FORCE MAJEURE

FORCE MAJEURE
 ”A contractual provision allocating the risk if performance
becomes impossible or impracticable, especially as a result of an
event or effect that the parties could not have anticipated or
controlled.”

- Blackstone’s dictionary
 The legislators have to some extent dealt with this concept
as is clear from Section 32 of the Indian Contract Act, 1872
dealing with contingent contracts.
LEGAL Section 32 of the Indian Contract Act, 1872 reads as
PROVISION follows:
IN THE
INDIAN "32. Enforcement of contracts contingent on an event
happening –Contingent contracts to do or not to do
CONTRACT anything if an uncertain future event happens, cannot be
ACT, 1872 enforced by law unless and until that event has happened.
If the event becomes impossible, such contracts become
void." 
“56. Agreement to do impossible act
Contract to do an act afterwards becoming impossible or unlawful.—
A contract to do an act which, after the contract is made, becomes
impossible, or, by reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes impossible or
SECTION 56
unlawful. OF THE
Compensation for loss through non-performance of act known to be INDIAN
impossible or unlawful.—Where one person has promised to do
something which he knew, or, with reasonable diligence, might have
CONTRACT
known, and which the promisee did not know, to be impossible or ACT, 1872
unlawful, such promisor must make compensation to such promisee
for any loss which such promisee sustains through the non
performance of the promise.”
  Satyabrata Ghosh v. Mugneeram Bangur

This case is related to sale of land and the question before the court was certain

supervening events which affected the material part of it and would those events

lead to its discharge.

INVOKATION
OF  Energy Watchdog v. CERC
SECTION 32 &
SECTION 56? The dispute between power producers such as the Tata Power Co. Ltd. (“Tata”)

and Adani Power Ltd. (“Adani”) on the one hand and the electricity regulators on

the other was adjudicated upon finally by the Supreme Court by ruling in favour

of the latter.
 Held: The Supreme Court has held that when
DECISION OF a force majeure event is relatable to a clause
THE SUPREME
COURT IN BOTH (express or implied) in a contract, it is
THE CASES
governed by Section 32 of the Act whereas if
a force majeure event occurs dehors the
contract, Section 56 of the Act applies.
 1. Events should render the performance of the contract
impossible

2. An event shall be inevitable and economic difficulty alone

cannot lead to Force Majeure

ESSENTIALS 3. The event must be unpredictable

OF INVOKING
“FORCE 4. The incident would have happened not because of the party’s
default but only because of the supervening event
MAJEURE”
5. Condition precedent 

6. Duty to mitigate 
  Externality- the cause is not created
by the defaulting party's fault;
TESTS THAT  Unpredictability- The cause must be
FORCE inevitable and unforeseeable; and
MAJEURE  Irresistibility- The cause must make
MUST PASS execution of the contract wholly
impossible.
 1.Destruction of subject matter
GROUNDS ON 2.Death or incapacity for personal service
WHICH THE 3.Non- existence or non- occurrence of a particular
DOCTRINE OF state of things
FRUSTATION 4.Intervention by legislative or executive authority
CAN BE 5.Intervention of war
ESTABLISHED
6.Change of circumstances of particular state of things.
 DOCTRINE OF
FORCE MAJEURE FRUSTRATION

D/B FORCE  Contractual principle- force

majeure event muse be
 Common law principle-
radical change in
MAJEURE AND stated in contract. circumstances must be
demonstrated.
DOCTRINE OF  Obligations may be
suspended, deferred or  Contract may be terminated.
FRUSTRATION terminated.
ASPECTS TO (a) enumerating events which would constitute a force
KEEP IN
majeure event
MIND
WHILE (b) actions required to be undertaken by the parties to
DRAFTING
invoke the provisions of force majeure
FORCE
MAJEURE (c) consequence of occurrence of a force majeure event
PROVISIONS
  Exhaustive list of events such as acts of God, war, terrorism, earthquakes,

hurricanes, acts of government, explosions, fire, plagues or epidemics

What would
force majeure  Non- exhaustive list wherein the parties simply narrate what generally

clauses typically constitute force majeure events and thereafter add “and such other acts or events

include? that are beyond the control of parties”.

