Force Majeure: Relevancy at times of a Global Pandemic

The French term ‘force majeure’ had always been of immense importance in the context of business and contractual obligations. However, analysis of the possible repercussions of a global pandemic on ‘force majeure’ becomes indispensable. This would mark a critical juncture in the business and economic sphere. Thus, this paper would be a sincere effort to untangle the complications with regard to force majeure and its implications. Essence of the paper would be to throw light on the relevance of this special clause at times of a pandemic such as COVID-19.

Introduction

The spread of novel coronavirus has had its direct effect on business operations. Commercial turmoil and unrest aggravates the overall economic scenario of the country. Black’s Law Dictionary defines force majeure- “as an event or effect that can be neither anticipated nor controlled”.  This clause is typically for serving parties to contract when the performance of certain contractual obligation become obstructed and impassable due to the occurrence of an event which could not be anticipated. The unexpected event must be such that it must cause hindrance to the performance of contractual duty.

This serves as an aid to extension of time for performance of contractual duty or even termination of the contract. The restrictions imposed on movement from place to place as a measure to save the country from the massive spread of covid-19 had disturbed the trade and supply chain. This is the reason why we need to critically analyse the meaning, implications and applicability of force majeure in various cases. This paper would demystify these aspects.

What does the Indian law say about ‘force majeure’?

While adding force majeure clause in a contract, the parties need to be discreet and thoughtful. Sufficient amount of prudence is necessary as any uncertainty in the meaning can pave way to vagueness and agreement might be deemed void in a Court of law. Lebeaupin v. Crispin[1], has given an account of what is meant by “force majeure” with reference to its history. The expression “force majeure” is not a mere French version of the Latin expression “vis major”. It is undoubtedly a term of wider import. Hence, it is essential that addition of force majeure should provide a wider meaning and should not attract the application of Section 29 of Indian Contracts Act.

There is no explicit Section under Indian Contracts Act to define the term ‘force majeure’. However, Section 32 and 56 explains certain related aspects. Section 32 deals with contingent contracts. As per the Section, when the contingency is based on an impossible event, the contract becomes null and void. Section 56 highlights the ‘doctrine of frustration’. This doctrine says that law cannot force a person to perform a contractual duty when it is impossible to do the same.

The scheme of things under the Indian Contract Act is in such a way that when there is an express or implied force majeure clause in a contract, it is governed by Chapter III of the Contract Act dealing with the contingent contracts, and more particularly, Section 32 thereof and when a force majeure event occurs dehors the contract, it is dealt by a rule of positive law under Section 56 of the Contract Act[2].

Essentials to invoke ‘force majeure’

  • French law applies three tests for whether a force majeure defense is applicable- the event must be: unforeseeable, external, and irresistible[3].
  • It is related to the concept of an Act of God, an event for which no party can be held accountable, such as a hurricane or a tornado[4].
  • The burden of proof is on the party invoking it.
  • Must be invoked within a stipulated time.
  • The invoking party would be expected to outline an estimation of the impact and duration of effects resulting from the said event[5].
  • In the present scenario, the said documents that could be presented as evidence to claim force majeure may include[6]:

(i) National and state government notice and guideline imposing restriction of trade,

(ii) News articles related to COVID-19 outbreak, quarantines, restricted travel and mandatory shutdown of airports, trains stations and seaports,

(iii) Cargo booking and freight agency agreement,

(iv) Cancelled flight or train ticket or anything other documents relating to travel itinerary, and

(v) Cancelled visa or rejected visa application.

Or any other acceptable evidence that proves the restricted situation that arose due to covid-19 that resulted in an inability to perform the contractual obligations.

Considering the present situation related to extended lockdowns, the parties could invoke force majeure in the following manner:

On 19 February 2020, the Department of Expenditure, Ministry of Finance has issued an office memorandum stating that COVID-19 should be considered as a ‘natural calamity’ and force majeure may be invoked wherever considered appropriate. Following the said memorandum, the Ministry of New & Renewable Energy issued a similar office memorandum recognizing supply chain disruption due to the COVID-19 outbreak as a force majeure event and directed all renewable energy implementing agencies to grant a suitable extension of time to projects where the force majeure clause is invoked[7].

