Force Majeure in Construction contracts

A Force Majeure clause allows a party to suspend or terminate performance of their obligations under a contract where there has been an “act of God”, ie. an event outside of a party’s control. The law recognises that where an event arises outside of a party’s control, the party seeking to rely on the Force Majeure clause, who cannot now fulfil their contractual obligations, will not be liable for failure to perform.

Construction contracts

NEC3, JCT and FIDIC contracts have force majeure clauses. ICE does not.

Clause 2.26.14 of the JCT Design and Build Contract identifies ‘force majeure’ as a Relevant Event which would entitle the contractor to an extension of time and an event which would entitle either party to terminate the contract under clause 8.11.1. If an EOT is not agreed, you can adjudicate on this. Similarly, any issues in termination can be adjudicated.

It is not a Relevant Matter and therefore gives no entitlement to loss and expense.

NEC3 states The Coronavirus may be a Compensation Event pursuant to Clause 60.1(19). This Clause covers an event that:

• Stops the contractor completing the works at all or by an agreed date: and
• The event is one which neither party could prevent; and
• The contractor would have adjudged the event as having such a small chance of occurring that it would have been unreasonable for the contractor to consider it when they entered into the contract.

Most force majeure clauses require the party that is affected by the ‘event’ to give the other party notice and in the correct form.

It falls to the party seeking to invoke the force majeure clause to prove that the ‘event’ is sufficiently serious to be relied upon. It is therefore important that you gather your evidence to support your position, which currently should not be difficult.

The party seeking to rely on the force majeure clause is under a duty to mitigate or minimise their loss and to have taken all appropriate and reasonable steps.

Force majeure clauses usually outline the specific events which will be covered by their operation. Regarding the Coronavirus, if pandemic or epidemic is mentioned then a party is likely to qualify. If not, and the government brings in additional guidance and/or restrictions then you may also qualify.

It is likely that the force majeure event must be unforeseeable, otherwise it is taken as something that the contract should have covered and will not offer protection. An event caused by Coronavirus would meet this requirement if entered into before its impact was fully understood. For future contracts, the drafting needs to be considered very carefully.

The force majeure event must be the sole cause of the failure to perform an obligation. In the case of Seadrill Ghana v Tullow Ghana [2018] there was more than one cause of the default and therefore the force majeure clause did not operate. The party seeking to rely on the clause must demonstrate that performance is legally or physically impossible, not just difficult. Clauses that use the words ‘hinder and delay’ give a wider scope and will generally be satisfied if performance is substantially more onerous. However, a mere increase in the cost of performing the contract is unlikely to be sufficient trigger.

The Doctrine of Frustration

What happens if you do not have a force majeure clause? The doctrine may apply:-

‘A party is discharged from its contractual obligations if a change in circumstances makes it physically or commercially impossible to perform the contract or would render performance radically different.’

It can only be used in very narrow circumstances, If you do have an event that would qualify under the doctrine of frustration, recovery of any monies is governed by the Law Reform (Frustrated Contracts) Act 1954. Here, broadly, the party that suffers as a result of the frustration is entitled to have any monies that they have paid returned to them less any allowance which is to be deducted and assessed by the court.

Drafting

As set out above, if you are entering into a new contract, you need to properly consider incorporating a force majeure clause or even a specific Coronavirus clause.

You need to consider whether to make the Coronavirus or force majeure clause a ‘Compensation Event’ or a ‘Relevant Event’ or a ‘Relevant Matter’.

We can assist and advise on all issues that relate to Covid 19 affecting your construction contracts, projects and disputes.

Contact me on 01603 675639 or email ph@rogers-norton.co.uk.

Advice to Directors

Being a director involves many responsibilities, especially statutory duties. These need to be considered now, more than ever. In particular, from an insolvency point of view when it comes to creditors and declaring dividends on account of profits that may or may not be available.

Looking ahead, the Government focus is for businesses to survive the next 3 months. Many of the Government’s financial incentives result in liabilities being deferred rather than waived (the main exception being the Job Retention Scheme). VAT and Tax will still need to paid to HMRC.

