Hong Kong: Construction force majeure and alternative relief

What is the most commonly used standard form construction contract used in the country? 

Government projects

Government projects use Government standard form of contracts. 

Private projects

The usual standard form of contract used in private projects are the forms issued by a number of professional bodies, such as (i) the Hong Kong Institute of Architect (“HKIA”), the Hong Kong Institute of Construction Managers (“HKICM”) and the Hong Kong Institute of Surveyors (“HKIS”) jointly and (ii) the Hong Kong Construction Association.  

Private developers and the Mass Transit Railway Corporation which operates the railway system in Hong Kong (“HK”) tend to use their own house-forms for their contracts. 

Parties tend to negotiate and revise the standard form contracts by way of special conditions, as such the signed contracts may contain revised terms deviating from those set out below.

In this section, we focus only on the government standard form and the form jointly issued by the HKIA, HKICM and HKIS.

Clause references and capitalised terms in this section refer to those used in the government standard form and the form jointly issued by the HKIA, HKICM and HKIS, unless specifically stated otherwise.

Does the contract include provisions on force majeure?

Government standard form

The force majeure clause in the Government standard form is usually named the “Special Risks” clause and it is set out below.

Clause 84 (1) defines “Special Risks” as follows:

(a) an outbreak of war (whether war be declared or not) in any part of the world which, whether financially or otherwise materially affects the execution of the Works, or
(b) an invasion of Hong Kong, or
(c) civil war, rebellion, revolution or military or usurped power in Hong Kong, or
(d ) riot, commotion or disorder in Hong Kong otherwise than amongst the employees of the Contractor, any sub-contractor or Specialist Contractor currently or formerly engaged on the Works or Specialist Works, or
(e) act of foreign terrorists in Hong Kong.

This clause contains a narrowly defined set of special events which include war, invasion of HK, civil war rebellion, revolution, riot, commotion or disorder, and act of foreign terrorists in HK, which does not include pandemic or epidemic.

Whilst this clause provides the Employer the right to terminate in the occurrence of a Special Event and an exclusion of liability to the Contractor for damage caused by a Special Event, pandemic or epidemic is not one of the listed Special Risks and as such this clause would not be applicable.

Clause 84 (1) requires the Contractor to use his best endeavours to complete the execution of the Works unless and until the Contract is terminated under the provision of Clause 84. It also provides that the Employer shall be entitled to at any time after the occurrence of any of the Special Risks to terminate the Contract by giving written notice.

Clause 84(3) provides that in the event of a termination under Clause 84(1), the Contractor shall be paid by the Employer for all work executed prior to the date of termination and at the rates provided in the Contract.

Clause 84(4) Upon the occurrence of any of the Special Events, the following provisions would apply:-

(a) The Contractor shall be under no liability for or in respect of damage to the Works or to property whether of the Employer or of third parties or for or in respect of injury or loss of life which is wholly the consequence of the occurrence of any of the Special Risks and the Employer shall indemnify the Contractor against all such liabilities.

(b) If the Works or any material on the Site shall be destroyed or damaged by reason of any of the Special Risks, the Contractor shall be entitled to payment for the Works and for any materials so destroyed or damaged and the Contractor shall be entitled to recover from the Employer the expense incurred in making good any such destruction or damage to the Works.

(c) Destruction, damage, injury or loss of life caused by the explosion or impact, whenever and wherever occurring, of any mine, bomb, shell, grenade, missile, munition or explosive of war shall be deemed to be a consequence of the special risks.

HKIA, HKICM & HKIS standard form

There is no force majeure clause in the HKIA, HKICM & HKIS standard form contracts but there is a reference to “force majeure” in the extension of time clause (see our response below).

However, the term “force majeure” is not defined in the contract.

Does the contract include provisions for alternative relief that may be relevant to projects impacted by COVID-19?

