THE LEGAL IMPACT OF FORCE

MAJEURE ON COMMERCIAL
CONTRACTS IN THE LIGHT OF COVID 19

BY:

MANISHA PARIDA
MADHUSUDAN LAW COLLEGE
UTKAL UNIVERSITY, BHUBANESWAR
TABLE CONTENTS _

ACKNOWLEDGEMENT:..........................................................................2
INTRODUCTION.........................................................................................3
FORCE MAJEURE: MEANING AND DEFINITION.............................3
FORCE MAJEURE IN THE TIMES OF COVID-19...............................6
STATUTORY PROVISION UNDER INDIAN LAW:..............................8
ABSENCE OF A FORCE MAJEURE CLAUSE:.....................................10
BURDEN OF PROOF...................................................................................11
NOTICE REQUIREMENT:.........................................................................12
DUTY TO MITIGATE:.................................................................................13
RELEVANT CASE LAWS:.........................................................................17
CONCLUSION...............................................................................................28

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ACKNOWLEDGEMENT
Firstly, I would like to express my heartful thanks to Mr. Amitesh Mani Singh,
SM(Law), NALCO, Bhubaneswar, for his constant guidance throughout the
process of completion of the project.

I would also like to thank the staff of the Law Department, NALCO,
Bhubaneswar, for their support and provision of relevant materials and cases
that contributed to the successful completion of the project.

Manisha Parida
6th Semester, B.A.LL.B.
Madhusudan Law
College Cuttack, Odisha

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INTRODUCTION

 FORCE MAJEURE- DEFINITIONS AND MEANING:

Force-majeure is a term that has its origin in the French language meaning “a
superior force”. The term force majeure which seems to have been borrowed
from the Code Napoleon had received interpretation in several decisions of
the English Courts in earlier years. In Matsoukis v. Priestman and Co.1,
Justice Bailhache opined that force majeure would include strikes and break-
down of machinery but not bad weather, football matches, or a funeral. In
Lebeeaupin
v. Crispin2, Justice McCardie had observed: “A force majeure clause should
be construed in each case with close attention to the words which precede or
follow it, and with due regard to the nature and general terms of the contract.
The effect of the clause may vary with each instrument.”

According to contract law, a ‘force-majeure’ can be defined as “an event that

can be neither anticipated nor controlled and prevents someone from
completing something that he/she has to do. This includes both, acts of god
(i.e. cyclone and flood) and acts of people (i.e. riots, strikes, and war)3. In
other words, ‘Force Majeure refers to “events that are outside the control of
the parties and which prevent one or both the parties from performing their
contractual obligations”4.

The Supreme Court of India reaffirmed the law of force majeure in the case of
Energy Watchdog v. Central Electricity Regulatory Commission & Ors. and

1
(1915) 1 K.B. 681
2
(1920) 2 K.B. 714
3
Black’s Law Dictionary, 11th Edition; @ Pg. 788
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4
P. Ramanatha Aiyar’s Advanced Law Lexicon, 5th Edition; @ Pg. 2077

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 established the following factors to consider while utilizing a force majeure
clause:

i. The basis of such a clause is that the events are beyond the reasonable
control of the parties and in such conditions parties cannot be held
liable for non-performance of obligations in the contract.
ii. The occurrence of the event has actually rendered the performance
impossible or illegal.
iii. For any event to qualify as a force majeure, it is necessary that the
same is unavoidable by the parties even taking all the measures
necessary or capable in their capacity.
iv. While analyzing the force majeure clause or considering the force
majeure event, it is also necessary to take into consideration that the
best endeavors have been taken to mitigate force majeure events.
{blog ipleaders}

The doctrinal threshold of force majeure, frustration and impossibility is

constituted by the following important considerations that parties should bear in
mind.

1. Unforeseeability of event

The foremost consideration that Courts examine when deciding a force majeure
claim is whether the event that has rendered performance impossible and/or
illegal was unforeseeable to the parties during their negotiations and execution
of the contract. As a corollary, events that could have been anticipated in the
normal conduct of business and trade – fluctuation in price and disturbances in
the execution of a contract – are not considered unforeseeable and are deemed
to be within the contemplation of parties at the time of contracting.5 The
unforseeability

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5
Alopi Prashad & Sons v. UOI AIR 1960 SC 588 (‘Alopi Parshad’).

