Force majeure in contract- a comparative study with UK

2.1 contract

Submitted by-

Ghanishtha mishra

UID: UG 19-46

B.A.LL.B. (Hons.) I Year- 1st Semester

Submitted to-

Dr. Himanshu pandey

(Associate Professor of law)

MAHARASHTRA NATIONAL LAW UNIVERSITY, NAGPUR

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Contents
INTRODUCTION ......................................................................................................... 3
AIMS AND OBJECTIVES ........................................................................................... 3
RESEARCH QUESTION .............................................................................................. 3
PREREQUISITES TO APPLY CLAUE OF FORCE MAJURE ARE-........................ 4
FORCE MAJEURE AND POLITICAL EVENTS........................................................ 4
“Events of Force Majeure ................................................................................... 7
Instances of Force Majeure ................................................................................. 7
Effects of an Event of Force Majeure ................................................................ 9
Notice of an Event of Force Majeure ................................................................. 9
FORCE MAJEURE CLAUSE IN CASE OF REAL ESTATE CONTRACTS. ......... 10
FORCE MAJEURE CLAUSE ACCORDING TO ENGLISH LAW ......................... 10

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INTRODUCTION
Force majeure is basically happening of an inevitable accident which the parties to the
contract, in spite of taking due care and caution could not have reasonably foreseen and is not
able to prevent. The term is in French which means ‘superior force’. Force majeure is a
principle against contractual rigidity included in the French Code Civil (Article 1147 and
1148). The event that constitutes force majeure renders the performance of contract
absolutely impossible or as we call it as frustrated. The event must be of such a nature that
the party could not have reasonably foreseen it, in spite of taking due care and caution it
occurred. This term has a very wide scope. 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.

AIMS AND OBJECTIVES

Aim of this project is to know the use of clause of force majeure in contracts of different
types. This project tries to illustrates how clause of force majeure are fabricated. Lastly this
project tries to analyse difference and similarity between Indian legal system and UK`s legal
system when it comes to clause of force majeure in contracts.

RESEARCH QUESTION
1) What are the requirements to invoke the clause of force majeure?
2) Whether the ambit of force majeure includes political events?
3) How does UK deals with force majeure clause in contracts?

RESEARCH METHODOLOGY:

The researcher has used the doctrinal or principle approach for the paper. The researcher has
used secondary as well as primary method of research. For the purpose of the research, the

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researcher has referred to various journals, articles and websites and even actual contracts to
gather information regarding force majeure clause in contracts.

PREREQUISITES TO APPLY CLAUE OF FORCE MAJURE ARE-

EXTERNALITY – defaulting parties are not allowed to use the force majeure as a veil to
hide behind. Here externality means an external factor which caused force majeure. If
externality is not taken into consideration while determining the case of force majeure,
defaulting parties will try to run away from there liabilities in the name of force majeure,

UNPREDICTIBLITY- concessions in contract through force majeure is only given for things
not in control of humans and hence it is related to inevitable accident of act of god

IRRESISTIBLITY – when one cannot resist the act which renders the contract impossible
then test of irresistibility is passed. Parties in this case have to prove that due care and caution
was taken and all steps to prevent this type of act were taken before they apply for force
majeure.1

There are some nitty-gritty to the clause of force majeure. It is not that all acts which can`t be
prevented qualifies for force majeure. Natural calamities such as flood, drought, epidemic,
volcanic eruption or for that matter wars and government decrees could be admitted under
force majeure however labour strikes, market fluctuations, commercial considerations,
increased input cost etc could not be included in case of force majeure.2 Scope of the force
majeure clause does not entirely relieve the defaulting party from performing its contractual
obligations but only suspends the performance for the time being. The contract between the
parties can also explicitly mention the duration for which the force majeure can be claimed.3

FORCE MAJEURE AND POLITICAL EVENTS

Clause of force majeure is always related to unpredictable events, but these then extends
scope of force majeure to man-made events or as we can say political events. In fact
frequency of unpredictable, natural events are much less than political events. In some cases
political events are part of force majeure but in some cases there exist a clear distinction

