LEGAL & REGULATORY MATTERS
WHY ARE FORCE MAJEURE CLAUSES IMPORTANT? By Andrés Fígoli
F
orce majeure (FM) provisions are important in various types of contracts, including those used in the normal course of submarine cable operations, such as Construction & Maintenance Agreements (C&MA), Joint Build Agreements ( JBA), supply and maintenance contracts with cable laying companies, and capacity IRUs (Indefeasible Right of Use) agreements. In all of these contracts, certain minimum standard FM provisions are critical, while in others, a cable owner’s legal counsel should focus on developing and adapting them to each party’s activities, the jurisdictions involved and the changing global risks.
DRAFTING THE CONTRACT
Typically, force majeure consists of three elements: 1. Unforeseeable event (unforeseeability), 2. outside the control of the parties (externality) 3. which makes performance impossible or impracticable (irresistibility). When lawyers come to draft this clause during a contract negotiation, they are also careful to review other provisions such as the FM definition, usually in the first clauses, the termination clause, or others that may grant rights to terminate a contract due to an FM event. They may also be found in the annexes, particularly the Service Level Agreements (SLAs), which may be mentioned as an exception to a provider’s obligation to compensate a customer for a service failure.
84 SUBMARINE TELECOMS FORUM MAGAZINE
It is at this point that the interests of the contracting parties come to the negotiating table, and the skills and practical knowledge of lawyers are required to bring the positions of all the contracting parties closer together. When negotiating all these different typical contracts for the long life of a subsea infrastructure, their positions may change, but their interests do not. For example, a COVID crisis affecting permits to lay a new cable would have been unthinkable a decade ago, but careful contract drafting is now essential to avoid future surprises with cable-laying contractors overcharging carriers. As a result, the length of the FM provision in each of these types will be different, as they need to address specific future scenarios and risks accordingly. Here we will analyze in each contract which are some of the risks and concerns described in a FM provision.
CMAS OR JBAS
When negotiating an FM provision in these agreements, the cable owners may feel mistrust between each other, but it is normal to analyze each other’s weaknesses and strengths in order to avoid future problems during the 25–30 year life of a cable. And it is better to solve them now than to create a snowball effect. In this context, the consortium owners divide their responsibilities and appoint some of them as landing parties. To avoid unnecessary costs, these are usually telecom operators already established in the countries
concerned, who would normally own the national local part of the submarine cable and the landing station, where they would sublease any space to the other consortium members. A landing party will also be required to obtain all local licences/permits in a timely and diligent manner on its own behalf or, if necessary, on behalf of the others. These local companies would be expected to be aware of the political and regulatory situation in the country and to defend the interests of the consortium. However, any right-wing or left-wing change in local government can also change the criteria of the telecom regulators, and a reasonable expectation of 8 months to obtain a landing permit can quickly become an uncertain period if such a landing party consistently breaches the regulations in its day-to-day operations. It is therefore important to agree in the CMA that the failure to obtain a permit for the new project in a timely manner is not a FM if the acts or omissions of the landing party directly contributed to the delay or failure to obtain such a permit. This should also be carefully considered by the other parties, particularly when selecting their investor for the new cable project, and not when the cable-laying vessel is at mile 201 and it is too late to approach the local authorities to inform them of a change of landing party. Indeed, most FM provisions are important both before and after the CMA/JBA is signed. While in the