I have received several enquiries from Claims Class students citing the current hostilities in the Arabian Gulf and asking whether the situation provides grounds to claim. The answer, as usual, is “it depends”.

Firstly, in order to receive compensation, the contractor must have incurred some sort of damage. In other words, to have either suffered delay or incurred additional cost because of the event. If we think about the current situation, the contractor could be affected by the following:

• actual damage caused to the project as a result of the hostilities
• disruption to the supply chain caused by restrictions in the Straits of Hormuz shipping lane
• disruption to the supply chain caused by disruptions to flights

If hostilities continue or escalate, however, it is likely that the effects on projects will also increase.

What if the Contractor Has Been Affected?

Secondly, if the contractor has been affected, there must be a contractual mechanism to allow the Contractor to receive compensation. Most projects in the Gulf region are governed by the FIDIC contracts. The Red Book, 2017 Edition covers such a situation under Sub-Clause 18.1 (Exceptional Events), which provides the following:

““Exceptional Event” means an event or circumstance which:

(i) is beyond a Party’s control:

(ii) the Party could not reasonably have provided against before entering

(iii) having arisen, such Party could not reasonably have avoided or

(iv) is not substantially attributable to the other Party.

An Exceptional Event may comprise but is not limited to any of the following events or circumstances provided that conditions (i) to (iv) above are satisfied:

(a) war, hostilities (whether war be declared or not), invasion, act of foreign enemies;

(b) rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war; …

(e) encountering munitions of war, explosive materials, ionising radiation or contamination by radio-activity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio-activity;…”

For the above, it may be concluded that the current situation in the Gulf comprises an exceptional event as defined by FIDIC.

Sub-Clause 18.2 (Notice of an Exceptional Event), provides that:

“If a Party is or will be prevented from performing any obligations under the Contract due to an Exceptional Event (the “affected Party” in this Clause), then the affected Party shall give a Notice to the other Party of such an Exceptional Event, and shall specify the obligations, the performance of which is or will be prevented (the “prevented obligations” in this Clause).

This Notice shall be given within 14 days after the affected Party became aware, or should have become aware, of the Exceptional Event, and the affected Party shall then be excused performance of the prevented obligations from the date such performance is prevented by the Exceptional Event. If this Notice is received by the other Party after this period of 14 days, the affected Party shall be excused performance of the prevented obligations only from the date on which this Notice is received by the other Party.

Thereafter, the affected Party shall be excused performance of the prevented obligations for so long as such Exceptional Event prevents the affected Party from performing them. Other than performance of the prevented obligations, the affected Party shall not be excused performance of all other obligations under the Contract.

However, the obligations of either Party to make payments due to the other Party under the Contract shall not be excused by an Exceptional Event”

The Importance of Notices

Consequently, if either Party is, or will be prevented from performing any obligations because of the current situation, they must give Notice and will thereafter be excused performance of the affected obligation(s), although this does not apply to payments.

Sub-Clause 18.4 (Consequences of an Exceptional Event) provides entitlement to the Contractor to claim compensation as follows:

“If the Contractor is the affected Party and suffers delay and/or incurs Cost  by reason of the Exceptional Event of which he/she gave a Notice under Sub-Clause 18.2 [Notice of an Exceptional Event], the Contractor shall be entitled subject to Sub Clause 20.2 [Claims For Payment and/or EOT] to:

(a) EOT; and/or

(b) if the Exceptional Event is of the kind described in sub-paragraphs (a) to (e) of Sub-Clause 18.1 [Exceptional Events] and, in the case of sub-paragraphs (b) to (e) of that Sub-Clause, occurs in the Country, payment of such Cost.”

Having given the required Notice, the Contractor may claim for any delay to the Time for Completion caused by the hostilities. Additionally, because items (a) to (e) of Sub-Clause 18.1 (Exceptional Events) includes events such as those that are currently being experienced in the Gulf, the Contractor may also claim for payment of any additional Cost incurred.

I hope that this provides some guidance on the current situation and, if you are located in the Gulf region, I hope that you and your loved ones stay safe.

Understanding your contract and knowing which clauses provide entitlement is critical at the best of times, and especially during time of high risk. Check out our Practical Use of FIDIC 1999 and Practical Use of FIDIC 2017 e-courses and ensure you are best placed to support your project.