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of the event is partly adjudged by the unique nature of the event as well as its
consequence on the contract. In making this determination, Courts inquire into
what was within the reasonable commercial contemplation of parties at the time
of contracting. Foreign disturbances6, change in the law7, refusal of regulatory
permission8, injunction orders by Courts,9 and natural calamities10 have all been
held to be unforeseeable events, thereby allowing a force majeure claim. The
unforseeability of an event will also be determined by the scope of the relevant
force majeure clause, if any. The categories of events listed therein – can
provide guidance as to the nature of events the parties contemplated as
providing a basis for force majeure.

2. Purpose of the contract must be materially impacted

In addition to a force majeure event being unforeseeable, it must be of such a

character that it materially impacts the purpose of the contract and thereby
excuses performance.11

In determining whether the purpose of the contract has been materially

impacted, the Court distills the contract into the essential obligations of the
parties under the contract, analyses whether the performance of these core
obligations has been rendered impossible, and whether parties should be
consequently excused from their performance. In making such a determination,
Courts are faced with a fact sensitive determination and are guided by the
purpose of the contract and the obligations that were assumed by the contracting
parties. Conceptually, it is important to clarify that where an unforeseeable
event has occurred, but has not
6
Raj Kumar Hem Singh v. Union of India and Ors. 2013 SCCOnline Del 3049.
7
Boothalinga Agencies v. VTC Poriaswanmi AIR 1969 SC 110 (‘Boothalinga Agencies’); Malikarjunappa
Basvalingappa v. Siddalingappa (1973) 3 SCC 180.
8
Parsa Kente Collieries Ltd v. Rajasthan Rajya Vidyut (2019) 7 SCC 236; Food Corporation of India v. ITC Ltd
(2019) 7 SCC 236.
9
HPA International v. Bhagwan Das Fatehchand (2004) 6 SCC 537; V.R. Mohanakrishnan v. Chimanlal Desai and
Co. AIR 1960 Mad 452.
10
Shyam Kumari and Ors. v. Ejaz Ahmad Ansari AIR 1977 All 376
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11
Satyabrata Ghose v. Muneeram Bangur AIR 1954 SC 44 at para 23 (‘Satyabrata Ghose’).

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materially impacted the purpose the contract, such an event would not constitute
a force majeure ground to avoid a contract. This is best highlighted by a close
reading of the decision of the Supreme Court in Satyabrata Ghose v. Muneeram
Bangur & Co.12. In Satyabrata Ghose, the army requisitioned certain lands that
were part of a larger residential development. The developer claimed that the
requisition was unforeseeable and rendered the performance of the contract
impossible. The Supreme Court agreed that the requisition of lands by the Army
was unforeseeable but held that it did not materially impact the purpose the
contract. The Court held that the requisition order was limited in duration and
other lands were still available for development which were untouched and
unaffected by the requisition. On an appreciation of these factors, the Court
rejected the force majeure claim. Satyabrata Ghose is instructive, as it clarifies
that a person making a force majeure claim must not only successfully
demonstrate that an unforeseeable event has occurred, but also that the said
event materially impacted the purpose of the contract. Therefore where a party
seeks to make a force majeure claim or resist one, it is important to examine the
underlying purpose of the contract and investigate whether this purpose has
actually been altered by the alleged force majeure event. It would be prudent
that this understanding of the purpose of the contract be reflected in the
pleadings of the parties.

 FORCE MAJEURE IN THE TIMES OF COVID 19

The concept of force majeure has been a hotly debated topic during this Covid
19 pandemic. Due to the pandemic, there has been delays in payments and the
parties to the contract are unable to perform their obligation within the contract
despite

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12
ibid

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wanting to. Therefore they have to resort to the “force majeure” clause in the
contract to safeguard their interests.

On 19 February 2020, the Ministry of Finance, Government of India issued an

office memorandum stating that the disruption of supply chains due to the
spread of coronavirus should fall under the purview of natural calamity and the
force majeure clause may be invoked, wherever considered appropriate,
following due procedures.

