Force Majeure Clause in Aviation Industry Contracts (Impact of

COVID-19)

Submitted By: Ankit

What is force majeure?

As with many other industries around the world, supply arrangements in the aviation industry
have suffered major disruption as a result of the COVID-19 pandemic. A key issue to look out for
is whether an airline’s supply contracts (and any other contracts that have been severely
affected) have a “force majeure” clause that has been or might be triggered.

Certain events, beyond the control of the parties, may inhibit the parties from fulfilling their
duties and obligations under the project agreements. To avoid the resultant breach of contract,
parties may prefer to excuse contractual obligations to the extent that they have been so
inhibited. Different legal systems have developed different theories in response to this need,
including the doctrines of impossibility and frustration under English and United States law and
force majeure under French law. Under French law force majeure is an event that is
unforeseeable, unavoidable and external that makes execution impossible. 1

In order to avoid the uncertainties and delays involved in relying on the applicable law, parties
to contracts often prefer to provide for a specific regime for force majeure, along with a
definition of which events shall qualify for special treatment. The term force majeure used in
drafting project documents comes originally from the Code Napoléon of France, but should not
be confused with the French doctrine. Generally, force majeure means what the contract says
it means. There exists a difference of opinion among French writers and courts with regards to
the application of the phrase. Force majeure includes the term ‘act of god’, Wars, government
decrees, floods, drought, epidemic, doctor’s refusal to issue a medical certificate, all have
comes under force majeure. In India force majeure comes under Indian contract act 1872.

A common query in light of the COVID-19 pandemic is whether or not the circumstances may
constitute a force majeure event for the purposes of aviation contracts. It would be unusual to
see a specific force majeure clause in a lease or loan agreement, but other aviation contracts
such as purchase agreements, hedging agreements, and supply contracts may include such
1
"Impossibilité absolute de remplir ses obligations due à un événement imprévisible, irrésistible et extérieur"
French Civil Code, arts 1147 and 11248 (30 August 1816, reprinted 1991).
clauses. The Hon’ble Supreme Court in the case of DhanrajmalGobindram vs. Shamji Kalidas2,
has held that the term force majeure is of wider import. Judges in the past have agreed that
where the reference is made to force majeure, the intention is to save the performing party
from the consequences from the anything over which he has no control.

The COVID-19 pandemic is a Force Majeure event that can be covered under contracts but, not
all contracts have the same clause. For the coverage of this pandemic in the Force Majeure
clause, it should encompass within its ambit, ‘prevention of fulfilment of obligations due to
governmental restrictions’, ‘any unforeseen circumstance that prevents the fulfilment of
obligations’ or specifically mentioning a ‘pandemic/epidemic’ as an event that would come
within the ambit of Force Majeure. But some clauses do not have the same wording and are
limited to a few circumstances only, in which case invoking the clause would not do much good
unless both the parties to the contract mutually decide to suspend the operation of the
contract for a specific period of time. In the absence of such mutual understanding the party
which is not able to fulfil the terms of the contract can invoke the ‘Doctrine of Frustration’.

DOCTRINE OF FRUSTRATION

This is a common law doctrine used to set aside contracts where an unforeseen event either
renders contractual obligations impossible or radically changes the party’s principal purpose for
entering into a contract. It was established by the English Courts in Taylor v. Caldwell3 This
doctrine is usually relied upon for termination of the contract unlike the concept of Force
Majeure which is for suspension of the obligations.

This doctrine has been embodied in the Indian Contract Act, 1872 by way of Section 56 which
states – A contract to do an act which, after the contract is made, becomes impossible or
become unlawful by reason of some event which the promisor could not prevent, becomes void
when the act becomes impossible or unlawful. As such, certain contracts under which the
obligations have become impossible to perform due to the lockdown imposed by the
Government can be terminated through section 56 of the Act.

