Flood, Force Majeure, and the Late Notice
In August 2024 a Lahore textile company contracts with a Karachi engineering firm to install a boiler for PKR 48 million, with completion by 31 March 2025 and liquidated damages of PKR 50,000 per day for delay. The contract has a force majeure clause covering 'flood, storm and other acts of God' and requires written notice within seven days of the event. The firm's subcontractor's warehouse in Sindh is flooded on 10 July 2024, damaging imported controls. The firm's site manager tells the owner's engineer orally on 15 July; written notice reaches the owner on 30 August. The firm completes installation on 30 June 2025. The owner deducts PKR 4.5 million in liquidated damages and pays the balance without any written reservation. The firm invokes force majeure and says the owner waived the delay by accepting late performance and paying. The contract has an arbitration clause; the owner has already filed a suit in a civil court.
1. Can the engineering firm rely on the force majeure clause despite giving written notice 51 days late? Does the flood excuse the whole 15-month delay?
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Clause construction. The clause covers flood, but it has two conditions: the event must actually prevent performance, and written notice must be given within seven days. Notice is not a mere formality in commercial contracts; it allows the owner to mitigate.
Late notice. The oral notice on 15 July gave actual knowledge within five days. The written notice on 30 August was late. Pakistani courts may treat a notice clause as a condition precedent, but they also ask whether the owner suffered prejudice. Here the owner knew of the flood and could inspect. The firm has an arguable case that the late written notice should not defeat the claim, but it must prove that the owner was not prejudiced.
Causation. Even if force majeure is available, it excuses only delay caused by the flood. The controls were damaged on 10 July; the firm completed on 30 June 2025, almost a year later. The firm must show that the flood remained the effective cause and that it mitigated. A flood in July 2024 does not automatically excuse a June 2025 completion.
Conclusion. The firm may rely on force majeure if it proves causation and no prejudice from late written notice; otherwise the late notice bars the excuse. The whole delay is not excused automatically.
2. The owner deducted PKR 4.5 million in liquidated damages and then paid the balance. The firm says this payment waived the delay. Is that argument strong?
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Waiver and estoppel. Waiver requires an unequivocal act showing an intention to give up a known right. Acceptance of late performance can waive time, but it does not automatically waive liquidated damages. A contract clause requiring written waiver strengthens the owner's position.
The payment. The owner did not pay the full contract price; it deducted PKR 4.5 million and paid the balance. That is the opposite of an unequivocal waiver: the deduction expressly reserved the owner's claim. The firm knew or ought to have known why the sum was withheld.
Conduct. If the owner had paid the full price without deduction and without reservation, after accepting late performance, the firm's argument would be stronger. Even then, mere payment is evidence, not conclusive waiver.
Conclusion. The waiver argument is weak on these facts. The deduction preserved the claim. The firm must instead challenge the validity or quantum of the liquidated damages, for example as a penalty or for failure to mitigate, rather than rely on waiver.
3. The contract contains an arbitration clause, but the owner has already filed a civil suit. What should the firm do, and by when? What happens if it files a written statement on the merits without applying for a stay?
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Step. The firm should apply to the civil court for a stay of proceedings under section 34 of the Arbitration Act 1940 for a domestic arbitration. The application must be made before the firm files its written statement or otherwise takes a step in the proceedings to contest the merits.
Conditions. The court will stay if: (i) there is a valid arbitration agreement; (ii) the dispute falls within it; (iii) the applicant is ready and willing to arbitrate; and (iv) the application is timely. The clause covers delay, liquidated damages and force majeure, so the dispute is within scope.
Waiver. If the firm files a written statement on the merits, or seeks adjournments and contests the suit without applying, it may be treated as having submitted to the court's jurisdiction, and the right to stay can be lost.
Conclusion. The firm should apply for a stay immediately, before any defence on the merits, and simultaneously express willingness to appoint an arbitrator. If it delays or submits to the court, it may waive arbitration.