The aforementioned notification further stipulates that “coronavirus should be

considered as a case of natural calamity and force majeure may be invoked,
wherever considered appropriate, following the due procedure a force majeure
clause does not excuse a party’s non-performance entirely, but only suspends it
for the duration of the force majeure. The firm has to give notice of force
majeure as soon as it occurs and it cannot be claimed ex-post facto…If the
performance in whole or in part or any obligation under the contract is
prevented or delayed by any reason of force majeure for a period exceeding
ninety days, either party may at its option terminate the contract without any
financial repercussion on either side”. However, the aforesaid Office
Memorandum may not necessarily or implicitly serve as a binding document for
the contracting parties, being more in the form of an advisory or
recommendation.13

The office memorandum stated that force majeure may be invoked in situations
where deemed appropriate; thus it does not apply in all scenarios and will apply
on a conditional basis. The main issue here is whether or not parties to the
contracts/agreements can plead for being excused from performing their part of
the contract citing force majeure given the situation posed by the COVID-19
pandemic.

13
Office Memorandum No.F. 18/4/2020-PPD titled ‘Force Majeure Clause’, issued by Department of
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Expenditure, Procurement Policy Division, Ministry of Finance, Government of India.

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In South Delhi Municipal Corporation v. MEP Infrastructure Developers
Ltd., the Delhi High Court cited the Ministry of Road Transport and Highways
(MoRTH) circular of May 18, 2020.
The contractor, in this case, had to fulfil the payments to the employer for the
toll collected.

The judgement granted relief to the respondent South Delhi Municipal

Corporation by invoking the force majeure clause. Further, the court extended
the relief until 90 per cent of the traffic was restored like the pre-lockdown
traffic14.

 STATUTORY PROVISION UNDER INDIAN LAW AND

ABSENCE OF A FORCE MAJEURE CLAUSE

The term “force majeure” is not defined in the Indian Contract Act 1872.
However, the Hon’ble Supreme Court of India has explained the term Force
Majeure as “the intention is to save the performing party from the consequences
of anything over which he has no control15”

Even though the Indian Contract Act does not specifically explains force
majeure but it contains two sections (section 32 and 56).

 SECTION 32 OF THE INDIAN CONTRACT ACT, 1872

Section 32: Enforcement of contracts contingent on an event happening-

Contingent contracts do or not do anything if an uncertain future event

14
South Delhi Municipal Corporation v. MEP Infrastructure Developers Ltd. LPA 165/2020.

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15
(Dhanrajamal Gobindram vs. Shamji Kalidas And Co, AIR 1961 SC 1285; @ Para. 19).

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 happens, cannot be enforced by law unless and until that event has happened.
If the event becomes impossible, such contracts become void.

Illustration

(a) A makes a contract with B to buy B’s horse if A survives C. This contract
cannot be enforced by law unless and until C dies in A’s lifetime."

(b) A makes a contract with B to sell a horse to B at a specified price, if C, to

whom the horse has been offered, refuses to buy him. The contract cannot be
enforced by law unless and until C refuses to buy the horse."

(c) A contracts to pay B a sum of money when B marries C. C dies without

being married to B. The contract becomes void.

Section 32 deals with "contingent contracts", in which the 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”. When parties to the contract have a ‘force Majeure clause in
their clause, then section 32 of the contract act applies.

To establish whether section 32 can be used to invoke the ‘Force Majeure’

clause, the following factors must be taken into account-

o The contract must contain a force majeure clause,

o The parties involved must have a valid contract that they intend to
fulfill,
o A casual connection must be proved between the force majeure clause
and the hindrance that occurred while performing the contractual
obligation which makes it impossible,
o Both parties must have tried to mitigate the risk involved

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  SECTION 56 OF THE CONTRACT ACT, 1872

Section 56: Agreement to do impossible act- An agreement to do an act

impossible in itself is void.