A few tips:-

• The statutory duties owed to the company under sections 171 – 177 Companies Act 2006, and the powers of a liquidator to challenge transactions carried out by the directors, seek to protect the company’s assets for the benefit of its creditors. A director will only be in breach if he has acted with a lack of integrity or done something that no reasonable director would have done. The test is objective.
• Bear in mind misfeasance claims, undervalue transactions and preferential transactions, e.g. paying the Bank instead of HMRC as you have a personal guarantee.
• Wrongful trading claims involve increasing a company’s liabilities when the business is bound to fail.
• Prepare a plan to protect the company and your position against the personal risks to the director of continuing to trade.
• Take a salary not interim dividends to avoid a claim for unlawful dividends.

We are very experienced in dealing with HMRC and can advise on personal claims, time to pay arrangements and oppose winding up and bankruptcy petitions ( Simon add in links on our website).

As solicitors, advice we give to directors is legally privileged unlike accountants and Insolvency Practitioners .

We can assist you on all aspects of your duties as directors and claims by creditors, claims you wish to make (debt recovery) and issues with HMRC.

Contact Peter Hastings on 01603 675639 or email ph@rogers-norton.co.uk.

Fulfilment of Construction Contracts during Covid 19

What is the position in relation to Public Services?

Procurement Policy Note (PPN) 02/20 is asking contracting authorities within England to play their part in keeping businesses up and running, by continuing to pay suppliers, even where, in some cases, the services, goods or works being delivered will not be the same. The PPN is asking for emergency changes to be made to contracts, where necessary, to ensure sensible payment arrangements are made. This PPN comes into effect immediately and, for now, runs until 30 June 2020, but that will be kept under review.

General Tips:-

• For everyone including those involved in Public Services, check your contracts and establish the position of the other parties. Are they working remotely? Can they fulfil their obligations or has the contract been frustrated?
• Whose terms apply? Is there a Force Majeure clause and if so what does it mean?
• Assess the payment provisions of those contracts and see how a reduced performance would impact payments. For example, if a contract is payment by results, then could those payment provisions be changed so that until the end of June 2020 for public procurement matters in particular, they are paid a monthly or weekly payment based on an average of the last three months payments? Can you press for such payments if you are a contractor?
• The PPN suggests reviewing business continuity for the at risk suppliers and ensure that wherever possible business continuity is supported and encouraged over the use of other contractual provisions that would allow the supplier to either permanently or temporarily suspend performance. If the latter happened then there is the knock-on effect on the supply chain of lack of payment. So contracting authorities should be discussing business continuity of some sort with their suppliers and looking to amend contract terms to allow for continued service provision wherever possible.
• For PNN matters, payments due should be “accelerated”, meaning that invoices should be paid quicker than the usual contractual timescales wherever possible. In particular, high value invoices should be targeted to ensure they are paid as soon as possible. Potentially, suppliers should be asked to invoice on a weekly, rather than monthly, basis to keep cash flow going. For the rest of us, we need to press hard on cash flow but also look beyond the short term joys of that as we long to do business with our partners long term.
• For Public Procurement contracts, the burden is on the supplier to state that it is suffering “Covid Related Hardship” and propose a change to the payment terms because of this, called an Interim Payment Proposal. This needs to state clearly what it needs and why;
• The Interim Payment Proposal could include advance payment against goods or services, changes to milestone delivery dates and continuing to be paid even when performance is not meeting the thresholds in the contract;
• The contracting authority has three working days to review and either agree or propose amendments to the Interim Payment Proposal;
• Where possible the wording asks the parties to use other methods of relief under the contract;
• The supplier cannot include any elements of profit in the Interim Payment Proposal and it must be able to show, through the use of open book accounting what it is asking for related to Coronavirus impacts;
• The contracting authority retains the right to challenge the supplier against any claims for payment during this period and to review whether the supplier is still eligible for payment if it does not perform as agreed in the Interim Payment Proposal.

