FORCE-MAJEURE UNDER CONTRACT LAW IN THE CONTEXT OF COVID-19 PANDEMIC

By Renjith Mathew, Manager-Legal, GMO-SZ

Force-majeure is a legal term that all of us are hearing a lot amid the ongoing crisis situation caused
by the spread of COVID-19 by the pathogen named coronavirus SARS-CoV-2. Whole world is in the
grip of COVID-19 which has been declared as a pandemic by the World Health Organization1.
Countries around the world have imposed mass travel bans, temporary lockdowns and extremely
restricted human movement thereby bringing an unparalleled halt to domestic and international
trade. These measures like lockdowns, travel bans and the panic it has created among the people, has
caused disruption of production, supply chain and trade across the world. The present scenario of
lockdowns and travel bans have significantly reduced the capacity of businesses to move goods and
services within and across the national borders. This situation of impossibility faced by the
businesses in performing their contractual obligations could neither be anticipated nor controlled by
them. As such, the counterparties may invoke ‘force majeure’ clauses in their contracts against the
other parties to either avoid paying up or deliver products/services as per the contractual terms.
Parties may cite this pandemic as a ground for discharging their commercial obligations or for opting
re-negotiation of price and terms of the contract. It is in this scenario, that this study was carried out
to understand the concept of force-majeure as a contractual term and its application.
What is ‘force-majeure’?
Force-majeure is a term that has its origin in French language with its literary meaning as “a superior
force’. In the context of contract law, a ‘force-majeure’ can be defined as “an event or effect that can
be neither anticipated nor controlled; especially, an unprecedented event that prevents someone from
doing or completing something that he or she had agreed or officially planned to do. The term includes
both, acts of nature (e.g. floods and hurricanes) and acts of people (e.g. riots, strikes and wars)2. In other
words, ‘force-majeure’ refers to “events outside the control of the parties and which prevent one or
both the parties from performing their contractual obligations”3.
Force-majeure under the Indian Contract Law
In civil-law countries, such as the UAE, China, France etc., the concept of Force Majeure may be
pursued by a party to a contract as a matter of law that de-jure applies even without being expressly
set out in a contract. For example, the UAE Civil Code (Federal Law Number 5 of 1985) sets the
definition and boundaries of a Force-Majeure event, and the consequences it triggers. On the
contrary, in common-law countries (such as the USA, India and England) the concept does not have
a general meaning and will only operate if inserted into the contract, and according to the plain terms
of the clause inserted in the contract.
In the Indian contract jurisprudence, the term ‘force-majeure’ is not defined in the Indian Contract
Act, 1872 (ICA). However, the Hon’ble Supreme Court of India had explained the term force-majeure
as follows; “where reference is made to "force majeure", the intention is to save the performing party
from the consequences of anything over which he has no control”4.
Though the ICA does not expressly refer to the term 'Force-Majeure', the 148 year old law governing
contracts in India contain two Sections (sec. 32 and sec. 56) which deals with situations of force-
majeure. While, section 32 deals with "contingent contracts", in which performance of contractual
obligations is contingent on the happening or non-happening of an event with a provision that the
contracts will be void if the event becomes "impossible”; section 56 embodies the "doctrine of