Contract to do an act afterwards becoming impossible or unlawful.—A

contract to do an act which, after the contract is made, becomes impossible, or,
by reason of some event which the promisor could not prevent, unlawful,
becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be

impossible or unlawful.—Where one person has promised to do something
which he knew, or, with reasonable diligence, might have known, and which the
promisee did not know, to be impossible or unlawful, such promisor must make
compensation to such promisee for any loss which such promisee sustains
through the non-performance of the promise.

Section 56 states the "doctrine of frustration" based on the maxim “les noncogit
ad impossibilia” which means that the law will not compel a man to do what he
cannot possibly perform16.

Section 56 of the Act deals with the frustration of a contract and provides that a
contract becomes void, if it becomes impossible, by reason of an event that a
promisor could not prevent after the contract is made.

16
(“Interpretation of Force Majeure, Doctrine of Frustration and Clauses whether Express or Implied”, By
Siddharth Batra, published on www.realtyplusmag.com)

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Where there is no explicit or exclusive force majeure clause in a contract, then it
is dealt with by Section 56 of the Indian Contract Act 1872. In order to fall
under the ambit of Section 56, the following factors must be considered17;

o There must be a valid contract

o The contract must be yet to be performed
o The performance of the contractual obligation must become

impossible Certain Scenarios where section 56 can be applicable;

o When the fundamental basis of the contract gets destroyed

o When the law changes
o Where there is a crisis situation

In various decisions starting from Satyabrata Ghosh v. Mugneeram

Bangur to Energy Watchdog v. CERC, the Supreme Court has held that when a
force majeure event is relatable to a clause (express or implied) in a contract, it
is governed by Section 32 of the Act whereas if a force majeure event occurs
dehors the contract, Section 56 of the Act applies.

 BURDEN OF PROOF

Where a party claims that its performance was rendered impossible or illegal,
the burden of proving such a fact rests on it alone. Importantly, it is not
sufficient for a party to merely prove that an unforeseen act occurred. It must
necessarily demonstrate how the unforeseen or disruptive act actually impacted
its performance and materially impacted the purpose of the contract. Courts
have clarified that the mere invocation of a disruptive event – earthquake or
civil unrest, in and of itself, is not sufficient to prove a force majeure claim.
Parties

17
https://www.mondaq.com/india/litigation-contracts-and-force-majeure/930674/force-majeure-in-times-of-
17 | P a g e
covid-19-challenges-and-the-road-ahead

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must demonstrate, by a preponderance of probabilities, how the event impacted
the contract in question and resulted in a performance that was either impossible
or illegal18. Accordingly, the pleadings of parties must be sufficiently specific as
to the nature of the force majeure events, the manner in which it has impacted
performance of the contract and proof in support of such pleading. In the
absence of meeting this threshold, a party does not discharge its burden, and its
claim of force majeure is likely to fail.

 NOTICE REQUIREMENT

The general law of force majeure set out in Sections 56 and 32 of the Indian
Contract Act, does not impose an obligation on a party to notify the
counterparty as soon as a force majeure event occurs. However, many force
majeure clauses in commercial contracts impose clear and time-bound
obligations to notify counterparties, either when the force majeure event arises
or when performance has been rendered impossible as a result of such an event.
Courts have rejected a force majeure claim on the basis that the party did not
notify the counterparty in a prompt manner when the force majeure event first
arose19. In these instances, Courts have held that notice of the force majeure
event was not given in a time- bound manner or where it was given, it did not
detail the nature of the event and how it impacted performance of contractual
obligations. Implicit in this judicial reasoning is the idea that the genuineness of
a force majeure claim can be tested by how promptly a counterparty is informed
about a disruption that materially impacts the performance of a contract. If a
party provides notice contemporaneously with the event and details the exact
manner in which performance has been impacted, it is more likely that a
subsequent force majeure claim is genuine. On the other hand, where a party
does not give notice while a

18
National Hydroelectric Power Co v. General Electric Co Ltd 2013 SCCOnline Del 1646

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19
Housing Development and Infra Ltd v. Mumbai Airport Intl Ltd 2013 SCCOnline Bom 1513; Babasaheb v.
Vithal 2009 SCCOnline Bom 1378; BWL Ltd v. Mahanagar Telephone Nigam Ltd 2007 SCCOnline Del 1199.