1
https://www.investopedia.com/terms/f/forcemajeure.asp
2
https://hallellis.co.uk/
3
https://www.lexology.com/library/detail.aspx?g=953cdc6d-6732-4975-a5ad-3cb7b4e91603

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between force majeure and political event. contracts which includes political events in force
majeure refers to events such as war, hostilities, invasion, act of foreign enemies,
mobilisation, requisition, or embargo, rebellion, revolution, insurrection, or military or
usurped power, or civil war etc. clause in contracts not only describes events but also
includes terms and conditions in case of force majeure. Illustration of clauses of force
majeure in contracts are given below-

When there is no distinction made between act of god and political event-

“In this Clause [ ], "Event of Force Majeure" means an event beyond the control of the
Authority and the Operator, which prevents a Party from complying with any of its
obligations under this Contract, including but not limited to:

1.1.1 act of God (such as, but not limited to, fires, explosions, earthquakes, drought, tidal
waves and floods);

1.1.2 war, hostilities (whether war be declared or not), invasion, act of foreign enemies,
mobilisation, requisition, or embargo;

1.1.3 rebellion, revolution, insurrection, or military or usurped power, or civil war;

1.1.4 contamination by radio-activity from any nuclear fuel, or from any nuclear waste from
the combustion of nuclear fuel, radio-active toxic explosive, or other hazardous properties of
any explosive nuclear assembly or nuclear component of such assembly;

1.1.5 riot, commotion, strikes, go slows, lock outs or disorder, unless solely restricted to
employees of the Supplier or of his Subcontractors; or

1.1.6 acts or threats of terrorism.

1.2 Consequences of Force Majeure Event

1.2.1 Neither the Authority nor the Operator shall be considered in breach of this Contract to
the extent that performance of their respective obligations (excluding payment obligations) is
prevented by an Event of Force Majeure that arises after the Effective Date.

1.2.2 The Party (the “Affected Party”) prevented from carrying out its obligations hereunder
shall give notice to the other Party of an Event of Force Majeure upon it being foreseen by, or
becoming known to, the Affected Party.

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1.2.3 If and to the extent that the Operator is prevented from executing the Services by the
Event of Force Majeure, while the Operator is so prevented the Operator shall be relieved of
its obligations to provide the Services but shall endeavour to continue to perform its
obligations under the Contract so far as reasonably practicable [and in accordance with Good
Operating Practices], [PROVIDED that if and to the extent that the Operator incurs additional
Cost in so doing, the Operator shall be entitled to the amount of such Cost [COST BEING
DEFINED AS HAVING NO PROFIT COMPONENT] (the Operator having taken
reasonable steps to mitigate the Cost)].

1.2.4 If and to the extent that the Operator suffers a delay during the Construction Period as a
result of the Event of Force Majeure then it shall be entitled to an extension for the Time for
Completion in accordance with Sub-Clause .

1.2.5 If an Event of Force Majeure results in a loss or damage to the Facility, then Operator
shall rectify such loss or damage to the extent required by the Authority, PROVIDED that
any Cost of rectification (less any insurance proceeds received by the Operator for the loss or
damage) is borne by the Authority (the Operator having taken reasonable steps to mitigate the
Cost).

1.2.6 [The Operator shall be entitled to payment of the Base Monthly Charge during the
period of interruption caused by the Event of Force Majeure.]

1.2.7 [The Contract Period shall be extended by a period of time equal to the period of
interruption caused by an Event of Force Majeure.] [1.2.6 OR 1.2.7]

1.3 Optional Termination, Payment and Release

Irrespective of any extension of time, if an Event of Force Majeure occurs and its effect
continues for a period of [180] days, either the Authority or the Operator may give to the
other a notice of termination. [If Authority is paying fee during Force Majeure, then Operator
should not have a termination right, he is being paid.], which shall take effect [28] days after
the giving of the notice. If, at the end of the [28]-day period, the effect of the Force Majeure
continues, the Contract shall terminate.

After termination under this Sub-Clause [1.3], the Operator shall comply with Sub-Clause
[termination provisions] and the Authority shall pay the Supplier an amount calculated and
certified in accordance with”.