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frustration" based on the maxim “les non cogit ad impossibilia” which means that the law will not
compel a man to do what he cannot possibly perform.
The scheme of things under the ICA 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 Act5.
Hence, in the event of a force-majeure situation which makes performance of a contract by any of the
parties impossible, such party may invoke the force-majeure clause in the contract, if such clause is
there in the contract and in case such clause is not there, he may make use of the principle of
frustration under sec. 56 of the Act.
Judicial pronouncements on invocation of force-majeure/frustration of contract
As per the Indian contract law, what constitutes force majeure varies widely between contracts. The
courts have taken a very narrow approach to construction of force majeure clauses, by holding that
the force-majeure clauses can be applied only if the obligations have actually become impossible to
perform and not merely when they are more difficult or less profitable.
As per the decision of McCardie J. at the Court of King’s Bench “A force majeure clause should be
construed in each case with a close attention to the words which precede or follow it, and with a due
regard to the nature and general terms of the contract. The effect of the clause may vary with each
instrument.”6 It is noted that the Courts in India has been following the aforesaid principle while
interpreting the force-majeure clauses.
In the decision of the High Court of England & Whales in Tandrin Aviation Holdings Ltd v Aero Toy
Store LLC7; the defendant sought to justify its refusal to accept delivery of an aircraft on the basis that
unanticipated, unforeseeable and cataclysmic downward spiral of the world’s financial markets
constituted ‘any other cause beyond the Seller’s reasonable control’ stated in the force majeure clause
of the contract. This, they said, postponed the time for the defendant to complete the purchase. The
judge rejected the argument. He held that this phrase had to be read in the context of the entire clause.
Although the judge noted that the phrase ‘any other cause beyond the Seller’s reasonable control’
need not mirror the specific examples set out earlier in the clause, he pointed out that nothing in any
of those specific examples in the clause was even remotely connected with economic downturn or
market circumstances.
Generally, a change in economic or market circumstances affecting the profitability of a contract or
the ease with which the parties’ obligations can be performed will not be regarded by the courts as
constituting a force majeure event. This was the case in above matter. In this context, we may now
examine the disputes that cropped up between Donald Trump and Deutsche Bank that was widely
discussed by the international media in 2009. The Deutsche Bank Trust Company Americas, as lead
lender, financed an entity wholly owned by Donald Trump for construction and development of the
Trump International Hotel and Tower in Chicago. On November 6, 2008, one day before the loan’s
maturity date, Trump filed a suit in Queens County against Deutsche Bank and other lenders arguing
that the global economic recession is a force majeure event as per their Financing Agreement and
wanted the maturity date of the loan to be extended until the cessation of the “force-majeure”. Trump
and Deutsche Bank announced on March 3, 2009 that they have suspended their lawsuits, so we could
never hear the court’s take on the argument8.

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In another instructive English judgment, namely, Tsakiroglou & Co. Ltd. v. Noblee Thorl Gmbh 9,
despite the closure of the Suez Canal, and despite the fact that the customary route for shipping the
goods was only through the Suez Canal, it was held that the contract of sale of groundnuts between
the parties was not frustrated. The facts of the matter was such that the Contract could be performed
by an alternative mode which was much more expensive, namely, that the ship would now have to
go around the Cape of Good Hope, which is three times the distance from Hamburg to Port Sudan.
The freight for such journey was also double. While disposing the matter, the House of Lords held
that even though the contract had become more onerous to perform, it was not fundamentally altered
and as such not frustrated.
Coming back to Indian jurisprudence, in Satyabrata Ghose v. Mugneeram Bangur & Co.10 [1954 SCR
310: AIR 1954 SC 44], a dispute of non-completion and non-allotment of a real estate project on time
due to temporary acquisition of possession of the land by the Government for military purpose
during the second world war was adjudicated. The question considered was whether the fact
amounts to frustration of contract. In this matter, Court found that the delay was not of the character
which "totally upset the basis of the bargain and commercial object which the parties had in view"
and the plea of frustration was rejected.
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.
Similarly, in Naihati Jute Mills Ltd. v. Khyaliram Jagannath11 , the Supreme Court of India went into
the English law on frustration in some detail, and then cited the aforesaid judgment of Satyabrata
Ghose and concluded that a contract is not frustrated merely because the circumstances in which it
was made are altered. It was also held that the courts have no general power to absolve a party from
the performance of its part of the contract merely because its performance has become onerous on
account of an unforeseen turn of events. The Court also declared that, to hold a contract as frustrated,
the change in events or circumstances must be "so fundamental as to be regarded by law as striking
at the root of the contract". In this matter, the Court held that the change in government policy on
jute import did not frustrate the contract for purchase of 2000 bales of jute from Pakistan.
In another matter, M/s Alopi Parshad & Sons Ltd. v. Union of India12, 1960 (2) SCR 793, wherein the
dispute was regarding an agreement to supply ghee to army personnel. The parties sought enhanced
rates citing the outbreak of World War II. The contractor claimed that it was entitled to amounts over
and above the rates revised as per agreement in 1942. The Supreme Court of India rejected the claim,
holding that the contract is not frustrated merely because its performance has become onerous.
In Mary v. State of Kerala13, the appellant who had secured the privilege to sell arrack in Shop Nos.
47 to 55 and 57 in Kalady Range –III for the period 1.4.1994 to 31.3.1995 in the auction conducted
by Government of Kerala, pleaded frustration as she could not use the privilege on account of local
protest stating that the area was the birth place of Shankaracharya. While disposing the matter, the