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force majeure event is underway, and only notifies a counterparty much later,
there is a threat that a subsequent force majeure claim is disingenuous and is
being made with an attempt to escape contractual liability20.

 DUTY TO MITIGATE IN AN EVENT OF ‘FORCE MAJEURE’

The parties should not expect much difficulty in preparing a Force Majeure
clause that has expressed the requirement to mitigate the hindrance of the
performance of the contract as the consequence of not having a well-drafted
force majeure clause will burden the affected party with liabilities arising from
non- performance. In the Tullow Seadrill case [2018], the English Commercial
Court reiterated that such reasonable endeavors/mitigation responsibilities place
a severe burden on a party attempting to rely upon a force majeure clause. In
particular, while determining what actions it can and should do to prevent or
lessen the impacts of a force majeure occurrence, the relying party must take
into account both its own business interests as well as those of the innocent
party.

The parties can take the following actions to mitigate the effects of a "Force
Majeure" event:

o The affected party must give the other party a thorough

notification. Details should be provided regarding the nature and
scope of the Force Majeure event, any supporting documentation,
the anticipated time frame, and the impact that the event is having
on the affected party's ability to fulfil their contractual obligations.
o The affected party must take action to lessen the effects of the event.

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20
https://www.lawctopus.com/academike/the-force-majeure-clause-covid-india

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 o The parties should look into other options for performing the
contractual obligation.
o The party affected by a force majeure event shall promptly notify
other parties of the actions taken to minimise such event21.

 In the case of Gujarat Urja Vikas Limited v. Essar Power

Limited22, the Appellate Tribunal for electricity has stated that;

“59. Similarly, the explanation to Section 73 of the Indian Contract Act

provides that in estimating the loss or damage arising from breach of contract,
the means which existed of remedying the inconvenience caused by the non-
performance of the contract must be taken into account. It is the duty of the
court to take into account whether the party affected by breach Appeal Nos. 77
and 86 of 2009 of contract has performed its duty to mitigate the loss while
estimating the loss or damage arising from the breach of contract. In the present
case, the Electricity Board merely pleads that EPL has failed to declare and
supply the available capacity of electricity on proportionate basis to the
Electricity Board and nothing more.”

“61. As mentioned above, the explanation of Section 73 casts a duty to mitigate

loss on the person affected by breach of contract committed by another.”

“62. In other words, assuming that the EPL has committed a breach of contract,
the Electricity Board as the purchaser of electricity was under duty-bound
to mitigate the loss arising from such a breach.”

21
https://www.mondaq.com/india/litigation-contracts-and-force-majeure/1233892/force-majeure-a-
measure-to-mitigate-risk
22
https://indiankanoon.org/doc/56087922/

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  In Murlidhar Chiranjilal v. Harishchandra Dwarkadas23, the
Supreme Court has held as follows:

“The two principles on which damages in such cases are calculated are
well-settled. The first is that, as far as possible, he who has proved a
breach of a bargain to supply what he contracted to get is to be placed, as
far as money can do it, in as good a situation as if the contract had been
performed; but this principle is qualified by a second, which imposes on a
plaintiff the duty of taking all reasonable steps to mitigate the loss
consequent on the breach and debars him from claiming any part of the
damages which is due to his neglect to take such steps."

o In the case of Arya Antherjanam v. Kerala State Electricity

Board, the Kerala High Court has put forward certain decisions
laid down by various courts;

“18. In Thomas v. Countryside Council for Wales, 1994 (4) All ER 853,
Rougier, J. of Queen's Bench Division had occasion to consider a similar
issue-

"Under the normal law of contract and Tort, the fundamental basis for the
measure of damages is compensation for pecuniary loss which directly
and naturally flows from the breach... There is, however, a qualification
that a plaintiff suing for breach of contract or for that matter or tort cannot
call upon a defendant to pay the full direct consequences unless he
himself has acted reasonably to mitigate loss. It is sometimes loosely
described as a plaintiff’s duty to mitigate".

