Extreme weather: the effect on contracts

Service page: Commercial contracts lawyer: drafting, review and enforcement.

Force majeure and frustration: what does Israeli law say?

The storm wrecked your project, and now you are thinking: this is “force majeure”, the contract does not apply. After all, the rain is not your fault. But Israeli courts see it differently. Force majeure does not automatically win the case, and section 18 of the Contracts (Remedies for Breach of Contract) Law, 5731-1970 releases the party in breach from enforcement and from damages, but only under precise conditions that are hard to prove.

Under the wording of the section, three cumulative conditions are required: the party in breach, when the contract was made, did not know and should not have known of the circumstances, or did not foresee and should not have foreseen them; they could not have prevented them; and performing the contract in those circumstances is impossible or fundamentally different from what was agreed. Case law interprets the foreseeability test narrowly, so a winter storm in Haifa, which is known in advance from seasonal forecasts, has little chance of being considered “unforeseeable”.

Increased economic difficulty (“I made a loss because of the storm”) is not frustration. Section 18(a) requires performance of the contract to be impossible or fundamentally different from what was agreed, not just less worthwhile economically.

Force majeure clauses in a contract: not all wordings are equal

Modern contracts in Israel, mainly commercial, construction and foreign trade contracts, often include an express force majeure clause. When there is such a clause, the court examines it first, before it turns to general contract law.

A typical clause defines: which events are considered force majeure (storms, floods, earthquakes, war); what the consequences are (postponing deadlines, exemption from compensation, a right to cancel); and what the duty of notice is. Note: a contract that includes a closed list such as “storm, fire, war” will not apply to an event that was not spelled out in the list, even if it is a natural disaster. The gap between a closed list and an open list is one of the first things checked in drafting and reviewing commercial contracts.

The common problem: signing force majeure terms without reading them carefully. The clause often contains a duty to give notice within 48 hours, and a party that did not comply with it has lost the protection.

When the other side did not perform the contract: what do you do?

A party that did not perform an obligation and justifies this by extreme weather bears the burden of proof. In a claim for breach of contract, the defendant must prove: that there really was an exceptional weather event; that it directly caused the non-performance; and that it was not possible to take reasonable alternative steps.

Under section 18(a), the exemption applies only when the breach is “a result of circumstances” that the party in breach could not have prevented, so a party that could have taken reasonable steps and did not will find it hard to rely on it. A contractor who knew of an approaching storm and did not protect the equipment will have difficulty justifying a delay. A supplier who could have moved production to another branch and did not will find it hard to argue impossibility.

Even when the conditions of frustration are met, section 18(b) allows the court, if it considers it just in the circumstances, to order each party to return to the other what it received under the contract, or its value, and to order the party in breach to indemnify the injured party for the reasonable expenses it incurred and the obligations it reasonably undertook in order to perform the contract.

A storm destroyed the construction site: will the insurance cover it?

In construction projects, extreme weather raises not only contractual questions but also questions of insurance cover. The Insurance Contract Law, 5741-1981 (חוק חוזה הביטוח, התשמ״א-1981), regulates the mutual duties of the insurer and the insured, among them the duty of disclosure and the duty to give notice of the insured event.

Standard construction policies usually cover natural disasters, including storms, floods and strong winds. But there is almost always an exclusion: damage caused by the contractor’s negligence in preparing the site will not be covered. Insurance companies may reject claims when the contractor knew a storm was approaching and did not cover sensitive equipment, did not secure scaffolding, or did not meet the policy requirements.

To strengthen an insurance claim for weather damage, keep: official weather reports from the Israel Meteorological Service; photos and videos of the damage right after the event; repair invoices; and an engineering opinion that confirms the link between the storm and the damage. Notify the insurance company as soon as you learn of the insured event (section 22 of the Insurance Contract Law); a delay that prevented the insurer from investigating its liability may reduce the insurance benefits, to the extent that timely notice would have allowed it to reduce its liability (section 24).

You suffered damage from the weather: what now?

If you suffered damage from extreme weather and another party was supposed to protect you, there are several routes: a claim for breach of contract against the party that did not meet its obligation; a negligence claim against a contractor whose defective work led to greater damage; and a direct insurance claim if there is a relevant policy.

If it is a road accident that happened in extreme weather conditions, bodily injury is governed by the Compensation for Road Accident Victims Law, 5735-1975 (חוק פיצויים לנפגעי תאונות דרכים, התשל״ה-1975), which sets absolute liability: the compensation does not depend on the driver’s fault and is not reduced for contributory fault (section 2(c) of the Law). Property damage to the vehicle is not included in this Law and is decided under the general law of torts, in which the question of negligence is examined.

Every claim requires factual proof: official weather reports, visual records, an expert opinion, and invoices. Which court hears the claim depends on its amount: the Magistrates’ Court up to NIS 2.5 million, the District Court above that.

What to include in your contract

The most effective way to deal with extreme weather is to deal with it before it arrives, in the contract. Set out expressly: which events are considered force majeure; what the consequences for the timetable are; the duty of notice and its time frame; and each party’s duty to insure.

Specific clauses worth demanding

So that you do not end up in a legal dispute after extreme weather, it is important to include clear clauses in the contract from the start:

1. An express force majeure clause: “If a force majeure event (storm, flood, fire, war) prevents a party from performing its obligation, the contractual deadlines will be postponed for the period of the event plus 30 days from its end, without the other party being entitled to compensation for the postponement.”

2. An insurance clause: “Each party will insure its property against storm damage and force majeure events under a policy for an amount of no less than NIS X, and will present an insurance certificate to the other party on request.”

3. A completion date subject to the weather: “If extreme weather stops the work for more than 15 consecutive days, the completion date will be postponed by the number of days beyond 15, up to 60 days at most.”

4. A provision on determining liability: “In a dispute over whether an event is force majeure, the parties will refer to an agreed professional (an engineer, a meteorologist and the like), who will decide within 30 days.”

You don’t want to go to court: what are the alternatives?

Not every dispute over extreme weather has to end in a lawsuit. Three options that are quicker and less expensive:

Mediation: both parties meet a neutral mediator who tries to bring their positions closer. Mediation is usually quicker and cheaper, and may end the dispute before it reaches the courtroom.

Arbitration: if the contract includes an arbitration clause, both parties agree that an agreed arbitrator will make a final decision. Arbitration is more formal than mediation but less formal than a trial, and significantly quicker.

Direct negotiation: sometimes, agreeing in a direct conversation on how to split the damage or postpone deadlines is the cheapest and quickest option. It is worth trying before anything else.