurisdictions,the foreignnatureoftheseclausesmay,inpart,explainthedifficultycommonlawcourtshavehad indealingwithsuchclausesasisstatedina1999article:

The force majeure clause is antithetical to common law principles. Under force majeure clauses parties avoid contractual obligations and fault or liability as ascribed to neither party to the contract, but rather to a cause beyond the control of either of the parties. Given the great divergence between common law values and force majeure clauses, it is not surprising that our courtshaverepeatedlyshowngreatreticenceingivingeffecttotheseclauses.13

IntheU.S.,referenceisnotmadetoforcemajeureatall,butrather"toimpracticability"as arisingfromthedoctrineofimpossibilityofperformance.TheUS.approachwasdescribedby WilliamLymanasfollows:

Therule,asoftenquoted,isthatabsentacontractprovisiontothecontrary,"[w]hereoneagrees todo,forafixedsum,athingpossibletobeperformed,hewillnotbeexcusedorbecomeentitled to additional compensation, because unforeseen difficulties are encountered. (Dugan & Meyers ConstructionCo.,Inc.v.StateofOhio,162OhioApp.3d491at503).14 Thedoctrine[ofimpossibilityofperformance]isinventedbythecourtinordertosupplementthe defects of the actual contract. The parties did not anticipate fully and completely, if at all, or provide for what actually happened. Some factors determining the applicability of an impracticability defense include: foreseeability of the contingency, whether the means of performance will be entirely different than that agreed to, whether the risk of the contingency was allocated to a party, and whether the cost of performance will be vastly increased. It is essentially an equitable defense to the general rule that an obligor must bear the risk that the performanceofacontractmaybecomemoreburdensomeorlessdesirable.Or,saidanotherway in the same decision, the elements for impossibility of performance were the unexpected occurrenceofaninterveningact,suchoccurrencewasofsuchacharacterthatitsnonoccurrence was a basic assumption of the agreement of the parties, and that occurrence made performance impracticable.15 Impossibility means not only strict impossibility but impracticability because of extreme and 16 unreasonabledifficulty, expense, injury or loss involved. Restatement (First) of Contracts, 454. [and] ...a thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost. Roy v. Stephen 17 PontiacCadillac,Inc." Underthedoctrineofimpossibility,acontractor'sperformancemaybeexcusedwhenacondition thatispartofthecontractbecomesimpossibletoperform.18 [C]ontract performance is rendered impossible only when it is objectively determined that no contractorcouldperformthework.19

13 14

JoniR.PaulusandDerkJ.Meeuwig,"ForceMajeureBeyondBoilerplate"(1999)37Alta.L.Rev.30236. WilliamD.Lyman,"ToPayorNottoPayToStayorNottoStay:ContractorsandSubcontractorsRighttoReceivePaymentforWorkperformed

andtheContractualandLegalObstaclestoReceivingIt"(PaperpresentedtotheAmericanBarAssociationForumonthe ConstructionIndustry,1213October,2006)[unpublished][Lyman].
15 16 17 18 19

Ibid. Ibid. Ibid,citing15Conn.App.101,543A.2d775(1988). ConnorBrothersConstructionCompanyv.U.S.,65Fed..C1.657at686(Fed..C1.2005). Ibid. 4

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A contract is commercially impracticable when performance would cause 'extreme and unreasonable difficulty, expense, injury, or loss to one of the parties."20 or "when 'all means of performancearecommerciallysenseless.21

Intheresult,whiledifferentwordsareemployedindifferentcommonlawjurisdictions,the natureoftheconsiderationofforcemajeureremainsthesame.

II.

PresentForceMajeureClauseUsage

Thoughthetraditionalrationaleforforcemajeureclausesinvolved"unanticipatedevents"and "impossibility"ofperformance,morerecentpracticehasbeentouseforcemajeureprovisions asabroaderriskallocationtool.Forcemajeureclausesmaybeusedtoanticipatethoserisks thatareuninsurable,orthatrenderperformancemerelyinconvenientoruneconomicalas opposedtoimpossibleInshort,theclausesdealwithrisksdeemedunacceptablebytheparties. Forexample,problemsassociatedwithlabourdisruptionsareoftenaddressedthroughforce majeureprovisions,eventhoughtheymayfalloutsidethetraditionalrationaleofsuchclauses. Inthissense,aforcemajeureclauseactsasariskallocationtoolincircumstancesbeyondthe traditional"unforeseeableimpossibilityofperformance"rationale.Contractingpartiesarenot necessarilyconfinedtoeventswhichmakeperformanceimpossible.22 Thepracticalutilityofforcemajeureclausesbecomesclearwhencontrastedwiththecommon lawdoctrineofcontractualfrustration.Forcemajeureclausesandthedoctrineoffrustration aresimilarinthattheydealwithoccurrencesbeyondthecontrolofpartiestoanagreement.23 Frustrationrequiresthattheentiresubjectmatterorunderlyingrationaleforthecontractbe destroyed.Itnormallyoperatestopermanentlyrelievepartiesfromalloftheircontractual obligations,includingthosetoperformandtopay,andessentiallyleavesthepiecesofa contracttofallwheretheymay.ForceMajeureclauses,ontheotherhand,permitamuch greaterdegreeofflexibility.Theoccurrencesgivingrisetoreliefcanbedefinedwithgreater certaintyandtheentirerationaleorsubjectmatterofthecontractneednotbedestroyedin orderforforcemajeuretooperate.Forcemajeuremayalsobetemporary,allowingtheparties tomaintaintheircontractualarrangementsoncetheeventpassesorisremedied.Asaterm negotiatedbetweenparties,aforcemajeureclausecanrespondtounpreventableoccurrences whilestillmaintainingcertaincontractualobligations,suchasthoserelatingtopayment,and temporarilysuspendingcertainothers,suchasthedeliveryofproduct.Forcemajeureclauses canalsoprescribedifferingconsequencesdependingonthenatureortypeofforcemajeure event.Whereasthedoctrineoffrustrationisabluntinstrumentthatpermanentlyendsall contractualobligations,acarefullycraftedforcemajeureclauseiscapableofrespondingtothe sameeventsinamorepredictableandequitablemanner,whilemaintainingthecontractual relationshipbetweentheparties.