Propounding the law of frustration, the Hon’ble Supreme Court of India in Satyabrata Ghosh
Vs. Mugneeram Bangur & Co.4 held that the word “impossible” has not been used with respect
to physical or literal impossibility. To determine whether the contract is frustrated, it is not
necessary that the performance of an act should literally become impossible, a mere
impracticality of performance, from the point of view of the parties, and considering the object
of the agreement, will also be covered. Where an unexpected occurrence or change in

2
(1961) 3 SCR 1020 
3
[EWHC QBJ1].
4
[1954 SCR 310(12)]
circumstances decimates the very objective of the contract the same may be considered as
“impossibility” to do as agreed.

Where a contract does not contain a force majeure clause, is the concept implied into the
contract?

In English law, force majeure is neither defined in statute nor in case law. However, the
Merriam-Webster Law Dictionary defines force majeure as “an event or effect that cannot be
reasonably anticipated or controlled”.

The concept of force majeure will not be implied into a contract (in contrast to some civil law
jurisdictions). It can, however, be invoked, if it is expressly incorporated into the contract.
Therefore, where a lease or a loan agreement does not contain a force majeure clause, as
would usually be the case, no such concept will be implied into the agreement.

How will a force majeure clause be construed?

When a force majeure clause is included in a contract, whether such clause is triggered will
depend entirely on the words that the parties have used in the contract. It is for this reason that
many contracts have force majeure clauses which list out in detail the events which would
constitute a force majeure event. Such lists may either be exclusive or non-exclusive. Non-
exclusive lists (which tend to be most common) allow for the possibility of other, non-listed
events qualifying as force majeure.

Importantly, a party seeking to rely on a force majeure event must also establish that its
inability to perform the contract was in fact caused by the claimed force majeure event. This
requirement of causation is likely to be the key battleground in COVID-19 force majeure cases
in the months and years to come, and the focus in any eventual litigation or arbitration will
certainly be on whether any travel restrictions, quarantines imposed, lack of available
employees or similar specifically impacted the party at issue in the period of time surrounding
the notice of force majeure5.

Additionally, the force majeure event must be the direct cause for the non-performance / delay
in performance of obligations. If there are other reasons which exist (such as general financial
inability to pay lease rentals or loan repayments) which would have existed in any case, it is
unlikely that a COVID-19 related force majeure argument would be successful. It should also be
noted that merely making a contract more difficult or unprofitable in performance will not be
sufficient in itself to constitute a force majeure event.

5
https://www.investopedia.com/terms/f/forcemajeure.asp
Some force majeure clauses will expressly state that the party seeking to rely on it must have
been “prevented” from performing due to the force majeure event. If the clause is drafted in
this way, the party must show that performance of its obligations has been made physically or
legally impossible due to the COVID-19 outbreak (or the governmental measures taken in
response) and that there is no alternative way in which the obligation can be discharged. A key
issue likely to arise in this context is the nature of governmental measures taken, and whether
such measures are mandatory or advisory in nature6.

A party relying on a force majeure clause must also show that there are no reasonable steps
that it could have taken to mitigate or avoid the effects of the force majeure event.

What if There is No Force Majeure Clause in the Contract and/or What About an Alternative
to a Force Majeure Claim?

In the absence of an express force majeure clause or as an additional or alternative argument,

the defaulting party might attempt to excuse its non-performance by reference to the English
doctrine of frustration of contracts.

This doctrine provides that a contract may be discharged on the grounds of frustration when an
event or circumstance arises after the formation of a contract that renders its performance
physically or commercially impossible or transforms the obligation to perform into a radically
different obligation than that to which the party originally agreed.

The frustration principle is subject to a very high threshold, and generally speaking it is unlikely
that COVID-19-related issues would frustrate the performance of most aviation contracts. This
is particularly the case in respect of lease and finance agreements which contain “hell-or-high-
water” payment clauses. A well-drafted “hell–or-high-water” clause will make it very difficult to
argue that the agreement has been frustrated due to the inability to fly the aircraft. However, it
is possible to envisage a range of factual circumstances in which COVID-19 and the ensuing
governmental response measures could be construed as a frustrating event, particularly where
it may be rendered illegal to perform the contract.

Another potential alternative is a claim under a change of circumstances or price renegotiation

clause, if such a clause is contained in the relevant contract. These clauses are used less
frequently in English law-governed contracts, given the general principle under English law that
an agreement to agree is not enforceable. That said, if such a clause is included in a contract it
will certainly come under close scrutiny by both parties as a result of COVID-19.