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Hon’ble Supreme Court of India held that “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”.
In Energy Watchdog v CERC14, while considering the issue as to whether the rise of prices of coal
imported from Indonesia would frustrate the Power Purchasing Agreements; a bench comprising
Justices P C Ghosh and R F Nariman while holding that the price rise was not an event which
frustrated the contract, summarized the jurisprudence on the doctrine of frustration as follows:-
a. If contract has an express or implied 'force majeure' clause, it will apply over the principles
under Sec 56.
b. Application of the doctrine of frustration must always be within narrow limits.
c. A rise in cost or expense will not frustrate a contract.
d. Doctrine of frustration will not apply so long as the fundamental basis of the contract remains
the same.
e. Force majeure clause will not apply if alternative modes of performances are available.
The principles of this case were applied by the Delhi High Court in Coastal Andhra Power Ltd v
Andhra Pradesh Central Power Distribution Co Ltd15 to hold that escalation of price of coal and
change in law abroad will not amount to "force-majeure" under the agreement, so as to absolve the
power generating company from its obligations.
The Indian law on the issue of force-majeure/frustration can be summarized as follows:-
1. The counterparties to a Contract may invoke a force-majeure clause in case of an event, if the
event concerned, pass three tests, viz it must be external, it must be unpredictable and it must
be irresistible. If the force majeure event passes those three tests, then the party relying on it
will normally be exempt from further performance of the contract.
2. Under the Indian law, it is for the party that wishes to rely on a force majeure clause to prove
that the event that has caused (or is causing) non-performance falls into the ambit of force
majeure.
3. An ideal force-majeure clause normally lists the events that fall into the category followed by a
general sweep up provision. The typical list of events are: Acts of God, war, belligerent action,
hostilities, terrorist acts, governmental decisions, riot, civil commotion, strikes, fire, flood,
earthquake, epidemic etc.
4. So the efforts of the Contracts draftsmen shall be to foresee the unforeseeable, predict the
unpredictable, list such unforeseeable and unpredictable events within a clause in the contract
and call the events force-majeure.
5. In case if an event that could be construed to be force majeure occurs, that is not listed in the
clause, then there is the doctrine of frustration. If, during the course of the operation of the
contract, there arises an intervening event or change of circumstances so catastrophic or
fundamental in nature that makes further performance impossible, it could be argued that the
contract is frustrated and the parties would be discharged from their obligations.

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Use of force-majeure/frustration in the context of COVID-19
It is to be noted that 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. Furthermore, India’s biggest container terminal, run by Maersk at Mumbai
port, as well as Adani Ports in Gujarat, have already declared force majeure, joining oil refiners IOCL
and Mangalore Refineries and Petrochemicals Ltd16.
In light of COVID- 19, a pertinent question that may arise here is whether COVID- 19 shut down will
be regarded as a force-majeure event for all the agreements, providing a leeway to the parties
claiming impossibility of performance. The next question is whether non-compliance of the terms of
the agreement will be regarded as a “default committed by any party” or a “breach of contract”.
The answer to the aforesaid questions is that the counterparties to contracts may (a) either invoke
the force-majeure clause in the contract or (b) seek relief under sec. 56 of the ICA.
There are two possible instances to determine whether a force majeure clause covers a pandemic:
a) If the contractual definition of force-majeure event expressly includes a pandemic. Inclusion
of pandemic to the list of force-majeure events will provide clarity as to whether Covid-19
outbreak would trigger a force majeure clause in a contract; or
b) If the force majeure clause covers extraordinary events or circumstances beyond the
reasonable control of the parties. Such general, ‘catch-all’ wording may be invoked if it is
established that the factual circumstances caused by the pandemic are beyond reasonable
control of the affected party.
As such, the question whether a party can be excused from a contract on account of COVID-19 being
declared a pandemic would be a fact-specific determination that will depend on the nature of the
party’s obligations read with the specific terms of the Contract.
If COVID-19 is not specified as a force majeure event or the contract itself does have an express force
majeure clause, an affected party may claim relief on the grounds of frustration/ impossibility (to
perform an obligation or execute work) under Section 56 of the ICA.
The following points may be noted while claiming relief on account of force-majeure/frustration:-
a) An affected party must ensure compliance of procedures stated in the force-majeure clause.
Most force-majeure clauses prescribes issuance of notice as a condition precedent for claiming
relief. Such contractual notification requirements are usually time bound, failing which parties
may be barred from claiming relief.
b) Typically, the force-majeure provisions require an affected party to show that it has taken all
reasonable efforts to avoid or mitigate the event and its effects.
c) The language of the force-majeure clauses will determine the remedies available to the parties.
Some contracts may provide for immediate termination of the contract upon the happening of
the force majeure event. Others may provide that the contract will be put on hold until the force
majeure event is resolved. Some contracts may provide for limitations in time after which either