20 21 22 23

Ibid.,citingRaytheonCo.v.White,305F.3d1354at1367(Fed.Cir.2002)(citingRestatement(Second)ofContracts261cmt.d(1981)). Ibid.,citingJennie0Foods,Inc.v.UnitedStates,217,Ct.CI.314,580F.2d400,409(1978). SeeArcor,infranote2935,Tejas,infranote45at7. G.H.L.Fridman,TheLawofContractInCanada(Toronto:Carswell,1999)at591. 5

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Thebreadthofpartiesdiscretionindraftingforcemajeureclausescanbecircumscribed, however.AgoodexampleistheSupremeCourtofCanada'suseofthisejusdemgeneris24 principletoconstrueaforcemajeureclauseinAtlanticPaper.25There,forcemajeurewas claimedbythepurchaserofwastepaperusedintheconstructionofcorrugatedmedium.This purchasermanufacturerclaimedthatitsinabilitytofindaprofitablemarketforitsfinished productconstitutedaneventofforcemajeureunderitspurchasecontractwithitswastepaper supplier.Thepurchasecontractinquestiondefinedforcemajeurebywayofalistofevents (i.e.actsofGod,war,damageordestructiontoproductionfacilities).Thelistconcludedwith thephrase"orthenonavailabilityofmarketsforpulporcorrugatingmedium". Indeterminingwhetherthemarketsituationfacedbythemanufacturerfellwithinthis concludingphraseofthedefinition,theCourtappliedtheejusdemgenerisprincipletoholdthat thephraserelieduponmustbeinterpretedsoastolimititsapplicationtoeventslikethose previouslydescribed,"overwhichthe[partyclaimingsuspensionofthecontract]exercisesno control,"26andwhich"makesperformanceimpossible".27Sincethemarketfortheproductsof thepurchasermanufacturerhadbeenfoundtobemateriallyunchangedfromthetimeofthe executionofthecontract,thepurchaser'sclaimthatthelackofaprofitablemarketforits finishedproductconstitutedaneventofforcemajeurecouldnotbesustained.Thepurchaser hadsimplyenteredintoabusinessarrangementwhichatthetimeofcontracting,andatthe timeoftheallegedforcemajeure,wasunprofitable.There,despitetheforcemajeureprovision, DicksonJ.(ashewasthen)refusedtoupholdtheforcemajeureprovisiondefinedbythe "nonavailabilityofmarkets":
I do not think St. Anne can rely on a condition which it brought upon itself. A fair reading of the evidence leads one to conclude that the whole St. Anne project for the manufacture of corrugating medium was misconceived. The problems which plagued it proceeded, however, not from nonavailability of markets for corrugating medium but from [a] lack of an effective marketing plan ... and inordinate operating costs... The project, conceived in ephemeral hopes and not the harsh realities of the market place, resulted in failure for which St. Anne and not changesinthemarket...mustbeheldaccountable.28

WhereAtlanticPapercircumscribestheeffectofforcemajeureprovisionsthroughtheuseof principlesofinterpretation,theAlbertaCourtofAppealhasindicatedthatastandardof "commercialreasonableness"mayalsobeusedtocircumscribesuchprovisions.InAtcorLtd.v. ContinentalEnergyMarketingLtd.,29theCourtwasfacedwiththequestionofwhetheragas pipelineoperatordeclaringforcemajeureasaresultofpipelinedamagewasrequiredtoeffect

24

"Wheretherearegeneralwordsfollowingparticularandspecificwords,thegeneralwordsmustbeconfinedtothingsofthesamekindas

thosespecified"asperLordCampbell,C.J.inReg.v.Edmunson(1869).28L.J.M.C.213at215ascitedinD.A.Dukelow, DictionaryofCanadianLaw,2ded.(Toronto:Carswell,1995)at375;seealsoathoroughdiscussionofthisruleandits applicationinR.Sullivan,ed.,DriedgerontheConstructionofStatutes3ded.(Toronto:Butterworths,1994)at203213.

