Write up on Force Majeure Clause

Force majeure is the common name of a clause inserted in a contract during the formation of
the contract to renege contractual liability in light of an event or a series of unanticipated
events or inevitable accidents that renders a contract impossible to perform. This
impossibility of carrying out the contract should occur despite all the precautions and
foresight employed by the party claiming to invoke the contract. This is considered to be part
of civil law. Force majeure has a French origin meaning ‘superior force’ whose roots can be
found in the ‘French Code Civil’ in Article 1147 and 1148. However, there is yet another
principle called ‘Fortuitous event’ which is an event which, although partially controllable by
a party, which is somewhat insurmountable, while force majeure is an event that is out of the
control and absolutely insurmountable by the parties. Usually the events that constitute force
majeure are the events covered under act of god, wars, laws passed after the contract is drawn
up, epidemics and any other such events that are mentioned in the contract. Force majeure, as
said, is a clause that is added to the contract and as such can have situations covering specific
to the nature of the contract drawn up. Also all the events that inconvenience the party to the
contract in performing the contract do not come under force majeure. Events such as market
fluctuations and labour strikes do relieve the parties from performance of the contract. Force
majeure clause usually only extends the time period for the performance of the contract,
meaning that after the said event has passed and it is once possible for the contract to be
executed, it is expected of the parties to go through with execution.

The purpose of inclusion of such a contract is to prevent or limit the damage to the party who
may be adversely affected if he is forced to execute the contract.

There are some requirements to be fulfilled before the clause can be successfully:

1. The impossibility must not be a result of the party’s doing. The event must not have
arisen because of the negligence or lack of foresight by the party invoking it.
2. The event must be unforeseeable or inevitable.
3. The event must necessarily negate the execution of the contract.

From the above conditions we ca ascertain that commercial profitability is not a condition to
invoke the clause. This is subjected to scrutiny of the contract and situation present. The party
must also show that it took reasonable steps to execute the contract despite of the unforeseen
event and as exhausted all other options in pursuance of execution of the contract and has
found no solution to mitigate the consequences of the event. Again, the reasonableness is
decided on case to case basis. In an area where rainfalls are frequent, the contractors are
expected to take into account the possibility of a rainfall during the execution of the contract,
but if the rainfall is such that it causes some unforeseen event, like floods, the clause of force
majeure may be invoked, but if the area is a known disaster prone zone where earthquakes
are common, the reasonable action may be subjected to the intensity and the result of the said
earthquakes in performing the contract.

There seems to be some difference in administration of this principle between common law
and civil law jurisdictions. Frustration seems to be the only concept similar to force majeure
in common law but they are not identical. Common law recognises force majeure only when
it is expressed in the contract itself. When such a clause is not present the contract stands
valid and the parties are bound to it. Common law, however, has the concept of frustration
where the clause is not inserted in a contract. It is a contracted concept when compared to
force majeure. A party can invoke the principle of frustration if forcing the performance on
them leads to a result that is fundamentally different than the one they gave consent for when
they entered the contract. Force majeure has a wider scope than frustration as it seems to
include strikes, when specified as a condition in the contract and such events which are
overlooked by frustration. In Indian context, India Contract Act, 1872 deals with
impossibility of performance of contract in Section 56. It states that ‘An agreement to do an
act impossible is void’. the term impossible is, however, given a wide interpretation in Indian
law. The essential principle upon which this doctrine is based is the impossibility or the
impractical nature of performance, which is the result of an unforeseen and inevitable cause.
So the term impossible not only entails impossibility only but also accounts for the scenario
where the contract has evolved so that its enforcement leads to result that parties to the
contract is assumed to have given their consent. So again here also, commercial
unprofitability is not a ground for rescinding the contract.

Here also there must be certain conditions that are required to be fulfilled before this doctrine
can be invoked:

1. The presence of a supervening event that changes the circumstances significantly and
could not have been reasonably foreseen.
2. The event must have not arisen out of the fault of either of the parties.
3. It will be unjust to hold the parties bound to the contract.

In light of recent events happening throughout the world, force majeure is fast becoming a
very relevant topic. Due to the spread of COVID-19, land borders and transportations are
being shut down along with flights and other means of transport. All over the world
companies and corporations contemplating whether to invoke this clause to avoid
performance of the contracts they signed prior to the breakout of the pandemic. Real estate
market, construction, oil market and the entire economy is taking a hit due to the restrictions
imposed by respective governments to control the virus. Factories are forced to shut down
due to which production of products is very low. Parties are finding it ever more difficult to
meet their contractual obligations due to restricted movement, scarcity of raw materials and
labour and disruption of supply chain. The answer to the question whether the spread of
COVID-19 qualifies as a force majeure event depends on the contract drawn up by the
parties. If the contract has a force majeure clause which specifically accounts for a future
where a pandemic breakout is possible, then the clause can be invoked as even the WHO
declared COVID-19 to be a pandemic. In other cases, for the clause to be invoked, the party
seeking to invoke the clause must show that the spread of the virus hampered him in some
way in performing his obligations. One key aspect that is likely to be scrutinised is the
directives of the government. The party has to show to show that government directions,
some of which are mandatory while some are advisory, made it impossible for him to execute
his part of the contract. The Ministry of Finance has already sent out a memorandum saying
that force majeure clause may invoked by the parties wherever appropriate due to the
disruption of supply chain.

However, if the contract does not have a force majeure clause the parties may have to
approach the court to have the contract rescinded under Article 56 of the Indian Contract Act.
It is highly fact specific for frustration to be invoked to rescind the contract. It depends on the
court and whether it considers spread of COVID-19 as a frustrating event.

S. Hasthisha Desikan

BC0190017