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 party may terminate the agreement with written notice to the other (i.e. if non-performance
caused by the event is prolonged or permanent). Others may require the contract to remain in
effect until the force-majeure event is resolved. Some contracts will only allow for certain
obligations to be suspended.
d) As a part of social distancing measures, most states in India have issued regulations invoking the
Epidemic Diseases Act, 1897 severely restricting commercial activities and movement of public.
The resulting disruption in workforce and materials may be interpreted as a change in law event
if the contract provides for a change in law provision. The relief for change in law can extend to
price adjustment or extension of time period for completion of obligations or both
e) It will also be relevant to carefully examine the insurance policies to see if certain losses can be
mitigated pursuant to such policies. This will help in formulating the overall strategy and course
of action.
f) Pursuant to the standard financing documents, a force majeure event may not exclude debt
servicing obligations and a borrower is expected to service the debt under the relevant financing
documents. Hence, parties may report the effects of the pandemic to the lenders and initiate
discussions for rescheduling of re-payment instalments and waiver for any breach of covenants
or financial ratios due to the pandemic.
g) Counterparties may also attempt to invoke other contractual clauses like price adjustment
clauses, material adverse change clauses, limitation or exclusion clauses, to limit or exclude
liability for non-performance. The ability to invoke such other grounds will depend on the
wording of the relevant clause, and how the clause is construed by courts.
h) Counterparties may (i) initiate a chance to perform the contract in a possible alternative way; a
failure will safely rule out a future ‘defense’ with respect to an alternative method of
performance, (ii) Collect evidences to accord non-performance of the obligation to the sole force
majeure event, in the current scenario, the pandemic, (iii) Keep a strict record of the various
notifications and orders by government and administrative bodies to be used as evidence during
the litigation/arbitration stage, (iv) All records with respect to unavoidable additional
expenditure incurred must be maintained.
Conclusion
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 ensuing situation of the pandemic
COVID-19 will fall between the said two phrases. It is also be noted that the devil is, as they say, in
the detail and as such the successful application of force-majeure or doctrine of frustration depends
on the details of the clauses of the contract and the facts of the situation.

1
https://www.who.int/emergencies/diseases/novel-coronavirus-2019/events-as-they-happen.
2
Black’s Law Dictionary, 11th Edition; @ Pg. 788.
3
P. Ramanatha Aiyar’s Advanced Law Lexicon, 5th Edition; @ Pg. 2077.
4
Dhanrajamal Gobindram vs. Shamji Kalidas And Co, AIR 1961 SC 1285; @ Para. 19.
5
“Interpretation of Force Majeure, Doctrine of Frustration and Clauses whether Express or Implied”,
By Siddharth Batra, published on www.realtyplusmag.com.
6
Lebeaupin v Crispin [1920] 2 KB 714]
7
Tandrin Aviation Holdings Ltd v Aero Toy Store LLC; [2010] EWHC 40 (Comm)].
8
“Trump v. Deutsche Bank: Does the Credit Crisis Constitute a Force Majeure Event?”; by Stuart D Kaplan,
published in www.martindale.com.
9
Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH, (1961) 2 All ER 179 (HL).

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10
Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44.
11
Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821: AIR 1968 SC 522.
12
M/s Alopi Parshad & Sons Ltd. v. Union of India, 1960 (2) SCR 793.
13
Mary v. State of Kerala, (2014) 14 SCC 272.
14
Energy Watchdog v CERC (2017) 14 SCC 80.
15
FAO (OS) No. 272/2012 available @https://indiankanoon.org/doc/47087785/
16
https://www.theweek.in/news/biz-tech/2020/03/28

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