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An article, “Satellite Photos Raise Concerns of Russian Military Build-Up Near Ukraine,” published by CNN on Nov. 4, 2021, showed satellite images of battle tanks amassing near the border of Ukraine. Almost four months later, the Ukrainian Chamber of Commerce and Industry reported the military aggression against Ukraine that led to the imposition of martial law as of Feb. 28, 2022.

If a construction contract was executed Dec. 15, 2021, could a party claim the impacts of the invasion were foreseeable, thus holding a contractor to perform its obligations? Conversely, can non-performance be excused if the enormity of the impact was unforeseeable? While the facts of each scenario can bring different results, available defenses for non-performance—such as a force majeure provision or the doctrines of impossibility and frustration of purpose—hinge on foreseeability, contract language, the facts and the laws of the state enforcing the contract.

Force Majeure Provision

Many are familiar with the term "force majeure," but not its meaning. A force majeure provision can limit liability for the party obligated to perform when unforeseeable events, such as “acts of war,” unduly delay or prevent performance. The extent of protection depends on the language used; for instance, does the term “war” include events involving trade wars and/or the imposition of martial law, compliance with a notice requirement, the duration of the event triggering the clause and how different state courts interpret the scope of the provision.

To protect from liability under a force majeure provision, a contractor should document the relationship between the event and associated force majeure language, the impacted performance, the foreseeability of the circumstance, the inability to avoid the impact as it was beyond the control of the contractor, and whether it seeks to delay or excuse the performance entirely. This detailed information should be included, even when not required, in a timely written notice to the other party.

If a contractor determines the language of a force majeure provision does not apply, it should evaluate whether other contract language, such as a material adverse change provision or a price adjustment clause, may provide relief, as well as assess alternative defenses such as the doctrines of impossibility of performance and/or frustration of purpose.

Impossibility of Performance

When protection under a force majeure provision is unavailable, a contractor’s delay or nonperformance may be an excuse based on the “impossibility of performance” doctrine. For example, if the specialty material required is only manufactured at a specific Ukrainian facility, which has been destroyed, it would be impossible to perform the contract if that specific part is required. Most cases, however, are not as straightforward and often rely on how narrowly a state interprets “impossibility.” Some state courts hold that performance is impossible when “it can only be done at an excessive and unreasonable cost” (according to Superior Ct. of Alameda Cnty. v. Cnty. of Alameda, 65 Cal. App. 5th 838, 280 Cal. Rptr. 3d 390 [2021], reh'g denied [July 7, 2021], review denied [Sept. 29, 2021]), while others require that performance be objectively impossible (according to Shmaltz Brewing Co., LLC v. Dog Cart Mgmt. LLC, 202 A.D.3d 1349, 163 N.Y.S.3d 659 [2022]). Courts in a majority of states, however, have held that non-performance under an impossibility defense is not excused when the risk was foreseeable, when the possibility was specifically assumed in the contract and/or when the impossibility results from a party’s own actions.

When facing a scenario where the contractor deems performance as impossible, it can protect this defense by providing the other party with written notice of the circumstances that make performance “impossible” in accordance with the applicable state’s definition, including details of how performance is impossible, how the circumstance preventing performance was unforeseeable and the absence of alternative approaches due to sanctions or otherwise. If the impossibility at issue is deemed as a temporary impossibility, the contractor should evaluate the impact of any “no damages for delay” clause.

Frustration of Purpose

The doctrine of “frustration of purpose” involves a scenario when conditions change, by no fault of the parties, that negates the objective of the contract which renders the contract meaningless. The application does not rest on whether achieving the goal is possible, rather whether the purpose of the contract has been negated. The main consideration for this doctrine is the meaning of the “purpose” of the contract which may be broad and subjective. Problems arise when parties interpret the “purpose” differently.

For example, parties may enter into a contract to build a factory in Ukraine. One party may claim a frustration of purpose if the main objective was location—to have the factory located in Ukraine. However, if the location language in the contract is broad enough to include countries in or around Ukraine, the goal of the contract is not frustrated as the factory can be built elsewhere.

As it is the obligation of the contractor to support the frustration of purpose defense, the contractor should provide timely notice that the purpose of the contract no longer exists, the decrease in the anticipated value of the contract is outside the party’s control, and that the existing event was not foreseeable at the time of contracting and the frustration is not related to possible lost profits.

Conclusion

How the invasion of Ukraine will impact liability contractors continues to evolve. While a force majeure provision and the doctrines of impossibility of performance or frustration of purpose may be possible defenses, it is impossible to foresee whether they will insulate a contractor from liability as the facts surrounding the case, the language of each contract and which state’s law applies will impact the outcome. In the face of such uncertainty, it is important that every contractor understand whether its contract includes a force majeure provision, whether performance is impossible and whether there is a mutual understanding of the contract’s objective. Such an understanding will provide the contractor with a roadmap to determine how best to proceed in the face of these uncertainties.

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