With the war in Ukraine and widespread introduction of economic sanctions causing significant disruption to world markets for commodities and raw materials, Veronique Buehrlen KC considers the impact on contractual obligations in construction contracts/projects and, specifically, revisits the requirements of the doctrine of frustration.
The war in Ukraine and widespread introduction of economic sanctions, both by and against Russia, have and continue to cause significant disruption to world markets for commodities and raw materials. Supply chains, still reeling from the impact of the Covid-19 Pandemic, are seeing further unprecedented disruption – unprecedented since WW2. The rising cost of living in the United Kingdom is nothing on the rising cost of key raw materials for major construction and infrastructure projects. Aluminium, copper, bitumen, pig iron and iron ore used in the manufacture of steel are only some of the raw materials seeing significant price hikes to name but a few. But it is not only price increases that are the problem. We are seeing significant issues in relation to shortages of materials and disruption to procurement routes and processes which are in turn causing or will, in the medium to long term, cause critical delay to major construction projects. Even if the war in Ukraine comes to an end, it seems unlikely that economic sanctions will be lifted in anything approaching the short term.
We are therefore once more pouring over the proper construction of Force Majeure clauses this time to determine where the risk of a war in Ukraine and / or the imposition of economic sanctions fall. Once more change of law clauses are coming to the fore. Suspension and termination of projects are similarly back on the agenda. As commercial and construction lawyers, experience of the Pandemic and its impact on major projects has ensured that this is now well trodden ground. Similarly, Project Management teams are much better versed in how to react and how to try to overcome the impacts of seriously disrupted supply chains. A key doctrine that falls within the armoury of those most seriously affected by the impact of an unforeseen event on their contractual obligations is that of frustration. It therefore merits revisiting. The doctrine saw some outing in English case law in the context of the Pandemic albeit largely in relation to aircraft or other types of leasing – an inevitable consequence perhaps of aircraft being grounded and leisure facilities closed because of the Pandemic. We are, however, now in a different ball park – in some instances compounding significant delays and increased costs caused to Projects by the Pandemic. Contracts drafted post February 2019 that were careful to provide for Covid were not anticipating this.
Contractual provisions and frustration
