‘FORCE MAJEURE’ Clause: A Brief Pandemic Perspective – By Vediccaa Ramdanee
A French term- Force Majeure, literally translates into a force that is superior.
Now what can be considered as a superior force?
This terminology, which is often used in our contracts and agreements generally, encompasses “an event or effect that can be neither anticipated nor controlled.”
As per the Black’s Law Dictionary, it is “commonly understood to encompass both acts of nature, such as floods and hurricanes, and acts of man, such as riots, strikes, and wars.”
Therefore, the occurrence of any of the above events allows the parties to a contract to invoke the clause of force majeure, which is agreed upon and included by their consensus ad idem in the resultant contract.
It is exactly at this juncture that one can sense the problem.
The fact that the insertion of a force majeure clause is purely contractual and not governed by Sections 32 and 56 of the Indian Contract Act, 1872, leaves the wording and extent of its ambit at the mercy of the respective counsels of the parties.
So does invoke the force majeure clause, particularly stating a pandemic render the contract/agreement void?
The answer to this question is Yes and No both. Therefore it would make more sense to say that the same will depend on the facts and circumstances of the case.
It would depend upon:
- Type and Nature of the Contract or Obligation: For instance in construction and commercial projects which require a whole system of people to work and deliver their services to ensure the end product is delivered in time, it may be reasonable enough for force majeure to apply. This too, however, has its reservations. A good example being World War II (1939-1945) disrupting the supply chains, thereby leading to, exorbitant prices of various commodities (eg.ghee) and ‘difficulty’ in their sourcing.
However for Force Majeure to apply, the standard is set extremely high. Thus, even if it is very difficult for someone to secure his/her supplies and is causing a hole in their pockets, it still wouldn’t absolve him/her of the contractual obligations under the shield of force majeure.
Had the situation affecting such contract execution been imposed legally and by government orders, the same would definitely qualify as Force Majeure.
- Causal Connection: The contractual performance being affected must have a direct causal connection with the event that is considered as Force Majeure. One must not use it to their unfair advantage. For instance, in two recent Delhi High Court Cases, passed one week apart, both pertaining to the invocation of Bank Guarantees, we can see the difference:
M/s Halliburton Offshore Services Inc. v. Vedanta Limited & Anr. (Delivered on 20/04/2020):
The High Court restrained the Respondents to invoke the bank guarantees by giving an elastic meaning to ‘special equities’ (applicable in cases of bank guarantees) and stated that had the Petitioners not been prevented by the unprecedented Pandemic and the subsequent Lockdown, they would have fulfilled their obligation in time.
Indrajit Power Private Ltd. v. Union of India and Ors. (Delivered on 28/04/2020):
However, in this case, the same benefit was not given as the Petitioners even after being given an extension of 12 months did not fulfill their obligation. They, therefore, were not allowed to piggyback on the Pandemic and Lockdown as the reason for non-compliance and fulfillment of the contract. As a result, the petition was dismissed.
- Force Majeure Event: As mentioned earlier, Force Majeure is a contractual making and not a statutory one. What can and cannot fall in the ambit of this clause would depend on the drafting of the contract. Therefore, how the contract is drafted, especially the force majeure clause will determine its scope and its repercussions if and when the need arises.
The clause may be exhaustive or non exhaustive.
If it is exhaustive and close-ended, that is where much thought hasn’t been given to it and simply reference has been made to for instance wars, earthquakes, floods and events beyond the parties control, it might create interpretation difficulties in COVID-19 times as one cannot simply presume ejusdem generis and that is precisely why consensus ad idem is an essential ingredient of a contract.
If it is non-exhaustive and open-ended wherein reference is made to acts of nature, acts of man and at times even phrases like ‘beyond the parties reasonable control’ places the parties in a better position for interpretation purposes but again it must not be used any and every time and that is precisely why each case has to be seen in the light of its own facts and circumstances as illustrated above.
COVID-19 as a pandemic, causing lockdowns in almost all countries has brought forth the loopholes in the force majeure clause that may be misused by some parties and at the same time has served as a precaution and a lesson for potential parties and counsels engaging in Contract Drafting.
While writing this snippet, one thing made me wonder about acts of nature, acts of man, beyond reasonable control, and COVID-19.
Will COVID-19 be considered an act of nature or an act of man (if rumors are to be believed) and can we really say it was beyond reasonable control if the latter is true?
This article is written by Vediccaa Ramdanee, a student of the 5th year of B.A.L.L.B., at Amity Law School, Delhi – GGSIPU.
Read More on Contracts:- Difference Between Void And Illegal Contract: Everything You Need to Know