Overview of Dispute Risks

Force majeure generally refers to the consequence of an unexpected event, which has the effect of preventing a party, in whole or in part, from complying with a contractual obligation. The term “force majeure” typically encompasses events such as wars, riots, strikes, pandemics, natural disasters, or terrorism, among others. Generally, the mere existence of a contractually specified force majeure event is not sufficient for a claimant to establish a successful force majeure claim. Claimants must comply with all other preconditions for a claim, which will depend on the terms of any particular legislation, the applicable law, and the contract in question.

While some jurisdictions (such as France and Germany) define “force majeure” in their legislation, others do not, particularly in emerging markets. For instance, in jurisdictions such as Mozambique, Bangladesh, Angola, Nigeria, South Africa, Kenya and Zimbabwe, the term “force majeure” is not expressly codified or defined by statute.

Generally, five major reasons for courts or arbitral tribunals finding that a force majeure claim fails are that the party invoking the event:

1. was itself responsible for the event;
2. should have foreseen it;
3. failed to show a causal link between the relevant force majeure event and the adverse consequences for which the claim is made;
4. should have determined an alternate way to perform the contract; and/or
5. did not comply with applicable notice requirements.

Mitigating Force Majeure Dispute Risks

To help mitigate against the risk of an unsuccessful force majeure claim and to increase the chances of a successful claim, there are a number of mitigation measures foreign investors may seek to take when investing in emerging markets.

First, in the absence of a specific definition of the term “force majeure” in the state’s law, it may be important to specify certain force majeure elements in contracts governed by these jurisdictions, including for example:

• a definition of the events or circumstances that qualify as a force majeure, including events that a court or an arbitral tribunal may otherwise disregard, for example, currency exchange controls or market price fluctuations, which are important in energy and construction projects;
• the allocation of risk between the parties, e.g., specifying which party is responsible for particular force majeure events;
• the requirements for the clause to be triggered, e.g., that the event be (i) unforeseeable at the time of contracting; and (ii) beyond the parties’ reasonable control; and
• the relief provided in case of a successful force majeure claim, both defensive (e.g., relief from performance obligations and/or liability in damages) and offensive (e.g., ability to claim compensation).

Second, “foreseeability” is usually strictly interpreted by courts and arbitral tribunals. Therefore, investors may consider including other contractual terms in their contracts (i.e., price adjustment or termination clauses), which take into account specific and foreseeable risks. For example, a foreseeable market price fluctuation risk may be best accounted for in a price adjustment clause rather than in a force majeure clause.

Third, when invoking a force majeure clause, investors may seek to particularize, with evidence, the chain of causation between the relied-upon force majeure event and the consequences upon which the claim or defense is based.

Fourth, a party seeking to excuse nonperformance, or making a claim due to force majeure, may seek to demonstrate it could not have avoided the event or its consequences, for example, by exploring alternative methods of performance and demonstrating impossibility of performance.

Finally, in the course of the project, investors may seek to comply with notice periods in the force majeure clause in order to mitigate the risk of losing the claim on the basis of a failure to give timely notice (although it must be noted that different jurisdictions may take a more flexible approach to notice provisions).

Mozambique

The Mozambique Civil Code does not provide any statutory definition of the term “force majeure,” although contractual performance may be excused under the doctrine of impossibility of performance (Article 790/1, Mozambique Civil Code). Force majeure is recognized under the Mozambique Petroleum Law, which provides that “petroleum operations rights holders may lawfully suspend performance of petroleum operations on account of a force majeure event” (Article 15(h), Mozambique Petroleum Law).

There have been more than 200 terrorist attacks in Mozambique since 2017, mainly against government facilities and foreign energy companies working in the liquified natural gas (“LNG”) sector. Additionally, although Mozambique’s construction industry was expected to grow to support the building of LNG export infrastructure, this growth slowed in the aftermath of Cyclones Idai and Kenneth in March and April of 2019, when damage to transport and power infrastructures made it difficult to organize supply chains and carry out construction work.

Accordingly, investors seeking to do business in Mozambique, specifically in the construction and energy sectors, may seek to include terrorism and/or climate related disasters in the definition of the events or circumstances that qualify as a force majeure in their contracts, as these events may or may not be captured by Mozambican law.

Bangladesh

Bangladeshi law does not provide any statutory definition of the term “force majeure,” although similarly to Mozambican law, contractual performance may be excused under the doctrine of impossibility of performance (Chapter 4, Section 56, Bangladesh Contract Act of 1872).

The COVID-19 pandemic impacted the construction sector in Bangladesh, which faced serious difficulties as a result of supply chain disruptions, shortage of subcontractors and materials, and the termination of contracts. Similarly, the labor intensive Bangladeshi retail industry also suffered significant losses, primarily due to supply chain disruptions.

Accordingly, investors seeking to do business in Bangladesh, specifically in the construction and retail sectors, may seek to include material shortages and supply chain disruptions in the definition of the events or circumstances that qualify as a force majeure in their contracts, as these events may or may not be captured by Bangladeshi law.

Concluding Remarks

When it comes to risk mitigation for potential force majeure in emerging markets, investors may wish to conduct extensive due diligence prior to investment in order to identify potential risks and put appropriate mitigation measures in place, both at the time of contract and for the duration of the project.

*Mina Morova is a Trainee Associate in our Dubai office.