 Conditions which would have be fulfilled for such force majeure clause to

apply to the contract.

 Consequences of occurrence of such force majeure event which includes the

suspension of obligations of the parties upon occurrence of a force majeure

event.
 What happens if
the force majeure The parties would have to ascertain in light factors:
clauses are not
 nature of the contract
included?
 the nature of event
 whether Section 56 of the Contract Act can be
applied to such contract so as to discharge the
parties from their contractual obligations.
 1. Temporary suspension of contract

2. Termination of contract

CONSEQUENCES 3. Re-negotiation of the terms of the contract

OF INVOKING A
FORCE MAJEURE 4. Restitution and risk allocation
CLAUSE
5. Resolution of dispute

6. Contingent on the terms of contract

Whether the outbreak of Covid-
19 and the ensuing lockdowns
ordered by the Central and State
Government would be sufficient
to invoke the force majeure
clause in the contract?
 Establishing Harmonious Compliance
the causal construction with the
connection with all the condition
between the provisions precedents
force majeure contained in
FACTORS event and
hindrance to
the force
majeure
the clause
performance
of the contract
 SUPREME COURT OF INDIA

 The Divisional Controller, KSRTC v. Mahadava Shetty

The claimant suffered serious injuries as a result of a vehicular accident

EPIDEMIC/ where a bus belonging to the Karnataka Corporation was involved.
PANDEMIC = Held: The expression ‘Act of God’ signifies the operation of natural
ACT OF GOD forces free from human intervention with the caveat that every
unexpected natural event does not operate as an excuse from liability if
there is a reasonable possibility of anticipating their happening.
  Lakeman v. Pollard
COURTS IN
US  A labourer at a mill left his job early during a cholera epidemic
due to concerns of contracting the disease and, therefore, failed
EPIDEMIC/ to complete his work contract. In an action by the mill owners
PANDEMIC = seeking compensation for work done by the labourer, it was
ACT OF GOD argued that the work contract had been breached. The Supreme
Court of Maine held that the cholera outbreak was an ‘Act of
God’ and the labourer was thus not in breach of his contract
since duty to perform under the contract was discharged
COURTS IN
US  Coombs v. Nolan

The District Court for the Southern District of New York

EPIDEMIC/ excused a delay in the discharge of cargo where the defendant
PANDEMIC = could not obtain enough horses to unload a ship on time due to
ACT OF GOD a then prevailing horse flu pandemic on the ground that the
horse flu pandemic fell within the ambit of ‘Act of God’
  Sandry v. Brooklyn School District

COURTS IN The Supreme Court of North Dakota considered an appeal pertaining to

US claims by school bus drivers for their wages/compensation under their
transportation contracts during the period that the schools were shut
EPIDEMIC/ owing to the influenza outbreak.
PANDEMIC =
The Court discharged the school district from paying the bus drivers
ACT OF GOD
during the period that the schools were shut due to the influenza
epidemic. It is pertinent to note that the reasoning was based on the fact
that the contract had become impossible to perform due to the shut-
down.
COURTS IN
UK
Aviation Holdings Ltd. v. Aero Toy Store LLC, [2010] 2

EPIDEMIC/ Lloyd’s Rep 668.

PANDEMIC = In this case, it was held that the inability of a party to deliver an
ACT OF GOD aircraft on time due to a pandemic causing a dearth of pilots
fell within the catch-all residuary wording of a force majeure
clause.
CAUSATION
AND
MITIGATION
  The force majeure event must have a direct
 Sri Ananda Chandra
impact on the non-performance and the
Behera v. Chairman,
party seeking to rely on the force majeure
Orissa State Electricity
Board
event is also under duty to mitigate and/or
explore alternate means of performance.
 The absence of a direct causal link between Covid-19
INSTANCES
pandemic and the non-performance. 
WHEN
PERFORMANCE When employees of an organization in the service industry
OF CONTRACT have to isolate themselves at home.
NOT AFFECTED
Any non-performance due to an economic downturn or other
BY COVID 19
PANDEMIC general business conditions resulting from the Covid-19
pandemic.
 Bombay High Court’s Order passed in Rural Fairprice Wholesale
Ltd. & Anr. vs IDBI Trusteeship Services Ltd. & Ors. on 3 April
2020