25 26 27 28 29

AtlanticPaper,supranote1at411. Ibid.at41112. Ibid.at411. Ibidat411. (1996),38Alta.L.R.(3d)229(C.A.)[Atcor]. 6

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repairsassoonaspossible,regardlessofcost.Moreover,duringtheperiodinwhichthe pipelinewasbeingrepaired,theCourtwasaskedtoconsideriftheoperatorisrequiredto sourcealternatesupplyforabuyerinordertomitigateforcemajeure,isthecostor inconvenienceofdoingsorelevant?Someagreementsdealwithsuchissuesexplicitly,but wheretheagreementissilent,animpliedstandardof"commercialreasonableness"washeldto existbytheAlbertaCourtofAppeal.Whatmayormaynotbe"commerciallyreasonable"inany givencasewillbeextremelydifficulttopredict.Inthissense,the1996Atcordecisionhas arguablychangedthefaceofforcemajeureinterpretation,atleastinAlberta. AtcorwasasupplierofgastoContinentalthroughapipelineownedbyNovaCorporation.The supplycontractincludedaforcemajeureclausethatAtcorreliedonwhenNova'spipeline experiencedmechanicalproblemsthatreducedpipelinecapacity.Atcorwasforcedtocurtailits shipmentsandthuscouldnotmeetallofitssupplyobligations.Ratherthancurtailingthegas shippedtoallofitscustomersonaproportionatebasis,however,Atcorchosetoselectively declareforcemajeuresuchthatContinentalreceivednogaswhileotherAtcorcustomers receivedtheirfullsupplies.Continentalwasforcedtopurchasegassuppliesatahigherrateand arguedthatAtcorcouldnot"cherrypick"customersinaforcemajeuresituation.Rather,Atcor hadadutytomitigatebyproratingdeliveriestoallcustomersand/orsourcingalternative supply.Continental'sargumentwasdismissedattrialonthebasisthatthewrittenagreement didnotmentionanyprorataobligation,noranobligationtoprovidealternativesupply. Continentalappealed. TheAlbertaCourtofAppealtookamorenuancedapproachthanthetrialjudge.Itreasoned thatasageneralproposition,asupplierisnotonlyrequiredtomitigatetheforcemajeureevent itself,butalsotheeffectontheotherpartyoftheforcemajeureevent.TheCourtfurtherheld (relyingonEnglishauthority)thattheseobligationstomitigatearenotinfinitebutarelimitedby "commercialreasonableness":
Asupplierneednotshowthattheevent[ofallegedforcemajeure]madeitimpossibletocarryout thecontract,butitmustshowthattheeventcreated,incommercialterms,arealandsubstantial problem,onethatmakesperformancecommerciallyunfeasible.30

Insum,andintheabsenceofclearwordstothecontrary,thesupplierwasnotexcusedfrom nonperformancebyaforcemajeureeventifthesoleconsequenceofthateventistodrivehim tobuyfromanothersupplierandmakeasmallerprofit.Thesupplierwouldbeexcused, however,ifthatsolution,inallthecircumstances,isnotreasonable.31 AnewtrialwasorderedandAtcorandContinentalsettledpriortotrial.Accordingly,itis difficulttopredictjustwhatthereferenceto"commerciallyunfeasible"wouldhavemeant whenappliedtothefactsofthatcase.Onecaseonpoint,andwhichwasreferredtoinAtcor,is theEnglishcasereferredtoastheWildhandel,32acaseinvolvingsaleofChinesefrozenrabbits. Thesupplierclaimingforcemajeurewasunabletomeettheheavyburdenimposedonitto

30 31 32

Ibid.11(andrepeatedforgoodmeasureat17). Ibid.35. P.J.VanDerZijdenWildhandelN.V.v.Tucker&CrossLtd.,[1975]2LloydsRep.240(Q.B.)[Wildhandel]. 7

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establishthatitwasunabletoacquireanalternatesupply,regardlessofprice,inordertogain thebenefitofforcemajeure.Thisresultseemsharshandmayalsoignoretheconceptof commercialreasonability.However,itmightstillbeconsideredconsistentwiththeheavy burdenonthepartyseekingtodemonstratethelackofcommerciallyreasonablemitigation measureswhenforcemajeureisdeclared. BasedontheAtcordecision,partiesnegotiatingforcemajeureclausesmustbeawareofan additionalimplieddutytomitigate,oncommerciallyreasonableterms,theadverseeffectson theotherpartywhichmayarisefromforcemajeureevents.Anyoustingofthisimpliedduty will,asstatedinAtcor,requireclearandunequivocallanguage.33Theexistenceofastandardof "commercialreasonableness"providessignificantroomforuncertaintyandambiguitytothe unwaryorcarelessdrafter.Inordertoavoiddisputesandunforeseenliabilities,theextentto whichapartydeclaringforcemajeuremustmitigatetheeventanditsconsequencesshouldbe specifiedinthecontract. TheextentofAtcor'sinfluenceonAlbertaforcemajeurejurisprudenceis,however,anopen question.The2000decisionoftheAlbertaCourtofQueen'sBenchinH&RDrillingInc.v.Aquilo EnergyInc.isacaseinpoint.H&RwasbuildingadrillingrigforAquilo,whoneededtherigfora specificwellthatcouldonlybedrilledshortlyafterthescheduledcompletiondate.Whenthe rigwasabout90%complete,afireoccurred,triggeringforcemajeure.Asaresult,H&R deliveredtheriglaterthanoriginallycontemplated.Intheinterim,Aquilowasforcedtolook elsewhereforarigtogetthejobdone.Aquilotriedtosetoffthecostsitincurredinseekingan alternaterigagainsttheamountsitpaidtoH&R.Theforcemajeureclausecontemplateda specificdutytomitigate:
The performance of any suspended obligation shall be resumed as soon as reasonably possible aftersuch[forcemajeure]causeceasestoexist.34