23
1962 AIR 366, 1962 SCR (1) 653

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19. The principle has been explained by Viscount Haldane, L.C. in British
Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric
Railways Co. of London Ltd., (1912) AC 673, as follows:--

"The fundamental basis is thus compensation for pecuniary loss naturally

flowing from the breach; but this first principle is qualified by a second, which
imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss
consequent on the breach, and debars him from claiming any part of the damage
which is due to his neglect to take such steps."

“In M. Lachia Setty and Sons Ltd. v. The Coffee Board, Bangalore 24, it was
clarified that the principle of mitigation of loss does not give any right to the
party who is in breach of the contract but it is a concept that has to be borne in
mind while awarding damages.”

24
AIR 1981 SC 162

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  RELEVANT CASE LAWS

1. SATYABRATA GHOSE V. MUGNEERAM BANGUR [1954 SCR 310]

Facts:

In this case, the defendant company started a scheme for the development of a
large piece of land into a housing colony. The plaintiff was granted a plot on
payment of earnest money. The respondent company undertook the job of
constructing roads and drains necessary for making the land suitable for
residential purposes. Before the defendant could make the above-stated
development, the considerable portion of land was required by the government
during the 2nd world War for military purposes. The defendant then attempted to
cancel the contract on the ground that because of the supervening events, its
performance became impossible. The company put forward two options to the
buyers i.e. either to take back the earnest money or to buy the entire amount to
the company and the company would continue its construction on the land once
the war is over. Satyabrata Ghose i.e. the plaintiff denied both the available
options and decided to file a suit on 18th January 1946 against Mugneeram
Bangur and the company, saying that it was bound to the terms of the contract in
January 1946.

Issues:

1. Does the contract becomes frustrated according to section 56 of the Indian

contract act?

Judgement:

In this case, 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

26 | P a g e
parties had in view" and the plea of frustration was rejected.

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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 analyzed on the basis of that, and not through the application of
principles under Section 56.

2. ENERGY WATCHDOG V. CERC (CENTRAL ELECTRICITY

REGULATORY COMMISSION)

Facts

On 1st February 2006, Gujarat Urja Vikas Nigam Limited (GUVNL) issued a
notice inviting tender for the supply of power. Thereafter, on 25 th May 2006,
Haryana Utilities issued a separate notice inviting tender for the purchase of
power.

Adani Enterprises Consortium was selected as the successful bidder in both

Gujarat and Haryana. A separate power purchase agreement was issued by both
states. A Change in Indonesian Law took place which aligned the export price
of coal to international market prices instead of prices that were prevailing for
the last 40 years.

28 | P a g e
On July 2012, the appellant filed a petition before the CERC, petition no. 155 of
2012, seeking relief due to the impact of change in Indonesian law, to either
release them from the performance obligation of PPA on the ground of
frustration or to evolve a mechanism to restore the same economic condition
that was there before the change in the law.

The CECR then passed an order that the appellant’s claim on the ground of
Force Majeure is not admissible. However, considering the larger public
interest, the central commission proceeded to grant compensatory tariffs to the
appellants.

Issues:

1. Whether the respondent is entitled to invoke and claim benefits for force
majeure?
2. What is the scope of frustration of the contract and does a mere change in
prices lead to frustration of the contract?

Judgment:

Even though there are many judgements passed by the court on this issue, but in
this particular case the court has taken effort to support the fact that “economic
hardship” cannot be considered as a “Force Majeure” event. The judgement also
has various other facets, which are as under;

“35. In M/s Alopi Parshad & Sons Ltd. v. Union of India, 1960 (2) SCR 793,
this Court, after setting out Section 56 of the Contract Act, held that the Act
does not enable a party to a contract to ignore the express covenants thereof and
to claim payment of consideration, for performance of the contract at rates
different from the stipulated rates, on a vague plea of equity. Parties to an
executable contract are often faced, in the course of carrying it out, with a turn

29 | P a g e
of events which they did not at all anticipate, for example, a wholly abnormal
rise or fall in prices

30 | P a g e
which is an unexpected obstacle to execution. This does not in itself get rid of
the bargain they have made. It is only when a consideration of the terms on
Page 38 of the contract, in the light of the circumstances existing when it was
made, showed that they never agreed to be bound in a fundamentally different
situation that had unexpectedly emerged, that the contract ceases to bind. It was
further held that the performance of a contract is never discharged merely
because it may become onerous to one of the parties.”