COVID 19 In this case, the HC recognized the market situation pursuant to the
THROUGH COVID-19 and observed that the share market had collapsed due to
JUDICIAL LENS COVID-19, therefore, it was a fit case to restrain the bank from acting
upon the sale notices and a direction to withdraw any pending sale
orders for the pledged shares.
 Bombay High Court’s Order passed in Standard Retail Pvt. Ltd vs
Gs Global Corp And Ors.

In a departure from its 3 April 2020 Order, High Court refused to

COVID 19 grant interim measures to the Petitioner observing that the commodity
THROUGH in question was an essential item and lockdown is only for a limited
JUDICIAL LENS period. Consequently, Petitioner cannot resile from its contractual
obligation of making payments to the Respondents.
 Delhi High Court’s Order passed in M/s. Halliburton Offshore
Services Inc. vs Vedanta Limited & Anr. 20 April 2020

The case pertained to restrain on invocation of bank guarantees.

COVID 19 While granting interim relief on the invocation of bank guarantees,

THROUGH the HC observed that the country wide lockdown was prima facie, in
JUDICIAL LENS the nature of force majeure. So, it could be said that special equities
do exist, as would justify grant of the prayer, to injunct invocation of
the bank guarantees.
 Delhi High Court’s Order passed in Indirajth Power Private Limited
v. UOI & Ors. on 28 April 2020

The Petitioner sought interdiction of the Bank Guarantee inter-alia on

account of the lockdown in the country due to the pandemic, which could
COVID 19 drive the Petitioner towards being declared an NPA. The Court while
THROUGH observing the Petitioner’s conduct i.e. despite the extension of 12
JUDICIAL LENS
months, could not fulfil its obligation under the Contract, refused to grant
relief to the Petitioner.  The Court observed that Petitioner’s position
under the contract was unaffected by the imposition of the lockdown.
 Does COVID-19
constitute an excusable
event under form
construction contracts?
 FACTS:
 The petitioner was the contractor of a highway development project and he was
supposed to pay revenue to the respondent.
MEP  He could collect toll on a stretch of the road as per the terms of the Toll
Infrastructure Collection Contract and the revenue was to be paid for this.

Developers  The petitioner failed to make the weekly revenue payment to the respondent after
the declaration of the Covid-19 pandemic and the consequent lockdown
Limited v South restrictions.
Delhi Municipal  As a result of this lockdown, the petitioner could not generate any revenue from
the toll and thus he defaulted on making any payment to the respondent.
Corporation &  Vide the order dated March 2020, the petitioner was asked to pay the arrears in
Ors.  three monthly installments and not to default in the future weekly payments.
 Thereafter, the petitioner approached the Delhi High Court and claimed that
because of the force majeure which is the Covid-19 pandemic, the performance of
contact had become impossible.
 There was an office memorandum by the Ministry of Finance which
MEP stated that any disruption due to the spread of the coronavirus in China
Infrastructure or in any other country will be covered in the clause of ‘force majeure’.
Developers Limited
v South Delhi The circular also stated that the coronavirus pandemic may be considered
Municipal a natural calamity and the force majeure clause may be invoked in case
Corporation & of disruption of business.
Ors. 
dated Held: A force majeure clause instantly comes into effect once it has been
12.06.2020 acknowledged by the other party. Accordingly, in such circumstances,
the need to explicitly invoke the force majeure clause does not arise.
  Force-majeure or doctrine of frustration cannot be applied as a
general principle, the application will depend upon the facts and
circumstances of each case.

 The present COVID 19 pandemic falls between the two.

CONCLUSION  There is no one-size-fit-all solution as the legal consequence of
the coronavirus outbreak on any contractual relationship will vary.

 Affected businesses should carefully consider the terms of their

contracts and the applicable laws in formulating their responses to
safeguard their interests in the wake of the coronavirus outbreak.