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Below given is the illustration of clause in contract where there is a clear distinction
made between political event and act of god

“Events of Force Majeure

For the purpose of this Agreement, an “Event of Force Majeure” means any circumstance not
within the reasonable control of the Party affected, but only if and to the extent that (i) such
circumstance, despite the exercise of reasonable diligence and the observance of Good Utility
Practice, cannot be, or be caused to be, prevented, avoided or removed by such Party, and (ii)
such circumstance materially and adversely affects the ability of the Party to perform its
obligations under this Agreement, and such Party has taken all reasonable precautions, due
care and reasonable alternative measures in order to avoid the effect of such event on the
Party’s ability to perform its obligations under this Agreement and to mitigate the
consequences thereof.

Instances of Force Majeure

Subject to the provisions of clause 1.1, Events of Force Majeure shall include, but not be
limited to:

(a) the following Natural Force Majeure Events:

 fire, chemical or radioactive contamination or ionising radiation, earthquakes,

lightning, cyclones, hurricanes, floods, droughts or such other extreme weather or
environmental conditions, unanticipated geological or ground conditions, epidemic,
famine, plague or other natural calamities and acts of God;
 explosion, accident, breakage of a plant or equipment, structural collapse, or chemical
contamination (other than resulting from an act of war, terrorism or sabotage), caused
by a person not being the affected Party or one of its contractors or subcontractors or
any of their respective employees or agents;
 to the extent that they do not involve [country] or take place outside of [country], acts
of war (whether declared or undeclared), invasion, acts of terrorists, blockade,
embargo, riot, public disorder, violent demonstrations, insurrection, rebellion, civil
commotion and sabotage;
 strikes, lockouts, work stoppage, labour disputes, and such other industrial action by
workers related to or in response to the terms and conditions of employment of those
workers or others with whom they are affiliated save, when such event is directly

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 related to, or in direct response to any employment policy or practice (with respect to
wages or otherwise) of the party whose workers resort to such action;
 in relation to the Concessionaire, non-performance by a counter-party to a contract
relating to the Concessionaire’s Business by reason of an event or circumstance that
would constitute a Natural Force Majeure Event under this Agreement; and

(b) the following Political Force Majeure Events:

 to the extent they take place in [country], acts of terrorists, blockade, embargo, riot,
public disorder, violent demonstrations, insurrection, rebellion, civil commotion and
sabotage;
 to the extent that they are politically motivated, strikes, lockouts, work stoppages,
labour disputes, or such other industrial action by workers, save in relation to the
Concessionaire, when such event is directly related to, or in direct response to any
employment policy or practice (with respect to wages or otherwise) of the
Concessionaire;
 failure or inability of the Concessionaire to obtain or renew any Consent, on terms
and conditions as favourable in all material respects as those contained in the original
Consent relating to the Concessionaire’s Business (other than due to a breach by the
Concessionaire of any of such terms and conditions);
 any action or failure to act without justifiable cause by any Competent Authority,
other than a court or tribunal(including any action or failure to act without justifiable
cause by any duly authorised agent of any Competent Authority, other than a court or
tribunal);
 expropriation or compulsory acquisition of the whole or any material part of the
Concessionaire’s System or Investor’s shares in the Concessionaire, except where
such appropriation or compulsory acquisition is on account of contravention of law by
the Concessionaire or by the Investor;
 any legal prohibition on the Concessionaire’s ability to conduct the Concessionaire’s
Business, including passing of a statute, decree, regulation or order by a Competent
Authority prohibiting the Concessionaire from conducting the Concessionaire’s
Business, other than as a result of the Concessionaire’s failure to comply with the law
or any order, Consent, rule, regulation or other legislative or judicial instrument
passed by a Competent Authority;

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  in relation to the Concessionaire, non-performance by a counter-party under a contract
relating to the Concessionaire’s Business by reason of an event or circumstance that
would constitute a Political Force Majeure Event under this Agreement,

provided that breakdown of plant or equipment (unless itself caused by an Event of Force
Majeure), or unavailability of funds, shall not constitute an Event of Force Majeure.

