Content Headings

Key Issues

Example clauses

Notes and References

Force Majeure

Related to the issue of termination is the issue of force majeure.  Laws relating to force majeure are different in different jurisdictions, but in general force majeure relates to the ability of a party to excuse itself from performance of the party's contractual obligations where performance has become difficult or impossible due to abnormal or unforeseeable circumstances events that are not the fault of either party, and which the party pleading force majeure could not avoid despite the exercise of due care.  The usual list of events that constitute force majeure includes acts of god, war including civil war, revolution, riot, civil disturbance, cyclone, flood, earthquake, volcanic eruption, tidal wave and nuclear accident.  The way the force majeure clause is drafted should carefully be considered in the context of the country and the project involved.  Force majeure are sometimes called "risk events" or "compensation events" in concession agreements.

Alternative 1

For the purposes of this Agreement, Force Majeure means any of the following events or circumstances:

(a)  war, civil war, armed conflict or terrorism; or

(b)  nuclear contamination unless in any case Concessionaire and/or any Concessionaire Party is the source or cause of the contamination; or

(c)  chemical or biological contamination of the Works and/or the Facilities and/or the Site from any of the events referred to in Clause (a) above; or

(d)  pressure waves caused by devices travelling at supersonic speeds,

which directly causes either party to be unable to comply with all or a material part of its obligations under this Agreement.  

Subject to Clauses 0 and 0 the party claiming relief shall be relieved from liability under this Agreement to the extent that by reason of the Force Majeure it is not able to perform its obligations under this Agreement.

Where a party is (or claims to be) affected by an event of Force Majeure:

(a)  it shall take all reasonable steps to mitigate the consequences of such an event upon the performance of its obligations under this Agreement, resume performance of its obligations affected by the event of Force Majeure as soon as practicable and use all reasonable endeavours to remedy its failure to perform; and

(b)  it shall not be relieved from liability under this Agreement to the extent that it is not able to perform, or has not in fact performed, its obligations under this Agreement due to its failure (if any) to comply with its obligations under Clause 0(a).

Without prejudice to Concessionaire's rights under Clause  [Delay Events], Concessionaire shall only be relieved from its obligations under Clauses [The Design, Construction and Commissioning Process, Right of Access of The Authority's Representative, Programme and Dates for Completion) and Delay Events.

The party claiming relief shall serve written notice on the other party within five (5) Business Days of it becoming aware of the relevant event of Force Majeure. Such initial notice shall give sufficient details to identify the particular event claimed to be an event of Force Majeure.

A subsequent written notice shall be served by the party claiming relief on the other party within a further five (5) Business Days which shall contain such relevant information relating to the failure to perform (or delay in performing) as is available, including (without limitation) the effect of the event of Force Majeure on the ability of the party to perform, the action being taken in accordance with Clause [Mitigation], the date of the occurrence of the event of Force Majeure and an estimate of the period of time required to overcome it (and/or its effects).

The party claiming relief shall notify the other as soon as the consequences of the event of Force Majeure have ceased and of when performance of its affected obligations can be resumed.

If, following the issue of any notice referred to in Clause 0, the party claiming relief receives or becomes aware of any further information relating to the event of Force Majeure (and/or any failure to perform), it shall submit such further information to the other party as soon as reasonably possible.

Compensation

If the event of Force Majeure occurs on or after the [Actual Completion Date, the provisions of Schedule [Payment Mechanism] shall apply to determine the payments to be made to Concessionaire during the existence of any event of Force Majeure.]

If an event of Force Majeure occurs prior to the Actual Completion Date, Concessionaire shall not be entitled to receive any compensation other than as expressly provided in Clause [Compensation on Termination].

Subject to Clause [Compensation on Termination], Concessionaire's sole right to payment or otherwise in relation to the occurrence of an event of Force Majeure shall be as provided in this Clause.

Modifications

The parties shall endeavour to agree any modifications to the Agreement which may be equitable having regard to the nature of an event or events of Force Majeure.  Schedule [Dispute Resolution Procedure] shall not apply to a failure of the Authority and Concessionaire to reach agreement pursuant to this Clause.

See SOPC Section 5.4.

Alternative 1 adapted from Department of Health (UK), Standard Form Project Agreement Index reference A1 Folder 1.

Alternative 2

Force Majeure Events

As used in this Agreement, Force Majeure Event means any of the Non-Political Events or the Political Events set out in clauses [ref] respectively including the impact/consequence thereof which : 

(a)  is beyond the control of the Party claiming to be affected thereby (the "Affected Party");

(b)  prevents the Affected Party from performing or discharging its obligations under this Agreement; and 

(c)  the Affected Party has been unable to overcome or prevent despite exercise of due care and diligence. 