AquiloallegedthatH&Rdidnotuseitsbesteffortstocompletetherigafterthefire,35andalso arguedthatinanyevent,H&RwasresponsibleformitigatingtheeffectonAquilooftheforce majeureeventbyfindingandfundinganalternaterig.ItwasacceptedthatH&Rhadadutyto completetherigdespitethefirethroughtheextentofthatdutywasdebated.TheCourtlimited thisdutybyimposingadefactocommercialreasonablenessstandard,statingthatH&Rwasonly requiredtocompletetherig"asfastasreasonablyandprudentlypossible"asopposedtoasfast aspossibleashadbeenurgedbyAquilo.TheCourtheldthatH&Rhaddoneso. TheCourtalsorefusedtoholdH&Rresponsibleforfindingandfundingareplacementrig.The reasoningisverybrief,andseemstobebasedontheviewthatsuchanobligationtomitigate theeffectoftheforcemajeurewouldneedtobeexpressedclearlyinthewrittencontract.The doctrineofcommercialreasonablenesswasnotaddressedinthiscontext,norwastheAtcor casecited.36Thatbeingsaid,theCourthadobviouslyentertainedbothevidenceandargument

33 34 35 36

Atcor,supranote2935. 2000ABQB42014. Ibid.15. Ibid.23. 8

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onthemeasurestakentoreducetheeffectsonAquilooflatecompletion.The"commercial reasonableness"ofH&R'sconductwasthusconsideredrelevanttowhetherH&Rhadsatisfied anydutytomitigatetheeffectsoftheforcemajeureevent.ThoughH&Rdoesnotshedlighton thenatureof"commercialreasonableness"requiredinthecontextofforcemajeure,itdoes appeartosupporttheconcepttheremaybeadutytomitigateboththeeventandtheeffectof forcemajeure. Itissubmittedthatifbyraisingtheconceptof"commercialreasonability"theAlbertaCourtof Appealintendedtomoveawayfromthestrictinterpretationhistoricallyaccordedtosuch clausesasdemonstratedbytheSupremeCourtofCanadaintheAtlanticPapercase,theresult isarguablytointroduceadditionaluncertaintyintoaconceptthathashistoricallyprovenitself tobetroublesomeofinterpretationforcommonlawcourts.Thatsaid,itmaybethatthe conceptof"commercialreasonableness"issimplyarecognitionofeventsclosertowhatis generallyperceivedtobeimpossibilityofperformanceasreferredtoinAtlanticPaperand consistentwiththeuseoftheterm"impracticability"intheU.S. Certainly,otherCanadiancourtshaveproceededbywayofstrictinterpretationininterpreting suchclauses.InFisheryProductsInternationalLtd.v.MidlandTransportLtd.37thedefendant contractedtotransportfreshfishfromNewfoundlandtocentralCanadabytruck.Whileen route,thetruckswereobstructedbyindependenttruckersconductingapoliticalprotestwhich causedtwoofthethreetruckstobedelayedsufficientlytocausethefishtofailinspection.The BillofLadingunderwhichthecontractwasbeingcarriedoutprovidedinpartasfollows:
"The carrier shall not be liable for the loss, damage or delay to any of the goods described in the Bill of Lading caused by an act of God, the Queen's or public enemies, riots, strikes, a defect or inherent vice in the goods, an act or default of the consignor, owner or consignee, authority of law, quarantine, or difference in weights of grain, seed or other commodities caused by a natural shrinkage."38

AnappealtotheNewfoundlandCourtofAppealaroseafterthetrialJudgefoundthattheforce majeureclausehadbeenproperlyinvokedbyMidlandandthatitrelieveditofitsobligations. TheCourtofAppealoverturnedthatdecisionfindingthat"strikes"referredtoactionsby employeesofthecompanyinvokingtheforcemajeureclauseandthatitdidnotextendtothe truckers'blockade.Further,thecourtheldthatthe"Queen'sorpublicenemies"didnotinclude citizensofthestatewhosimplybreakthelaw. Attheheartofthecommonlawofcontractisthenotionthatwhereapartyagreestoa contractualobligation,thatpartyisliablefordamageswhentheobligationisnotmet.Itis presumedthatpartiesintendtobeboundtoperformtheirbargain.Consistentwiththisnotion, Courtsarewaryofthosetermsthatattempttoremoveorlimitliabilityfornonperformance. Exclusionclauses,restrictivecovenantsandlimitationsareexamplesofthistypeofclause.Such "exculpatory"provisionstendtobeinterpretednarrowlyor"strictly"becausetheytendto