Effects of an Event of Force Majeure

Either Party shall be excused from performance and shall not be in default in respect of any
obligation hereunder to the extent that the failure to perform such obligation is due to a
Natural Force Majeure Event.

Additionally, the Concessionaire, [but not [ ] in respect of [ ]], shall be excused from
performance and shall not be in default in respect of any obligation under this Agreement to
the extent that the failure to perform such obligation is due to a Political Force Majeure
Event.

Notice of an Event of Force Majeure

If a Party wishes to claim protection in respect of an Event of Force Majeure, it shall, subject
to clause [ ], as soon as possible following the occurrence or date of commencement of such
Event of Force Majeure, notify the other Party of the nature and expected duration of such
Event of Force Majeure and shall thereafter keep the other Party informed until such time as
it is able to perform its obligations. The Parties shall use their reasonable endeavours to:

(i) overcome the effects of the Event of Force Majeure;

(ii) mitigate the effect of any delay occasioned by any Event of Force Majeure, including by
recourse to alternative mutually acceptable (which acceptance shall not be unreasonably
withheld by either Party) sources of services, equipment and materials; and

(iii) ensure resumption of normal performance of this Agreement as soon as reasonably

practicable and shall perform their obligations to the maximum extent practicable,

provided that neither Party shall be obliged to settle any strike, lock out, work stoppage,
labour dispute or such other industrial action by its employees”.4

4
https://ppp.worldbank.org/public-private-partnership/ppp-overview/practical-tools/checklists-and-risk-
matrices/force-majeure-checklist/sample-clauses

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FORCE MAJEURE CLAUSE IN CASE OF REAL ESTATE
CONTRACTS.
Recognized under Indian contract act 1872 force majeure gives a party to the contract
extended time to execute the contract which does not constitute as a default for things beyond
its control. Talking about real estate, there is always a contract between developers and
buyers. Such contracts generally have the provision which describes force majeure. It is
incorporated to save developers from uncertainties. Including force majeure in the contract
does not give opportunity to buyers to approach the court and ask for compensation in delay
to execute the contract, but this does not prevent developers from taking undue advantage of
force majeure. Developers delay their work taking the defence of force majeure and then
citing high input cost. In fact many real estate cases have been rejected by the National
Consumer Disputes Redressal Commission (NCDRC) for using arbitrary grounds. These
include cases where developers have cited shortage of sand due to a curb on illegal sand
mining mafia, lack of water as court stopped use of ground water for construction, shortage
of labour due to government schemes and economic meltdown for delaying housing projects.
Recently, the Maharashtra Real Estate Regulatory Authority has also ruled developers can
not use the force majeure clause for financial crisis and lack of approvals in any project.

FORCE MAJEURE CLAUSE ACCORDING TO ENGLISH LAW

In contract law, force majeure refers to exceptional events which prevent or hinder the
performance of an obligation. Generally, these are events beyond the parties' control, which
could not have been foreseen at the time the contract was entered into or prevented by the
affected party. Common examples include natural disasters, severe weather, government
actions, war, terrorism, riots and strikes. The language of force majeure clauses varies
greatly, with some requiring the performance of the contract to have been prevented by the
event, while others use the lower threshold of the performance being hindered or delayed.
Minimum timing thresholds before an event can be considered as force majeure are also
common.

There is great variety when it comes to the legal content and effect of force majeure clauses.
An event of force majeure will often result in the affected party being excused from liability
for delay or non-performance of its obligations (such as liquidated damages) while the event
is ongoing, with a corresponding extension of time for performance. The contract remains in
force. Usually one or both parties may terminate the contract without penalty if the force

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majeure event continues for a certain amount of time (usually three to six months). Failure to
comply with contractual notice provisions can have serious consequences. Generally, each
party bears its own costs arising from the force majeure event and claims under its own
insurance for compensation. Contractual protection continues only so long as the force
majeure event itself does. Therefore, contractors must recommence performance as soon as it
becomes possible to do so or risk penalties for breach of contract.