6
https://ppp.worldbank.org/public-private-partnership/ppp-overview/practical-tools/checklists-and-risk-
matrices/force-majeure-checklist/sample-clauses
Is COVID-19 a Force Majeure Event?

The COVID-19 pandemic has affected the subsisting commercial arrangements and relationship
amongst businesses across the world. The World Health Organization (WHO) declared the
Covid-19 outbreak as a ‘Public Health Emergency of International Concern’ on January 30, 2020
and it was official declared to be a ‘Pandemic’ on March 11, 2020. As the COVID-19 pandemic
and related decrease in international travel throw the worldwide aviation industry into disarray,
an increasing number of businesses in the aviation supply chain are struggling to meet their
contractual obligations. As an obvious consequence, many lawyers are looking at force majeure
clauses as a last resort to relieve their clients of the most burdensome contracts or elements
thereof. Most aircraft lease agreements are governed by English law, with a “hell or high water”
clause requiring lessees to make lease payments regardless of whether an aircraft is operating
normally or grounded. However, many aviation contracts (related to maintenance, ground
handling, rental of airport facilities, charters etc.) are drafted under local laws and are therefore
subject to various interpretations of force majeure. Notwithstanding the severity and the
impact of the COVID-19 outbreak, it is not a foregone conclusion that, under English law, a
contractual force majeure provision will apply.

If the force majeure clause refers to pandemics and/or epidemics, then it will almost certainly
be applicable given that the World Health Organisation on 11 March 2020 declared COVID-19 a
pandemic. In addition, if the specific force majeure clause references “governmental acts” or
similar, then the quarantine, lockdown, closing of borders, and other such acts may also qualify
as force majeure events for the purposes of the relevant contract. However, the position
becomes more uncertain where the clause may, for example, refer to an “act of God” without
further definition.7

If the outbreak or relevant government actions do fall within the scope of the clause, it must
then be determined to what extent the contractual obligations are affected. It is possible for
example that some obligations within the contract are not impeded by the outbreak and some
obligations may simply be postponed. Therefore, both parties will need to closely scrutinize the
relevant evidence, including the timing of the alleged performance difficulties as compared to
the spread of COVID-19 and corresponding government measures taken in the particular place
of operation at a given time. In addition, and as mentioned above, the mere existence of such
an event will not necessarily be sufficient, as there must be a causal link to the non-
performance / delay in performance of obligations.

7
This note does not address other US state laws, including that of Delaware, which is particularly relevant to the
interpretation of MAC clauses. For further analysis of MAC clauses (including Delaware law considerations) in the context of
the COVID-19 Pandemic, see our recent Perspective “ANALYSIS OF NON-PERFORMANCE OF CONTRACTUAL
OBLIGATIONS IN LIGHT OF THE COVID-19 PANDEMIC” .
Bibliography

 Abdul Aziz Hussin AMN. Force Majeure Clause, Retrieved September 15, 2008,
fromhttp://www.hbp.usm.my/aziz/ FORCE%20MAJEURE.htm
 Cody W. Wilson (2008). Construction Law – September 2008. Dealing With Volatility in
The Price of Steel, Retrieved December 4, 2008, from
http://intermountain.construction. com.news/law/default.asp
 Gallagher, J., & Riggs, F., (2006). Material Price Escalation: Allocating The Risks,
Retrieved October 21, 2008 from http://www.troutmansanders.com/
files/upload/Construction Briefings.pdf
 Gerald I. Katz, Esq., Stephen W. Smith, Esq.., & Katz & Stone, L.L.P. (2004). Material Price
Increase: Strategies For Recovery and Protection, Retrieved November 6, 2008, from
http://www.necanet.org/cms/index .cfm?fa=viewArticle&ARTICLEID= 1348
 Mallesons S. Jaques (2008). Corporate Counsel CPD program 2008, Force Majeure
Clauses: Key questions answered, Retrieved September 15, 2008, from
http://www.mallesons.com/News/ James_Fahey_Corp_Counsel_Pre sentation.pdf