Non-Political Events 

Any of the following events which prevents the Affected Party from performing any of its obligations for a continuous period of not less than 7 days from the date of its occurrence, shall constitute a Non-Political Event:

(a)  earthquake, flood, inundation, landslide; 

(b)  storm, tempest, hurricane, cyclone, lightning, thunder or other extreme atmospheric disturbances; 

(c)  fire caused by reasons not attributable to the Concessionaire or the Contractor or any of the employees or agents of the Concessionaire or the Contractor; 

(d)  strikes, boycotts, labour disruptions or any other industrial disturbances not arising on account of the acts or omissions of the Concessionaire or the Contractor; 

(e)  ionising radiation, contamination by radio activity from nuclear fuel, any nuclear waste, radioactive toxic explosion; 

(f)  volcanic eruptions; 

(g)  any failure or delay of a Contractor caused by any of the aforementioned Non-Political Events, for which no offsetting compensation is payable to the Concessionaire by or on behalf of the Contractor. 

Political Events

Any of the following events shall constitute Political Event:

(i)  Change in Law for which no relief is provided under the provisions of [ref], resulting in Material Adverse Effect. 

(ii)  Acts of terrorism in [country]; 

(iii)  War (whether declared or not), hostilities (whether war be declared or not), invasion, act of foreign enemy, rebellion, riots, weapon conflict or military actions, civil commotion, in each case in [country]; 

(iv)  Action of a Government Authority having Material Adverse Effect including but not limited to (i) acts of expropriation, compulsory acquisition or takeover by any Government Authority of the Project/Project Facility or any part thereof or of the Concessionaire's or the Contractor's rights under any of the Project Agreements, (ii) any judgement or order of a court of competent jurisdiction or statutory authority in [jurisdiction] made against the Concessionaire or the Contractor in any proceedings which is non-collusive and duly prosecuted by the Concessionaire and (iii) any unlawful, unauthorised or without jurisdiction refusal to issue or to renew or the revocation of any Applicable Permits, in each case, for reasons other than Concessionaire's or the Contractor's breach or failure in complying with the Project Requirements, Applicable Laws, Applicable Permits, any judgement or order of a Governmental Authority or of any contract by which the Concessionaire or the Contractor as the case may be is bound. 

(v)   Early determination of this Agreement by the Authority for reasons of national emergency, national security or the public interest. 

(vi)  Any failure or delay of a Contractor caused by any of the aforementioned Political Events, for which no offsetting compensation is payable to the Concessionaire by or on behalf of the Contractor. 

Obligation to Notify 

(a)  As soon as practicable and in any case within 7 days of the date of occurrence of a Force Majeure Event or the date of knowledge thereof, the Affected Party shall notify the Independent Engineer and the other Party of the Force Majeure Event setting out, inter alia, the following in reasonable detail: 

(i)  the nature and extent of the Force Majeure Event;

(ii)  the estimated Force Majeure Period;

(iii)  the nature of and the extent to which, performance of any of its obligations under this Agreement is affected by the Force Majeure Event;

(iv)  the measures which the Affected Party has taken or proposes to take to alleviate/mitigate the impact of the Force Majeure Event and to resume performance of such of its obligations affected thereby; and

(v)  any other relevant information concerning the Force Majeure Event, and /or the rights and obligations of the Parties under this Agreement. 

(b)  As soon as practicable and in any case within 5 days of notification by the Affected Party in accordance with the preceding sub-clause (a), the Parties shall along with the Independent Engineer, meet, hold discussions in good faith and where necessary conduct physical inspection/survey of the Project in order to: 

(i)  assess the impact of the underlying Force Majeure Event;

(ii)  to determine the likely duration of Force Majeure Period ; and

(iii)  to formulate damage mitigation measures and steps to be undertaken by the Parties for resumption of obligations the performance of which shall have been affected by the underlying Force Majeure Event.

(c)  The Affected Party shall during the Force Majeure Period provide to the other Party with regular (not less than weekly) reports concerning the matters set out in the preceding sub-clause (b) as also any information, details or document, which the other Party may reasonably require. 

Performance of Obligations

If the Affected Party is rendered wholly or partially unable to perform any of its obligations under this Agreement because of a Force Majeure Event, it shall be excused from performance of such obligations to the extent it is unable to perform the same on account of such Force Majeure Event provided that:

(a)  the excuse from performance shall be of no greater scope and of no longer duration than is necessitated by the Force Majeure Event; 

(b)  the Affected Party shall make all reasonable efforts to mitigate or limit damage, if any, caused or is likely to be caused to the Project Facility as a result of the Force Majeure Event and to restore the Project Facility, in accordance with the Good Industry Practice and its relative obligations under this Agreement; 

(c)  the Affected Party shall take all remedial measures including duly prosecuting and exhausting all such remedies available to the Affected Party under the Applicable Laws; 

(d)  when the Affected Party is able to resume performance of its obligations under this Agreement, it shall give to the other Party written notice to that effect and shall promptly resume performance of its obligations hereunder 

(e)  the Affected Party shall continue to perform such of its obligations which are not affected by the Force Majeure Event and which are capable of being performed in accordance with this Agreement. 

