Time is of the Essence and Force Majeure RLI Design Professionals Design Professionals Learning Event DPLE 136 May 7, 2014 An Interview with Rajiv Radia RLI RLI Design Professionals is a Registered Provider with The American Institute of Architects Continuing Education Systems. Credit earned on completion of this program will be reported to CES Records for AIA members. Certificates of Completion for non-AIA members are available on request. This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation. Copyright Materials This presentation is protected by US and International Copyright laws. Reproduction, distribution, display and use of the presentation without written permission of the speakers is prohibited. © RLI Design Professionals Course Description This course will provide a greater understanding of the drafting of “time is of the essence” and “force majeure” provisions in contracts, including how these provisions may impact each party to an agreement. Learning Objectives Participants in this session will: • Develop a clearer understanding of the intent of “time is of the essence” provisions; • Learn the potential benefits to your client of a “time is of the essence” clause and the consequences to you of not meeting the obligation; • Understand the components of a “force majeure” provision; and • Analyze some of the key issues to address with “force majeure” events. What does Time is of the Essence Mean? Provides that specified dates and times in agreement are vital Inclusion says: “We mean it!” Delay may be grounds for cancelling the entire agreement Why is the provision needed? Parties to a contract are sometimes surprised to learn that missing a contractual deadline does not always amount to a material breach of the contract – timing is not always essential for courts When a party wants to make sure that the agreement makes it clear that it is important that the contract obligations be completed on time, a contract can include a “Time is of the Essence” provision Language ALERT “Time is of the Essence” may be disguised using other language stressing the importance of timely completion Will the Provision be Enforced? Is there a “Time is of the Essence” (TOE) Provision Included in the Contract? YES NO Material Breach of Contract Time of Completion Not As Important What if TOE Clause is Not Followed? You may be held liable for losses caused by the delay Consequential Damages Liquidated Damages Punitive Damages You may face an injunction from the court What is Force Majeure? A “force majeure” clause (French for “superior force”) is a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. (Black’s Law Dictionary) TOE and Force Majeure Time is of the Essence Force Majeure While a ‘time is of the essence’ clause binds a party to complete performance, a force majeure clause excuses a party from performing their obligations under the contract; acting as a ‘get out of jail free’ card Drafting a Force Majeure Clause The terms of a contract are enforced as written so when drafting a force majeure clause it is important to proceed with caution Be mindful of the risks that may arise and include those in the contract What is a Force Majeure Event? Characteristics of a force majeure event: The event must be external to the contract and the parties The event must render the party’s performance radically different from what the parties originally contemplated The event must not be reasonably foreseeable The occurrence of the event must be beyond the control of the party seeking to use force majeure as an excuse for nonperformance What is a Force Majeure Event? Unforeseeable events derived from acts of nature or acts of people: FLOODS TORNADOES STRIKES WAR RIOTS Reasonable Forseeability The event must be unpredictable: If it can be predicted, the party is expected to prepare for it. Some examples of foreseeable events may be: Earthquakes in California Tornadoes in the Great Plains states Union Strikes Control Two concepts in interpreting whether a party had “control” over the event: 1. A party may not affirmatively cause a force majeure event 2. A party may not rely on an event excusing performance if the party could have taken reasonable measures to prevent the event Impossibility Many provisions will only excuse performance when it would be impossible, however impossibility is a high threshold Broaden the scope of the clause by using phrases such as: • inadvisable • commercially impracticable Which will allow for performance to be excused under more circumstances How Much is Excused or Delayed? Be sure to recognize and specify whether the force majeure event excuses or delays the entire obligation or only part of the obligation Sweeping Language If the phrase “or any other event beyond the party’s control” is included, rather than expanding the scope of events, it likely reduces it What Happens if An Event Occurs? Ask Yourself: If the force majeure event continues – can performance be delayed if not excused? What Happens if An Event Occurs? If work can be delayed under the force majeure clause, specify a time it needs to be completed or a method to determine a new time Time vs. Money Does the force majeure clause allow for extra time AND extra money? Common Disputes Notice Requirement Notice provisions require that notice be given in a timely manner before either party can rely on a force majeure event Force Majeure I hereby invoke the force majeure clause. XJohn Hancock Other Considerations The clause should give equal consideration to both parties Time is of the Essence Summary Owner’s way of saying “Get this done on time, we mean it!” Not following will be seen as a material breach and may allow the owner to cancel the entire contract Significant financial consequences if there is a material breach The clause may be disguised in other language Courts will enforce the dates if TOE clause is included Force Majeure Summary Force Majeure clause can act as a “get out of jail free” card Be sure to define what constitutes a force majeure event Be aware of how much performance is excused or delayed Don’t use words such as “impossible” to determine when the clause applies Force Majeure Summary Make sure the clause indicates a method of determining a new date to complete performance Ask yourself whether the clause allows for extra money in addition to extra time to complete performance Be aware of and strictly follow the notice requirement The clause should apply equally to both parties This concludes The American Institute of Architects Continuing Education Systems Program Laurel Tenuto, Client Risk Management Coordinator [email protected] Marie Bernier, Senior Risk Management Consultant [email protected]
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