Position under English law

Unlike many civil law countries, there is no implied application of the doctrine of force
majeure under English law. Rather, the treatment of an event of force majeure comes from
the contract. It is usual for English courts to apply contracts strictly, according to their
wording and respecting the parties' freedom to contract on terms they see fit. The parties may
choose a broad or narrow definition of force majeure, depending on their needs. Accordingly,
careful and comprehensive contract drafting is particularly important.

Generally speaking, the courts will seek to enforce the performance of a contract. Thus, the
fact that a contract has become uneconomic or commercially impractical will likely not be
considered a force majeure event unless expressly provided for. The issue becomes one of
proof – that is, whether the party relying on the force majeure clause can show that the event
on which it relies is included in the clause. In this respect, because the clause is seen as a
commercial solution rather than a legal one, it will be read in a natural way and not subject to
the limitations that are used to reduce the scope of an exclusion clause.

In some (strictly limited) circumstances, the English law doctrine of frustration may provide
relief where the force majeure clause does not. In brief, this doctrine provides that if an event
makes performance of a contract impossible, illegal or pointless, the contract is 'frustrated'
and can be set aside. However, the criteria for this are difficult to meet and the consequence
of bringing the contract to an end may not be desirable.

An unconsidered use of boilerplate clauses can lead to unintended consequences. The broader
or narrower treatment of force majeure may be appropriate, depending on the nature of the
contract and the obligations on either party to it. Special consideration should be given to
force majeure and its intended treatment during pre-contractual negotiations, even where

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standard form contracts include a boilerplate force majeure term (which are by their nature
general terms and possibly not sharply focused on the project under consideration).

Finally, where contingency or disaster-recovery plans can succeed in allowing the contract to
be performed despite the event of force majeure which would ordinarily provide contractual
relief, this can be instrumental in cementing commercial relationships and distinguishing a
supplier from its competitors. Concerning force majeure clauses apply generally to
construction contracts governed by English law.

Tandrin Aviation Holdings Limited v Aero Toy Store Llc & Anor 5

The seller entered into an agreement for the sale of a jet aircraft to a purchaser (the
Agreement) for US$31.75 million. Under the Agreement, the purchaser paid a deposit of
US$3 million to an escrow agent; with the balance due upon delivery of the aircraft. When
the purchaser failed to take delivery of the aircraft or pay the balance, the seller terminated
the Agreement and sought recovery of the deposit. The purchaser's main defence was that the
"unanticipated, unforeseeable and cataclysmic downward spiral of the world's financial
markets" triggered the force majeure clause in the Agreement. This argument was rejected by
the court which held that the purchaser could not rely upon the force majeure clause to excuse
its non-performance.

The force majeure clause in contract provided that-

"Force Majeure: Neither party shall be liable to the other as a result of any failure of, or delay
in the performance of, its obligations ... for the period that such failure of delay is due to:
Acts of God ... or any other cause beyond the Seller's reasonable control..."

The court noted that it was a well established principle of English law that a change in
economic or market circumstances affecting the profitability of a contract or the ease with
which the parties' obligations can be performed, was not regarded as a force majeure event.

5 [2010] EWHC 40

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Further, there had been no reported case where change of economic or market circumstances
has been held by any English court to amount to force majeure.

The court also noted that Chitty on Contract, 30 ed, para 14-148 in its list of matters as
having been held not capable of constituting force majeure included: "a failure of
performance due to the provision of insufficient financial resources or to a miscalculation. A
rise in cost or expense."

Whether a force majeure clause in a contract is triggered depends on the proper construction
of the wording of the relevant clause. The force majeure clause in the Agreement did not
refer to economic circumstances and the court could see no basis for construing the clause so
as to include any funding difficulties encountered by the purchaser.

The court also noted that in cases concerning frustration that it was clear from previous
authority such as the House of Lords decision in National Carriers v Panalpina (Northern)
that an increase in either the expense of a contract or the onerousness of performance of the
obligations, could not constitute frustration.6

6
https://www.lexology.com/library/detail.aspx?g=953cdc6d-6732-4975-a5ad-3cb7b4e91603

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