Termination due to Force Majeure Event

If a Force Majeure Event which is Non-Political Event, continues or is in the reasonable judgement of the Parties likely to continue beyond a period of 120 days, the Parties may mutually decide to terminate this Agreement or continue this Agreement on mutually agreed revised terms. If the Parties are unable to reach an agreement in this regard, the Affected Party shall after the expiry of the said period of 120 days, be entitled to terminate this Agreement. 

Notwithstanding anything inconsistent contained in this Agreement, if a Force Majeure Event is a Political Event and the same subsists for a period exceeding 365 days either Party shall be entitled to terminate this Agreement.

Provided that the Authority may at its sole discretion have the option to terminate this Agreement any time after the occurrence of the Political Event.

Termination Notice 

If either Party having become entitled to do so decides to terminate this Agreement pursuant to this clause, it shall issue Termination Notice setting out ;

(i)   in sufficient detail the underlying Force Majeure Event; 

(ii)   the Termination Date which shall be a date occurring not earlier than 60 days from the date of Termination Notice; 

(iii)   the estimated Termination Payment including the details of computation thereof and; 

(iv)   any other relevant information. 

Obligation of Parties 

Following issue of Termination Notice by either Party, the Parties shall promptly take all such steps as may be necessary or required to ensure that;

(i)   the Termination Payment, if any, payable by the Authority in accordance with the following sub-clause (d) is paid to the Concessionaire on the Termination Date and 

(ii)   the Project/Project Facility is handed over to the Authority by the Concessionaire on the Termination Date free from any all Encumbrance. 

Termination Payment 

Upon Termination of this Agreement after the Commencement Date or the Financial Close whichever is later, due to a Force Majeure Event, Termination Payment shall be made to the Concessionaire by The Authority in accordance with the following:

(i)  Termination due to Non Political Event

a.  Before COD - No Termination Payment shall be made by the Authority to the Concessionaire but, the Concessionaire shall be entitled to receive and appropriate the proceeds of any insurance obtained by it. 

b.  After COD - If Termination is due to a Force Majeure Event which is a Non Political Event, no Termination Payment shall be made by the Authority to the Concessionaire but, the Concessionaire shall be entitled to receive and appropriate the proceeds of any insurance obtained by it. 

(ii)   Termination due to Political Event

a.  Before COD -  The Authority shall pay to the Concessionaire Termination Payment equal to the Book Value as on the Date of Termination Notice plus the accrued interest thereon @ AWPR + 3% p.a., from the date of Financial Close. 

b.  After COD - The Authority shall pay to the Concessionaire Termination Payment equal to the sum of outstanding Lenders' Dues, and Discounted Value of Future Net Cashflows as on the date of Termination. 

Provided the Authority shall be entitled to deduct from the Termination Payment, payable by the Authority to the Concessionaire, any amount due and recoverable by the Authority from the Concessionaire as on the Termination Date and, in the case of Termination due to riot, civil commotion and terrorism,  an additiona um equivalent to one-sixth (1/6th) of the Initial Investment

Allocation of costs during subsistence of Force Majeure:  

In case Termination of the Concession does not take place in accordance with the provisions of clause [ref], the costs arising out of Force Majeure shall be allocated as follows:

(i)  When the Force Majeure Event is a Non Political Event, the Parties shall bear their respective costs and neither Party shall be required to pay to the other Party any costs arising out of any such Force Majeure Event;

(ii)  Where the Force Majeure Event is a Political Event, the cost, to the extent actually incurred, to repair physical damage to the Project Facilities during such Force Majeure Event, as certified by the Independent Auditor, shall be reimbursed by the Authority to the Concessionaire in one lump sum or paid in three equal annual installments with interest @ AWPR PLR plus two percent.

Provided that in case of riots, civil commotion and terrorism, the obligation of the Authority shall be limited to any shortfall between cost actually incurred and one-sixth (1/6th) of the Initial Investment

Save and except as expressly provided in this clause, neither Party hereto shall be liable in any manner whatsoever to the other Party in respect of any loss, damage, cost, expense, claims, demands and proceedings relating to or arising out of occurrence or existence of any Force Majeure Event.

Alternative 2 adapted from Concession Agreement for Colombo Kathunayake Expressway Project (note confidential), index reference A2, folder 1.