Any amendments and variations need to be recording in writing, emails are admissible in evidence if there is a dispute.

At Rogers and Norton, we can advise on your contracts and claims, especially construction and engineering contracts. Contact me at ph@rogers-norton.co.uk or on 01603 675639.

Changes to Capital Gains Tax

6th Apr 2020

From 6th April 2020, if you’re a UK resident and sell a residential property in the UK you’ll have 30 days to tell HMRC and pay any Capital Gains Tax owed. Currently, you have between nine months and 18 months to pay. The relevant date for the 30-day payment window runs from the date of completion rather than the date of exchange.

These new rules will apply to a legally binding contract for sale made on or after the 6^th April 2020. Therefore, these rules do not apply to any contracts which have exchanged unconditionally, on or before the 5^th April 2020.

A disposal of a property will be liable to Capital Gains Tax if the property is sold, gifted or transferred to someone else, other than your spouse.

Some examples of where a return will not be required are:

• Where the gain is covered by principal private residence relief throughout the duration of the taxpayer’s ownership
• If a loss arises on the sale of the property
• The gain is small enough to be covered by the individual’s annual exemption for the year of disposal.

This change is most likely to affect buy-to-let landlords, owners of second homes, owners of holiday homes and owners of large properties / estates.

Where properties are held jointly or in partnership, each owner is required to submit a UK Land return and pay the tax in respect of their share of the disposal. Penalties will apply if the return is filed late.

This change will significantly reduce the amount of time you have to calculate and report your CGT bill, but note that it only applies to UK residential property sold on or after 6 April 2020.

It is not straight forward to calculate your liability; the information needed will include (but not be limited to):

1. the original cost of the property;
2. improvement costs;
3. legal fees
4. any tax reliefs or claims that can be made;
5. your tax rate based on estimated income and gains.

It is possible to get an idea of your Capital Gains Tax liability using the government calculator:

https://www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/

If a return is filed more than 30 days following the completion of the sale, it is late and attracts a late filing penalty of £100. Returns filed more than 6 months after completion of the sale will also attract a late filing penalty of £300 or 5% of the tax outstanding, whichever is higher.

Please note that this article is not intended as tax advice and you are strongly advised to get independent tax advice in respect of your tax liabilities.

How Coronavirus (COVID-19) affects arrangements for children

We are all now facing unprecedented times while the UK adjusts to the guidance and restrictions given by the Government in a bid to slow the spread of Coronavirus (COVID-19).

We are all aware of the ‘Stay at Home’ rules which came into force on 23 March (and which will continue for a period of at least three weeks) to enforce social distancing. Put simply, we are all to stay at home and should only leave our homes for essential food shopping or for medical reasons, to travel to work where absolutely necessary, and to exercise (either walk, run or cycle) once a day.

The ‘Stay at Home’ rules will naturally cause concern for separated parents who will be carrying out the new rules whilst also attempting to adhere to any contact arrangements whether agreed between parents or set out in a Child Arrangements Order.

As family law practitioners we were all surprised when Michael Gove spoke to the nation on Good Morning earlier this week regarding child contact arrangements. However, he quickly recanted and provided clarification via Twitter, that whilst children should not be leaving their homes, except in accordance with the ‘Stay at Home’ rules, it is permissible for children to do so where parents are separated.

The judiciary has since provided further clarification that ‘where parents do not live in the same household, children under 18 can be moved between their parents’ homes’. Whilst this does give an exception to the ‘Stay at Home’ rules, it does not mean that children must be moved between their parents’ homes and parents should consider carefully whether there is any risk to the child or vulnerable person in allowing a child to move between homes.

Practically, in so far as is possible, where there is an agreement between parents or an Order of the Court setting out the arrangements for children to spend time with a non-resident parent, the arrangements should continue so far as it is safe to do so in consideration of the guidance and rules set by the Government.

Where it is unsafe for a child to move between houses parents are encouraged to reach an agreement between them for contact arrangements to be temporarily suspended until such time as the restrictions are lifted. In those circumstances, parents are also encouraged to agree alternative contact arrangements such as increased video and/or telephone calls between the child and the non-resident parent.