37 38

(1994),113D.L.R.(4 )651(Nfld.C.A.). Ibid.at653. 9

th

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relievepartiesfromcontractualobligations.Insofarasforcemajeureprovisionsareconsidered tobeexculpatory,whichundoubtedlytheyare,theywillbestrictlyandnarrowlyconstrued.39 Wheninterpretingcontracts,Courtsstrivetogiveeffecttotheintentionofthepartiestoa contract.Theintentionofpartiesisgenerallytobederivedexclusivelyfromthewordsofthe contractitself,asevidenceofsubjectiveintentisinadmissible.Toassistindetermining contractualintention,numerousinterpretiveruleshavedeveloped.Someoftheseruleshave particularrelevanceforpartiesdraftingandconsideringforcemajeureclauses:(i)theconceptof "strictconstruction"includingtheejusdemgenerisrule;(ii)theconceptof"commercial reasonableness";and(iii)thecontraproferentemrule. Oneinterpretiveprincipleoftenutilizedtoarriveatanarrowconstructionisejusdemgeneris. Theprincipleisasfollows:
Wheretherearegeneralwordsfollowingparticularandspecificwords,thegeneralwordsmustbe confinedtothingsofthesamekindasthosespecified.40

Ejusdemgenerisisofparticularrelevancetoforcemajeureclausesthatincludeadetailedlistof triggeringevents.Agoodexampleistheuseofthisprincipletoconstrueaforcemajeureclause inAtlanticPaper.41Forcemajeurewasbeingclaimedbythepurchaserofwastepaperusedin theconstructionofcorrugatedmedium.Thispurchasermanufacturerclaimedthatitsinability tofindaprofitablemarketforitsfinishedproductconstitutedaneventofforcemajeureunder itspurchasecontractwithitswastepapersupplier.Thepurchasecontractinquestiondefined forcemajeurebywayofalistofevents(i.e.actsofGod,war,damageordestructionto productionfacilities).Thelistconcludedwiththephrase"orthenonavailabilityofmarketsfor pulporcorrugatingmedium." Indeterminingwhetherthemarketsituationfacedbythemanufacturerfellwithinthis concludingphraseofthedefinition,theCourtappliedtheejusdemgenerisprincipletoholdthat thephraserelieduponmustbeinterpretedsoastolimititsapplicationtoeventslikethose previouslydescribed,"overwhichthe[partyclaimingsuspensionofthecontract]exercisesno control,"42andwhich"makesperformanceimpossible".43Sincethemarketfortheproductsof thepurchasermanufacturerhadbeenfoundtobemateriallyunchangedfromthetimeofthe executionofthecontract,thepurchaser'sclaimthatthelackofaprofitablemarketforits finishedproductconstitutedaneventofforcemajeurecouldnotbesustained.Thepurchaser hadsimplyenteredintoabusinessarrangementwhichatthetimeofcontracting,andatthe timeoftheallegedforcemajeure,wasunprofitable.

39 40

Atcor,supranote29. Reg.v.Edmunson(1869),28L.J.M.C.213at215perLordCampbell,C.J.citedinD.A.Dukelow,DictionaryofCanadianLaw,

2ded.(Toronto:Carswell,1995)at375;seealsoathoroughdiscussionofthisruleanditsapplicationinR.Sullivan,ed., DriedgerontheConstructionofStatutes3ded.(Toronto:Butterworths,1994)at203213.
41 42 43

AtlanticPaper,supranote1at411. Ibid.at41112. Ibid.at411. 10

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III.

RequirementsforForceMajeure

Generally,relianceuponaforcemajeureclauserequiresthatoneormoreofthefollowing conditionsbefulfilled: (1) (2) (3) (4) (5) thespecifiedeventisbeyondthecontroloftheclaimingparties; theeventpreventsordelays,inwholeorinpart,theperformanceofthe contract; theeventmakesperformanceofthecontractimprudent,substantiallymore difficultorsubstantiallymoreexpensive; theeventwasnotduetothefaultornegligenceoftheclaimingparty;and theclaimingpartyhasexercisedreasonablediligencetoovercomeorremove thespecifiedforcemajeureevent.44

Whendraftingforcemajeureclausesitisnecessarytoensurethatfourkeycomponentsare addressed: (i) (ii) (iii) (iv) adescriptionofeventsthatcantriggerforcemajeure; termsthatdefinethedurationofthatcondition; anoticeprovisiondescribinghowadeclarationofforcemajeureistobe communicated;and adescriptionoftheaffectsthataforcemajeureeventwillhaveonthe contractualobligationsoftheparties.