Lockdowns as part ofCOVID-19 is a government order and hence is beyond the control of the contracting party. The spread of global pandemic was also an unforeseeable event. Hence, if the contract drafted contains a clause with reference to the invocation of “force majeure”, the party can claim it within the time stipulated in the contract. However the submission of material evidences mentioned above is crucial so as to avoid any conflict in future. Basically, the way in which the clause can be invoked and the consequences of the same would clearly depend on the clause made at the time of drafting the contract. Henceforth, the language used in the contract plays a critical role.

Frustration of contract

Frustration of contract as enshrined under Section 56 is based on the legal maxim,“les non cogit ad impossibilia”. Under the prevailing circumstances, reliance on Section 54 of the Act depends upon the following conditions: existence of a valid and subsisting contract between the parties, some part of the contract yet to be performed, and the contract after it is entered into becomes impossible of performance i.e. subsequent impossibility[8]. When an explicit force majeure clause has not been framed in the contract, parties can use the shade given under Section 56 and prove the above mentioned three aspects.

The key difference between frustration of contract and force majeure is that, in the case of force majeure it is essential that the contract contains the clause. But frustration of contract comes into play only after the occurrence of an event that makes it impossible to render services as per the contract. There is no need of adding any specific clause related to Section 56 so as to invoke the same if necessary.

In Satyabrata Ghose v. Mugneeram Bangur & Co[9], Few principles stated by the Court in the decision are:

  1. The word “impossible” in Section 56 does not mean physical or literal impossibility.
  2. Contract can be held to be frustrated if its performance is “impracticable” and “useless” from the point of view of the object and purpose of the parties, though the performance is not literally impossible.
  3. If the untoward event totally upsets the very foundation upon which the parties entered their agreement, the contract can be held to be frustrated.
  4. If the contract has an express or implied “force majeure” clause, then the situation will be analysed on the basis of that, and not through the application of principles under Section 56.

Also, in Mary v. State of Kerala[10], “the doctrine of frustration excludes ordinarily further performance where the contract is silent as to the position of the parties in the event of performance becoming literally impossible. However, in our opinion, a statutory contract in which party takes absolute responsibility cannot escape liability whatever may be the reason. In such a situation, events will not discharge the party from the consequence of non-performance of a contractual obligation. Further, in a case in which the consequences of non-performance of contract is provided in the statutory contract itself, the parties shall be bound by that and cannot take shelter behind Section 56 of the Contract Act, 1872”.

Conclusion

Two steps available to the parties to a legal contract are invocation of force majeure or frustration of contract under Section 56. If the contract does not contain a force majeure clause, the parties are left only with the latter option. However, the final result is dependent on the facts, circumstances and language of the contract. Hence, detailed evaluation of the terms of the contract would help to a large extent.


[1][1920] 2 K.B. 714

[2]“Interpretation of Force Majeure, Doctrine of Frustration and Clauses whether Express or Implied”,

By SiddharthBatra, published on www.realtyplusmag.com.

[3]https://www.investopedia.com/terms/f/forcemajeure.asp

[4] ibid

[5]https://www.mondaq.com/india/litigation-contracts-and-force-majeure/913944/covid-19-a-force-majeure-event-or-simply-a-pandemic

[6] ibid

[7]Mathew, Renjith, Force-Majeure under Contract Law in the Context of Covid-19 Pandemic (April 1, 2020). Available at SSRN: https://ssrn.com/abstract=3588338 or http://dx.doi.org/10.2139/ssrn.3588338

[8] ibid

[9] 1954 SCR 310: AIR 1954 SC 44

[10]Mary v. State of Kerala, (2014) 14 SCC 272

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