If parents agree that it is safe for to continue with the contact arrangements parents should abide by the rules regarding self-isolation where a parent or a child shows signs of one of the symptoms of Coronavirus (COVID-19) illness. As a reminder, where symptoms are present, people are to self-isolate for a period of 7 days from when symptoms started. Where there are others living in the household, all other members of the household must self-isolate for a period of 14 days from when the first person started showing signs of symptoms. In those circumstances parents will need to act sensibly and agree to temporarily suspend the contact arrangements during that period following which the arrangements can be reinstated.

If you are concerned about how the current guidelines and restrictions are affecting arrangements in respect of the children, or you are experiencing difficulties maintaining contact with your child or are unable to reach an agreement our Family Law Team will be able to assist you.

These difficult times will also be impacting on our relationships. Should you wish to discuss matters of separation, divorce or financial settlements Kerry Rowell, Averil Ballam or myself (Laura Savage) of our Family Team can be contacted by either telephone (01603 666001) or by email.

We have put measures in place to ensure that we continue to provide our clients with our usual high quality divorce and family service. Whilst our offices are temporarily closed, the Family Team remain contactable by telephone or email and are offering meetings either via telephone or Skype or Zoom. Courts are still open and operating remotely to assist you.

Customs Clearance Routes & Authorities – Reminder

It has been a busy 12 months for our Litigation team with clients instructing us from not just the UK and Europe but from all corners of the world. The devastating effect of Covid -19 has led to additional enquiries from new clients looking to import a variety of products. We have also seen a reduction of imports from China.

As a reminder, all goods that are imported into the UK need to clear customs before they’re allowed to enter, the most important part of that process relates to the National Clearance Hub (NCH).

The NCH is the only site/service that controls the movement and processing of international goods into and around the UK.

The service is available 24 hours a day, 365 days a year and processes around 360,000 import and export declarations each year. If any entries need to be altered and amended, the NCH also takes responsibility for this – although that service is only open from 9am to 4.30pm.

The NCH has a wide variety of duties and responsibilities that include the customs clearance route system. When the NCH processes goods, they will allocate them a route – this decides how they’ll be cleared through customs and what checks will need to be performed.

• Customs Clearance Route 0 means that they’re waiting on another government system’s response before they allocate a route
• Customs Clearance Route 1 is the most common route; it is a full document check that requires all of your original documentation to be examined in detail. This can take up to 12 working hours to clear
• Customs Clearance Route 2 consists of a physical examination of your goods as well as your documents, your original paperwork is still required. Route 2 has no time limit; however, customs do try to keep examinations brief
• Customs Clearance Route 6 allows goods to be instantly cleared without any paperwork needing to be presented

The majority of goods normally fall into category 1 or 2, so the need to have documents accurately prepared is crucial.

Depending on the type of product you’re importing, the authority examining it may be different.

While most products will be tested by Trading Standards, some may be controlled by Port Health.

Port Health is the dedicated body for preventing diseases from entering the UK. Due to the nature of their specific field, Port Health mainly focus on food and food-related products that touch food (such as cutlery).

It is common for people to be caught out by innocuous items such as food containers, plates and cutlery, but as these touch food products Port Health requires more information than you’d need on a typical import

If you are importing goods that Port Health may be involved with then it is important to have all the necessary test certificates and certificates of origin.

The litigation team have a wide experience and understanding of the systems and processes controlling the worldwide importation of goods into the UK, including from China and other Far Eastern countries and from South America and the United States of America. We are well versed in dealing with Border Force in relation to the detention, stoppage and seizure of goods at all major points of entry, including Felixstowe; London Gateway; Heathrow; Gatwick and Stansted.

If you need advice and guidance with the systems we have discussed, or in dealing with HM Revenue & Customs (HMRC), UK Border Force, Animal & Plant Health Agency (APHA) and Medical Regulatory Health Authority (MRHA) then contact us immediately for a rapid response.