Eachoftheseelementsisdiscussedbelow.

IV.

TriggeringEvents

TheAngloAmericanlegaltraditionistoexpresslydefinetheeventoreventsthatwillenablea declarationofforcemajeureratherthanmerelyrelyingonthegeneralconceptofforcemajeure. Commonlyincluded"actsofGod"flood,fire,war,civildisturbance,governmentalorjudicial ordersoractions,sabotage,explosion,landslides,lightning,earthquakes,fires,storms,floods andwashoutsarecommonlyincludedaseventsthattriggerforcemajeure.Asnoted,in commonlawjurisdictionsitisalsocommontocustomizeaforcemajeuretothetypeofproject orindustrytowhichitisbeingapplied.

V.

Duration/Mitigation

Thedurationoftheforcemajeureconditionmustbedefinedwithinthecontract.Usually,itis expressedtocorrespondtotheperiodduringwhichthesituationgivingrisetoitcannotbe overcome.Anywelldraftedforcemajeureclausewillcarrywithinitanexpressdutytomitigate.

44

DonGreenfieldandBobRooney,AspectsofInternationalPetroleumAgreement(1999)37Alta.L.Rev.35272. 11

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Inmostcontracts,thepartydeclaringforcemajeuremust,sofaraspossible,remedythe situationwithduediligenceor"withallreasonabledispatch".Whiletheobligationdescribed clearlyincludesadutytomitigatetheforcemajeureeventitself,whatislesscleariswhether thedutytomitigatealsoincludesadutytomitigatetheaffectsoftheforcemajeureevent. Asamatterofconcept,thedistinctionmayappearsubtlebutitcanbeofgreatimportanceas illustratedbyseveralcasesdecidedinAlbertaandTexasinrelationtogassupplycontracts.In TejasPowerCorp.v.AmeradaHessCorp.45anumberofAmerada'swellsfroze,whichlimitedits upstreamsupplyandwhichwascontemplatedasatriggeringeventundertheforcemajeure clause.Ameradacurtaileditssupplyofnaturalgastosomebutnotallofitscustomersand insteadselectivelychosethosetowhomitwouldmakedeliveries.Tejasmadetwoarguments seekingtoholdAmeradaresponsibleforfailingtomitigate,nottheforcemajeureevent,butthe effectonTejasoftheforcemajeureevent.Inthatregard,itarguedfirstlythatAmeradaought tohaveapportioneditslimitedsupplyofgasamongallaffectedcustomers.Thisargumentwas rejectedonthebasisthatthecourtheldthatAmeradacouldallocateasitpleasedsolongas suchallocationwas"fairandreasonable".Theonlyexperttestimonypresentedattrial indicatedthatAmerada'sallocationwasindeedfairandreasonable. Second,Tejasarguedthattheavailabilityofgasonthespotmarketwouldhaveallowed Ameradawith"duediligence"to"overcome"theaffectsoftheforcemajeureeventasrequired bythecontract.46Tejas'positionwasthatadutyexistedtomitigatetheaffectsofforcemajeure asopposedtotheeventitself.TheTexasCourtofAppealrejectedthisargumentnotingthatto accepttheargumentwouldbeto"rewriteacontractorinterpretitinamannertheparties neverintended". IntherecentAlbertacaseofAndroscogginEnergyLCv.ProducersMarketingLtd.47alarge numberofProducers'wellswereshutinbyanAlbertaregulatoryboardandforcemajeurewas declaredbyProducers.AstheLearnedTrialJudgeobserved:
Section 15.2(b) requires the nonperforming party, in this case the seller [Producer's Marketing], to exercise all reasonable efforts to continue to perform its obligations under the agreement and to remedy expeditiously its inability to do so. If the seller is unable to supply gas due to an event offorcemajeure,anyreduction insupplyistobeapportionedamongthevariouspurchaserswho sharesimilarcontractsasthebuyeronaproratabasis.48

Intheresult,thecourtorderedProducersMarketingto"doallthingsnecessarytoassurethe supplyof11,000gigajoulesperdayofnaturalgas"toAndroscoggin.49Accordingly,inthissense thecourtfoundadutytomitigatenotjusttheforcemajeureeventitself,butalsotheeffectsof theforcemajeureevent.

45 46 47 48 49

Tex.App.LEXIS6014(C.A.14 DistrictHouston,1999)[Tejas]. Tejas,supranote45at6. [2003]A.J.No.1701(QL)[Androscoggin]. Ibid.14. Androscoggin,supranote4732. 12

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Ontheotherhand,adifferentresultarosefromthedecisioninApacheCorp.v.VirginiaPower EnergyMarketingInc.50ThiscasearosefromlitigationflowingfromhurricanesKatrinaandRita in2005.Asaresultofthehurricanes,Apache'sabilitytoproduceanddelivergaswasdisrupted andApachedeclaredforcemajeureandcurtaileddeliveriestoVirginiaPower.Thecontract betweenthepartiesprovidedinpartasfollows:

"11.2: A Seller and Buyer shall make reasonable efforts to avoid the adverse impacts of a force majeure and to resolve the event or occurrence once it has occurred in order to resume performance."

