[Force Majeure] Taking Cue From Courts: What Worked, What Didn't

Till not so long ago 'Force Majeure' was a concept that was seldom used and largely overlooked and the force majeure clause, if incorporated in an agreement, was largely skipped over by lawyers hurrying to read a contract. All that has changed in the space of a few months and there is no concept more important now than the humble 'Force Majeure'. That the jurisprudence on Force Majeure was also not particularly vast with the judgments of Satyabrata Ghose v Mugneeram Bangur Co[1] and the more recent Energy Watchdog v CERC & Ors[2] being the few judicial pronouncements offering insights as to how the said concept would be interpreted either by way of a clause in the contract in terms of Section 32 of the Indian Contract Act, 1872 or as part of the doctrine of frustration/impossibility to act in terms of Section 56 of the Indian Contract Act, 1872. For the most part though, lawyers were largely at sea as to how the Courts would consider the invocation of the said concept in the context of the nationwide lockdown brought on by the Covid 19 pandemic and the general suspension of economic activity. Few months in the lockdown and we now have a gradually evolving jurisprudence on Force Majeure as several judgments have been passed by the High Courts with regards to interpretation and applicability of the doctrine of Force Majeure. This article attempts to highlight what has worked and what has not when a party has sought to invoke the said concept in the context of Covid-19 induced Lockdown and suspension of economic activity. CASE & FACT SPECIFIC The one takeaway from the way Courts have dealt with cases involving invocation of doctrine of force majeure is that there cannot be a straightjacket, universal, one-size-fits-all applicability of the said doctrine and each case where the said doctrine is sought to be invoked would be considered on its unique fact situation to render a finding as to whether the said doctrine stood attracted or not. In 'M/s. Halliburton Offshore Services Inc v Vedanta Ltd & Anr[3]', High Court of Delhi inter alia, held that "The question as to whether COVID-19 would justify non-performance or breach of a contract has to be examined on the facts and circumstances of each case." PAST PERFORMANCE /CAUSAL RELATION OF FORCE MAJEURE EVENT TO THE BREACH When seeking to invoke and rely on force majeure clause to seek dispensation of a performance obligation under the contract, what has been one of the determining factors has been the past performance under the contract by the party seeking to invoke force majeure to seek discharge of a performance obligation under the contract or deferment of the same. The Courts have undertaken a fact-finding exercise to ascertain whether the breach is due to the force majeure event or past non-performance by a party and in case it is the latter, they have held that the force majeure clause will not come to the aid of the defaulting party. In 'Halliburton' (supra), it was inter alia, held that: "The outbreak of a pandemic cannot be used as an excuse for nonperformance of a contract for which the deadlines were much before the outbreak itself. The general rule of thumb that emerges is that if there is prior or continuing breach by a party, then the doctrine of force majeure cannot be pressed into service to justify the same and the party would be bound by the consequences of the said breach. On the other hand, if a party can establish from record that it had been steadfast in its performance under the contract and it is only the intervening force majeure event which has made the performance of the same virtually impossible, then arguably such a party would be likely to succeed in its invocation and reliance on the force majeure clause. EXISTENCE OF A REAL IMPOSSIBILITY TO ACT For a successful invocation of the doctrine, one must establish that the force majeure event has made performance of the contract completely or essentially impossible. In Standard Retail Pvt. Ltd vs GS Global Corp[4], High Court of Bombay refused to grant Petitioner's prayer of restraint qua encashment of Letters of Credit citing prevalence of force majeure conditions, inter alia, on the ground that there was not a real impossibility to act and inter alia, held : "The Notifications/Advisories relied upon by the learned Senior Counsel for the Respondent No. 1 does suggest that the distribution of steel has been declared as an essential service. There are no restrictions on its movement and all ports and port related activities including the movement of vehicles and manpower, operations of Container Freight Station and warehouses and offices of Custom Houses Agents have also been declared as essential services." GOVERNMENT CIRCULARS That the various Ministries and Departments of Government of India as also those of several State Governments have issued ...

[Force Majeure] Taking Cue From Courts: What Worked, What Didn't

Kanika Singh

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