Force Majeure

TOPIC: FORCE MAJEURE

Author: Prabhuti Mandhyan

INTRODUCTION

In an emerging and ushering condition of a global pandemic that the world is facing amid COVID-19 has brought economical, financial, corporate conditions to suffering catastrophic change which has shaken the world from roots and soil, where affected people have suffered from being insolvent, bankrupt, jobless, non employed during this unforeseen lockdown that filled newspapers with red letters all around either it comes to deaths caused, or jobless people laying on railway tracks to take rest which ended their lives. The world is in a condition where basic needs and basic necessities are the concern of normal to people born with silver spoons in their mouth and this article deals with the Implication of Force Majeure to add some relief or to calm the situation, as this pandemic is a long way battle for all human beings, so if its implication would add as a panacea towards depressing conditions of the agonizing economy which would help in detailed analysis and focus on its positive effects.

The term force majeure has been defined in Black Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled ’, it is derived from section 32 of the Indian contract act but these sections do not expressly define this term in a statutory manner. It finds its essence as an extraordinary event or Act of God(hurricane, flood, earthquake, volcanic eruption..etc) which prevent contractual obligation, so as to relieve parties from the impossible occurrence of that obligation, it is derived from the French language and literally means “superior force”, Webster dictionary defines force majeure as-

• The superior or irresistible force
• Event or effect that cannot be reasonably be anticipated or controlled

Section 32 of states following for a contract to contain Force Majeure clause

• There must be happening of that event
• Non-performance of contract due to happening of that event
• Performance of the contract became impossible
• No alternative mode existed for parties

A. In the Supreme Court case of  Energy Watchdog vs. CERC (2017)   the applicant Mr. Adani and other firms won bids to run a coal project, they had long term supply agreements from Indonesian companies since the coal procurement cost increased within few years of entering into the contract, the applicant argued that contract was frustrated as procurement cost increased. It was stated by Justice RF Nariman on the principle of  “Force majeure” is governed by the Indian Contract Act, 1872, Court held that rise in input price does not lead to frustration, where the alternative source of coal is available at higher prices it cannot be taken as the logical reason.

B. In the landmark case of Satyabharta Ghose vs  Mugneeram, the Supreme Court held that “The performance of an act may not be literally ‘impossible’, but maybe impracticable and useless from the point of view of the object and purpose which the parties had in mind…the performance of a contract can be said to have become impossible if an untoward event or change of circumstances beyond the contemplation and control of the parties upsets the very foundation upon which the parties rested their bargain.

C. Mc Cardie J. in Lebeaupin v. Crispin ([1920] 2 K.B. 714), 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”, undoubtedly a term of wider import. Difficulties have arisen in the past as to what could legitimately be included in “force majeure”. Judges have agreed that strikes, breakdown of machinery, which, though normally not included in “vis major” are included in “force majeure”. An analysis made in reference to “force majeure”, the intention is to save the performing party from the consequences of anything over which he has no control.

D. Under the common law, the force majeure clause has not been specifically defined. It is a contractual clause in respect of which the party can, on the occasion of specific events outside the parties’ control, cancel the contract. It only based on the connection between the event and the failure of performance, where judgment is based on the occurrence of an event, unforeseen circumstances, if no preventive measure existed to mitigate those circumstances after taking all possible measures.

FORCE MAJEURE AND FRUSTRATION OF CONTRACT

Force majeure got its positive reference from Doctrine of frustration which is enshrined in Section 56 of the Indian Contract Act 1872 which clearly states that contract frustrates when

• Where there is a valid contract
• Performance of Contract becomes impossible by way of facts or law
• The subsequent event is beyond the control of the party who intends to claim frustration and no reasonable steps could mitigate subsequent events.
• Impossibility has taken place after the performance of the contract.

Force Majeure is applicable prior to the execution of the contract and doctrine of frustration is after the execution of a contract where if circumstances equated to being impossible or unforeseen. Whereas doctrine of frustration frustrates the whole contract and make the performance of the contract void but force majeure is for a temporary or certain period of time and it is a contractual provision contemplating an event, it does not in any sense excuse parties from performing their obligation Force majeure is not specified in the contract but the frustration of contract can be claimed by parties.

Further while drafting force majeure provision enumerated events which would be in the contract according to the understanding of parties, they can be exhaustive or non-exhaustive in nature, actions which are to be taken to invoke provisions, the consequence of the occurrence of force majeure event which would excuse parties from the performance of contract wholly or partially should be explained in a detailed manner.

APPLICABILITY DURING COVID-19 PANDEMIC

A. During difficult times, as Spanish Flu in 1921, the Supreme Court held that an epidemic would not be considered as Act of God and the school district was ordered to pay since they were willing to teach and were unable to teach due to school closures. In Sandry v  Brooklyn School District exempted the school district from paying the driver for teachers his service during school closure by considering the pandemic as Act of God. In a dispute ruled by the Convention on International Sale of Goods (CISG)25 before  an arbitral tribunal under China International Economic & Trade Arbitration Commission (CIETAC) when the party did not perform the contract due to Severe Acute Respiratory Syndrome(SARS) outbreak invocation of force majeure clause was rejected since the outbreak happened two months prior to contract signing and such an impediment could be reasonably foreseen by the parties

B. In recent case  Ramanand & Ors. v.  Girish Soni & Anr[1] high court held that section 32 of the Contract Act will come into play when there exists a clause in the nature of force majeure providing for waiver or suspension of rent, Section 56 of the Contract Act is not applicable to lease agreements and other similarly situated contracts, which are executed contracts and not executory contracts for rent and lease contracts

C. WHO declared COVID-19 as pandemic and treating it as in a contract of force majeure would depend upon parties to include it in force majeure provision as it would be binding on parties wherefore it would also take into account other consideration as government restrictions, workers strike parties inability to perform their part in this pandemic and reason which actually make impossible for parties to bind with coa contract in future or during pea period of the pandemic period. other  frustration of contract can also be enforced for non-performance

D. Therefore if this situation is critically narrated from my aspect then force majeure should be a point of consideration during this period as to not serve it as an excuse by parties but if it renders any relieve to ca contractual obligation or degrading status of the economy it should be considered by the government as an important provision. Viscount Simon said in a case: “The explanation of supervening impossibility is at once too broad and too narrow. Some kinds of impossibility may in some circumstances not discharge the contract at all”[2] On the other hand, impossibility is deeply adhered to the test as in the case of  Krell v. henry

CONCLUSION

To decide on the doctrine of force majeure is complicated but it a relief for those who are actually helpless and sufferers during this period, this battle is not of an individual but for the whole country either it comes to the decision of lockdown or reviewing doctrine of force majeure we all have to stand together united to fight with falling GDP, depressing economy rates, by providing help whatever individual or government can do in their capacity so people can overcome without being in debt, insolvent or bankrupt when we enter in a phase of corona free world. With proper reference where the burden of proof lies on party which is incapable of performing, relevant information through proper inspection, analysation, deep scrutiny would help at arriving on conclusion whether force majeure should be included by parties during the contract, so this cooperative step would genuinely help parties during this unpredicted condition.

[1] Ramanand & Ors. v. Dr. Girish Soni & Anr.

[2] Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd., (1942) AC 154 at 163