VirginiaPowercontendedthatApacheshouldhavedeliveredgastoalternatedeliverypointsare foundontheopenmarketothergasfordeliveryatthealternativedeliverypoints.Thecourt rejectedtheseargumentsandnotedthatApache'sobligationsexpresslyrequiredallreasonable effortsatresumptionofperformancebuttheydidnotexpresslyrequirealternateperformance incaseofaforcemajeureevent.Attrial,itwasheldthattherewasnoobligationtosupplygas atalternatedeliverypointsandfurthernotedthatinanyevent,animpliedobligationto purchasealternatesuppliesontheopenmarketwouldbeanunlimitedobligation,andwould rendertheforcemajeureprovisionsallbutmeaningless. BasedontherecentU.S.casesitappearsthatthecourtsthereareapplyingastrictandnarrow interpretationtotheobligationtomitigate,particularlywithrespecttotheextentofmitigation requiredofthedeclaringparty.Untilothercasesarise,itisunclearwhetherthestandardof "commercialreasonableness"willcausetheAlbertacourt,andthoseofotherprovinces,amore expansiveviewofthatrequirement. Whendrafting,itmaybeimportanttoexpresslydisclaimcertainaspectsofthedutytomitigate. Forexample,inrelationtolabourdisputes,thepartieswillwishtoensurethattheyarenot subjectbothtothedemandsofitsworkforceduringthedisputeandthepossibilityofhavingto paycontractualdamagesforfailingtosettlelabourdisputes.Accordingly,manyforcemajeure clausesrecognizethisrealitybyincludingclausessuchasthefollowing:
Theobligationsofthepartygivingnoticeofforcemajeuresofarastheyareaffectedbysuchforce majeure, shall be suspended during the continuance of any inability so caused, but for no longer period, such a cause, shall, so far as possible, be remedied with all reasonable dispatch; provided however, that this provision shall not require the settlement of strikes or other concerted acts of workers by exceeding to the demands of the opposing parties when such course, in its sole discretion,isconsideredunreasonable.

Whilethedutytomitigateassumesthatforcemajeureevents(andtheireffects)areonly temporary.Thequestionarisesastowhathappenswhenaneventtriggeringforcemajeure becomespermanent?Forinstance,manyforcemajeureclausesstatethatcertaindetrimental changestostatutoryorregulatoryenvironmentscanamounttoforcemajeure.Theseevents maybepermanent,andifso,mayeffectivelyterminatethecontract.Inthissense,the terminologyof"temporary"and"permanent"seemsinaptbecausealaw,aregulationororder canalwaysberepealedandisthereforeneverpermanentintheliteralsense.However,literal permanenceisnotrequired.CommonwealthEdisonv.AlliedGeneralNuclearServices51

50

CauseNo.200576899(D.C.157 DistrictTexas,2007)[Apache]. 13

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explainedthedifferencebetweentemporaryandpermanentconditionsinforcemajeure clauses:
The point of distinguishing between temporary and permanent conditions constituting impossibility or impracticability or force majeure is merely to prevent the promisor from walking away from the contract because of some transitory impediment to performance. When conditions preventing performance persist throughout the life of the contract, they are permanent enough to excuse liability. It would be neither efficient nor fair to impose on the promisoraperpetualdutyofreadinesstoperformifandwhentheregulatorybanwaslifted.52

Theconceptisclear,butatwhatstageaforcemajeureconditionhassufficientpermanenceand impacttoallowabandonmentofallcontractualobligationsisnot.TheCourtinCommonwealth Edisonprovidedsomeassistanceinthisrespect,statingthattheapplicabledutytomitigatedid notrequireperformanceif,afteratemporaryforcemajeuremoratoriumwaslifted, performancewouldbe"materiallymoreburdensome"thaniftheforcemajeureeventhad neveroccurred.Howthis"materiallymoreburdensome"standardmightbeinterpretedina givencaseisdifficulttopredictandhasnotbeentestedinanysignificantbodyofcaselaw. Referencetotherequirementsofcontractualfrustration(destructionofthe"entiresubject matter",oroftheunderlyingrationaleofthecontract)couldalsoberelevantwhenconsidering thisissue.

VI.

Notice

Athirdkeyaspectforcemajeureclausesisanoticerequirement,providingacondition precedenttoadeclarationofforcemajeure.Typically,aforcemajeureclausewillincludea fairlygeneralnoticeprovision,suchasinthefollowingexample:

Upon such party giving notice and reasonably full particulars of such force majeure in writing to theotherpartywithinareasonabletimeaftertheoccurrenceofthecausereliedon...53

Whennoticeisproperlygiven,forcemajeureprotectionnormallycommences(retroactively) fromthetimeofthetriggeringeventitself.Inmanyinstances,forcemajeureclauseswilltreata failuretogivenoticewithinaparticulartimeframeasabarriertovaliddeclarationeven whereaforcemajeuretriggeringeventhasbeenknowntooccur(suchasahurricane,for example).Thelogictoprovidingareasonablenoticeperiodafterthetriggeringeventistogive apartyanopportunitytocureormitigatetheforcemajeureeventwithoutnecessarilyhavingto makeadeclaration.Insomeinstances,the"actsofGod"andothereventsenumeratedwithina forcemajeureclausemaynothaveamajorimpactuponoperations,andinsuchinstances, declarationsofforcemajeuremayprovetobecounterproductivetothepartyentitledtomake suchadeclaration.