Government standard form

Clause 50(1)(b) provides that the Architect can allow an extension of time for the Contractor to complete the Works if in the opinion of the Architect the delay is caused by the following: -

(i) inclement weather,
(ii) hoisting of tropical cyclone warning signal no.8 or above,
(iia) a Black Rainstorm Warning,
(iii) instruction ordered by the Architect,
(iv) variation order,
(v) a substantial increase in the quantity of item of work in the Contract,
(vi) Contractor not being given possession of the site,
(vii) disturbance to the progress of the works due to the Employer,
(viii) suspension of the works as required under the contract,
(ix) utility failing to carry out in due time, and
(x) any special circumstances of any kind whatsoever.

HKIA, HKICM & HKIS standard form

Excepted Risks clause – not relevant

Clause 2.1 – the Contractor is not liable for loss or damage arising from Expected Risks. 

However, “Excepted Risks” does not include pandemic or epidemic.   

There is no specific clause covering pandemic or epidemic. 

“Excepted Risks” covers only war, invasion of HK, acts of terrorism, civil war, rebellion, revolution, or military or usurped power in HK, riot, commotion or disorder in HK, damage and loss caused by the architect’s design, a cause due to the neglect or default of the architect or employer, ionizing radiation or contamination by radioactivity from any nuclear fuel or from any nuclear waste, and pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds. 

Specified Peril clause – not relevant

Clause 17.6 – The Contractor is not required to rectify at his own costs damage caused by a Specified Peril.   

However, “Specified Peril” is narrowly defined and does not include pandemic.

Specified Peril is defined as fire, lighting, explosion, storm, tropical cyclone, flood, bursting or overflowing of water tanks, apparatus or pipes, earthquake, aircraft and other aerial devices or articles dropped from them. 

Extension of time clause – may be relevant 

Clause 25 provides that the Contractor should provide a notice to the Architect as soon as practicable and within 28 days of the commencement of the event likely to cause the delay and state whether the extension is due to a Listed Event.  

The “Listed Events” includes:

(a) force majeure,
(b) inclement weather conditions,
(c) Black Rainstorm Warning,
(d) the Excepted Risks,
(e) loss or damage caused by a Specified Peril,
(f) Architect’s instruction to resolve an ambiguity, discrepancy or divergence,
(g) Architect’s instructions requiring opening up for inspection of work covered,
(h) Architect’s variation,
(i) to (l) various types of Architects instructions,
(m) to (o) delay caused by or related to sub-contractors,
(p) delay caused by a Specialist Contractor,
(q) delay caused by a statutory or utility company,
(r) to (s) failure on the part of the Employer,
(t) delay to the Works due to time not reasonably foreseen by the Contractor for obtaining approval or consent from a Governmental department,
(u) special circumstance considered by the Architect as sufficient grounds to fairly entitle the Contractor to an extension of time,
(v) an action of prevention, a breach of contract or other defaults by the Employer.

Whilst the listed events for extension of time do not include pandemic specifically, it may be argued that it should be covered by “force majeure” which is not specifically defined in the contract. 

There is also a possibility of relying on (m) to (t) if COVID-19 causes an occurrence of these events. 

It may also be arguable that COVID-19 should be a special circumstance under (u), but the discretion is with the Architect.  

Do the laws of the country provide for force majeure relief? . 

There is no statutory provision for force majeure under Hong Kong statutes and under common law a force majeure clause cannot be implied into a contract. As such, if the contract does not contain any express force majeure clause, there will not be any such relief applicable to that contract.    

Do the laws of the country provide for alternative relief that may be relevant to projects impacted by COVID-19? 

Under common law, the parties can rely on frustration to discharge their obligations under a contract and put an end to the contract due to impossibility to perform. 

However, construction projects are usually for works to be performed in stages for extended period of time in terms of years and a termination by a Contractor would usually lead to claims by the Employer for costs incurred to complete the works by another contractor. A pandemic situation may make performance difficult but not impossible. As such, it is unlikely that a construction contract would be considered as being frustrated as a result of the COVID-19 pandemic.