Page 19 - Risk Management Bulletin April-June 2022

RMAI BULLETIN APRIL - JUNE 2022

jurisdiction and, as such, applicable contracts may not the United States, force majeure has largely become
be required to specifically address all of the events that a contractual matter, with courts often preferring to
could come to constitute force majeure. Some avoid excusing performance where force majeure
jurisdictions, such as Argentina, Chile, Colombia, and events have not been expressly mentioned within an
Peru, explicitly define force majeure in their codes (see applicable contract.
article 1730 of the Argentinian National and Civil
Commercial Code, article 45 of the Chilean Civil Code, In order to minimize risks arising from force majeure
article 64 of the Colombian Civil Code, and article 1315 events, it is crucial to be proactive and identify
of the Peruvian Civil Code). Other jurisdictions, such potentially affected contracts early. A premium should
as Mexico, do not. The basic elements of force also be placed on developing a coherent strategy to
majeure, however, are similar across jurisdictions – an be applied in a uniform manner. Inconsistent
unavoidable event outside of the parties’ control that approaches may present challenges in litigation.
cannot be foreseen or overcome.
Once a potential force majeure event has occurred,
Some Latin American jurisdictions have express where possible, efforts should be made to document
provisions that allow for termination and/or what transpired. The party claiming an impact will
adaptation of a contract resulting from changed often bear the burden of proof – be it force majeure,
circumstances. For example, Brazil’s Civil Code contains impracticability, or excessive onerousness. Depending
provisions that allow termination or adaptation of a on the jurisdiction and applicable law, the party might
contract due to “excessive” onerousness (see articles need to produce verifiable documentation of delays,
478-480). The concept of “excessive onerousness” is disruptions, and supply chain issues.
broader and more permissive than “impracticability”
under, say, the U.S. Uniform Commercial Code. The party responding to a claim, on the other hand, may
Lawyers are now attempting to incorporate these look to obtain documentation and test the
types of provisions – regardless of their own respective counterparty’s assumptions. Knowing what the contract
legal system – into their contracts to expressly allow requires, whether the impact was foreseeable, and what
for the modification of contractual terms based on mitigating actions the counterparty took to minimize
changed circumstances. impact, could be important.

International contracts in Latin America will call for the Be careful when drafting force majeure clauses. Any
application of both civil and common law particularly attempt to list every contingency that might be
as they relate to project financing agreements. considered a force majeure event is itself an
Critically, the doctrines of force majeure and impossibility. However, a carefully drafted clause that
impracticability in common law jurisdictions, such as includes applicable catch-all provisions may prove
the United States, are often stricter than similar useful in capturing events beyond those specifically
doctrines in Latin America. For example, in the United listed. In addition, while defenses such as impossibility,
States, changes in market conditions or increased costs impracticability, and frustration of purpose generally
to perform may not represent impracticability, thereby require that an event excusing performance be
excusing non-performance. Conversely, some Latin unforeseeable, parties are generally free to fashion
American jurisdictions may excuse non-performance force majeure clauses as they see fit – including to
where conditions are deemed sufficiently severe. In attempt to excuse foreseeable risks.

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