51 52 53

WL37744(Mar.23,1990),affirming731F.Supp.850(N.D.1111990)[CommonwealthEdison]. Ibid. Ibid.

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Afailuretoproperlygivenoticewillbefataltoadefencebaseduponaforcemajeureclause.54 Strictadherencetonoticerequirementsisusuallynecessary.Forexample,inInternational Minerals&ChemicalCorp.v.Llano,Inc.,55abuyernotifiedthesellerthatitsgasconsumption wouldbereducedbecauseoftesting,butnotthatitsreducedconsumptionwouldbe permanent.Thebuyerarguedthatthenoticewassufficienttoallowapermanentreductionin volumesundertheforcemajeureclause.TheUnitedStatesCourtofAppealfoundthatthiswas notpropernoticewithinthemeaningoftheforcemajeureclausewhichrequiredthat"theparty whoseperformance...issoaffectedshallimmediatelynotifytheotherpartyofallpertinent facts...".Thenoticedidnotindicatethepertinentfactthatreducedconsumptionwouldbe permanent.56

VII. EffectonContractualObligations
Thepreciseeffectofaforcemajeureeventonthecontractualobligationsofthepartiesmust alsobeaddressedinthecontract.Forexample,particularcontractualobligationsmaybe ended,suspended,ormerelyaltered.Thefollowingisanexampleofaclauseunderwhich contractualobligations(butonlythosenotinvolvingpayment)aresuspendedforalimited periodcoincidingwiththeforcemajeureevent:
ExceptwithregardtoBuyer'sorSeller'sobligationstomakepaymentsdueunderthisAgreement, in the event either party hereto is rendered unable, wholly or in part, by force majeure to carry out its obligations under this Agreement, and which by the exercise of due diligence, such party could not have prevented or overcome, it is agreed that, then the obligations of the party giving notice, so far as they are affected by such force majeure, from its inception, shall be suspended during the continuance of any inability so caused but for no longer period. Either party's inability toperformshall,asfaraspossible,beremediedwithallreasonabledispatch.57

Whendraftingforcemajeureclauses,itisimportanttoseparatethecontractualobligationsthat remaininforcethroughouttheevent(ifany)fromthosethataresuspendedormodified. Moreover,iftheunderlyingcontractcontemplatesobligationscontingentonthepassageof time,theforcemajeureclauseoughttoaddresstheeffectthatanysuspensionsduetoforce majeuremighthaveontheseperiods.Althoughtheprotectionofforcemajeureisintendedas temporaryprotectionagainstunavoidableevents,thepassageofkeytimeframes(suchasan expirationorterminationdate)whileapartyiswithintheprotectionofforcemajeuremaylead tounintendedconsequencesunlessdirectlycontemplatedandaddressedwithintheclause. Partiesdraftingornegotiatingcontractsinvolvingforcemajeureclauseswillalsowanttoturn theirmindstowhetheralltriggeringeventsshouldhavethesameimpactsoncontractual

54

InternationalMinerals&ChemicalCorp.v.Llano,Inc.,770F.2dat885;ResourcesInvestmentCorp.v.EnronCorp.669F.Supp.1038at104344

(D.Colo.1987);SuperiorOilCo.v.TransoEnergyCo.,616F.Supp.98at108109(W.D.Ia.1985).
55 56 57

770F.2dat885(1985). SabineCorporationv.ONGWestern,Inc.,725F.Supp.1157at1169(W.D.Okla.1989). VectorPipelineInc.,LinePackGasPurchaseAgreement(Dresdon,ON:VectorPipeline).

Online<http://www.vectorpipeline.com/medidnews_releases/pdf/nr_20001027.pdf>.AccessedAugust15,2007[Vector Agreement]atArticle12. 15

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obligations.Forexample,doesanoperationalfailureorlabourstrikereallywarrantthesame relieffromperformanceobligationsthatmightotherwisebeappropriateinanearthquake?

VIII. Conclusion
Thedraftingofforcemajeureclauses,ratherthanmerelyinvolvingtheselectionofboilerplate wording,shouldbeapproachedfromtheperspectivethatitrepresentsbothacentralpartof theproperriskallocationschemeofaparticularprojectbutalsoanopportunitytoselect wordingwhichcanassistinreducinguncertaintyandensuringthatriskultimatelyresideswhere intended. Itisaccordinglycriticalthatathoroughreviewofthefundamentalelementsofsuchclauses includingtriggerevents,duration,noticeandtheeffecttheeventsdescribedintheclauseareto haveoncontractualobligationsbeconsideredasconstituentelementsofawelldraftedclause.

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