The Suez blockage: A lasting smell for construction?

Just when you thought you could put away your Force Majeure manual…Ever Green hit the headlines.

Despite reported pent up demand and optimism for the construction industry (which I believe is there and legitimately so) it does feel like there is an incessant battering of events inhibiting the ability of the construction industry to push on and turn this optimism into reality. COVID-19 and all its issues (goes without saying), Brexit-related supply/material delays, the consequences of Grenfell etc.

Question: is the recent six-day drama of the Ever Given container ship jamming up the Suez Canal another such battering?

Now it is over, and analysis has been undertaken (one report I have particularly focussed on is by analytical and data experts Dun & Bradstreet and E2Open) which covers both the impact regarding the freight on the Ever Given itself and also all the other container ships that were queued up, or those which chose to divert round the Cape of Good Hope, we do have a picture of whether or not the construction industry will be impacted, and can anything be done about it?

The conclusions most relevant to the UK market is that Europe is the region that will feel the strongest impact as a result of this incident, with the UK listed as country no.1. Further, of the main industries that will be most affected construction is in the list. A list which also includes eating and drinking establishments, wholesale trade, chemicals and allied product-related businesses, health services, food retailers, industrial and commercial machinery and equipment, metal production, and automotive repair services.

Another key conclusion of the report is that the financial impacts in relation to matters dependant on timely delivery may be of significant magnitude with the impact on international shipping being predicted to last a number of months. An example given in the report of the impact one small item might have on the bigger picture was that the delay of an inexpensive but crucial part for a car, being supplied from China to Germany, would prevent the sale of the entire vehicle until received. A real life “critical path” delay.

The Suez Canal blockage did not only delay some aspects of the construction supply chain with immediate effect, it will (referencing the analysis) continue to do so due to the backlog and the fact that many of the shipments were loaded specifically with freight required to “kick-start” countries starting to come out of lockdown. The most likely impact would be on major projects rather than the industry’s bread and butter but that being said traditional construction materials, heavy equipment (Caterpillar for example have been reported in Bloomberg as highlighting that there will be a particular delay in numerous of its plant) and oil supplies.

This materially risks substantial delay for construction projects (potentially further delay already bedded in by COVID-19), in particular the larger projects. As night follows day, where there is delay there are disputes. And for a delay such as the Ever Green incident, the contract will be critical in establishing where the risk, and therefore liability falls. Maritime law may feature in this for contracts that specifically related to shipping, or had shipping related provisions, but this review focuses on the standard construction type of contract.

As part of delayed companies working out if they have any protection which will be applicable in projects where a contractor knew that part of what it required to complete the job was being shipped to them, the spotlight will be dusted down, plugged in again and be pointed towards force majeure.

So much has been discussed recently about force majeure provisions in relation to COVID-19. That being said force majeure, if applicable in relation to this incident may be under a different category of event rather than simply a general delay event.

For anyone in the construction industry who hasn’t studied the concept of force majeure since March last year, a short summary: force majeure is a contractual remedy (if the contract doesn’t have a force majeure clause you have no force majeure claim) which may relieve a party from liability resulting from the somewhat old school phrase “acts of God” (which wouldn’t pass any Equality Diversity and Inclusivity test these days) and other circumstances which may be described as being beyond the party’s control.

Force majeure clauses tend to follow a fairly standard form but, as with any contract provision, there can be material differences between what is, or is not, deemed a force majeure event as between different contracts. It is dangerous, therefore, to make assumptions.

First note of advice – don’t just focus on the list of force majeure events initially. Check what is required by way of notice, and if in doubt as to whether there has been a force majeure event, issue a notice in accordance with the notification provisions of the contract to avoid being time-barred from making a claim, and then seek further advice. It is possible that a force majeure clause makes specific reference to delays arising from the shipping of materials (either to exclude or include such events from the clause) and the consequential impact on project delays and increased costs. In my experience, however, it would be unusual to have a typical construction contract expressly contain such a term (unless, possibly, a key material for the works was always known that it needed to be shipped from elsewhere). Further, it is often case that the force majeure clause does not cover delay; the trigger for claiming force majeure being that performance of the contract be prevented.

If this was the case in relation to the Ever Green then a force majeure claim is unlikely to succeed with there being many options to ensure that the required item was successfully delivered, however late and at whatever cost (economic loss not being an considered a force majeure event unless expressly provided for).

In such circumstances where delay (or “hindrance to performance”) does feature, but delayed shipping is not expressly drafted as a qualifying event, the language of the clause regarding circumstances beyond the party’s control should be your focus. Each jurisdiction, and the UK is no different, will have its own jurisprudence or case law and precedents; so, check the governing law of the contract.

There are general rules applicable in all cases:

  • the injured or claiming party bears the burden of proof, as you would expect;
  • further the injured or claiming party is required to mitigate its loss i.e., mitigate the impact of the alleged force majeure. This may include procuring the delayed materials from another supplier, if reasonable (taking account of cost, lead-in time, quality etc).

Ultimately whether or not the incident in the Suez Canal will satisfy the criteria of a force majeure will depend upon the wording of the relevant provision, if one exists, in the contract. It is clear from UK case law, however, that to claim for delay, or hindrance to the works, or economic impacts arising from the delay express wording around these categories will be required to have a realistic chance of invoking the provision to protect from such consequences. For once, it is highly possible that a canal will have created waves with an impact beyond its immediate boundaries.