“37. It has also been held that applying the doctrine of frustration must always
be within narrow limits. In an instructive English judgment namely,
Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH[1961 2 WLR 633], 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 in that case was not frustrated, even though it
would have to be performed by an alternative mode of performance 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. Despite this, the House of
Lords held that even though the contract had become more onerous to perform,
it was not fundamentally altered. Where performance is otherwise possible, it is
clear that a mere rise in freight price would not allow one of the parties to say
that the contract was discharged by impossibility of performance.”

“38. This view of the law has been echoed in ‘Chitty on Contracts’, 31st
Edition. In paragraph 14-151 a rise in cost or expense has been stated not to
frustrate a contract. Similarly, in ‘Treitel on Frustration and Force Majeure’, 3rd
Edition, the learned author has opined, at paragraph 12-034, that the cases
provide many illustrations of the principle that a ‘force majeure’ clause will not
normally be construed to apply where the contract provides for an

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alternative mode of

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performance. A more onerous method of performance by itself would not
amount to a frustrating event. The same learned author also states that a mere
rise in price rendering the contract more expensive to perform does not
constitute frustration.”

“39. Indeed, in England, in the celebrated Sea Angel case, 2013 (1) Lloyds Law
Report 569, the modern approach to frustration is well put, and the same reads
as under

111. In my judgment, the application of the doctrine of frustration requires a

multi-factorial approach. Among the factors which have to be considered are the
terms of the contract itself, its matrix or context, the parties’ knowledge,
expectations, assumptions and Page 40 contemplations, in particular as to risk,
as at the time of the contract, at any rate so far as these can be ascribed mutually
and objectively, and then the nature of the supervening event, and the parties’
reasonable and objectively ascertainable calculations as to the possibilities of
future performance in the new circumstances. Since the subject matter of the
doctrine of frustration is contract, and contracts are about the allocation of risk,
and since the allocation and assumption of risk is not simply a matter of express
or implied provision but may also depend on less easily defined matters such as
“the contemplation of the parties”, the application of the doctrine can often be a
difficult one. In such circumstances, the test of “radically different” is
important: it tells us that the doctrine is not to be lightly invoked; that mere
incidence of expense or delay or onerousness is not sufficient; and that there has
to be as it were a break in identity between the contract as provided for and
contemplated and its performance in the new circumstances.”

According to the court, to claim the contract is frustrated, it must establish that
the performance of the contractual obligation become impossible and not
merely onerous. It was not mentioned anywhere in the Power Purchase
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Agreements with

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the states of Haryana and Gujarat that the coal is to be brought exclusively from
Indonesia or at a certain price. Moreover, it was mentioned in the PPA that the
entire coal has to be supplied by the person who sets up the power plant i.e.
Adani Enterprises. The change in Indonesian Law which increased the prices of
coal did not alter the fundamental basis of the PPA agreement i.e. to supply coal
to the state. There are various ways to fulfill the obligations of the contract.

3. ALOPI PRASAD AND SONS LTD. V. UNION OF INDIA

The relevant portion of this judgment reads as follows:

“Performance of the contract had not become impossible or unlawful; the

contract was in fact performed by the Agents, and they have received
remuneration expressly stipulated to be paid therein. The Indian Contract Act
does not enable a party to a contract to ignore the express covenants thereof, and
to claim payment of consideration for the performance of the contract at rates
different from the stipulated rates, on some vague plea of equity."

"There is no general liberty reserved to the courts to absolve a party from

liability to perform his part of the contract, merely because on account of an
uncontemplated turn of events, the performance of the contract has become
onerous."

"...no matter that a contract is framed in words which taken literally or

absolutely, cover what has happened, nevertheless, if the ensuing turn of events
was so completely outside the contemplation of the parties that the court is
satisfied that the parties, as reasonable people, cannot have intended that the
contract should apply to the new situation, then the court will read the words of
the contract in a qualified sense; it will restrict them to the circumstances
contemplated by the parties; it will not apply them to the uncontemplated turn of
events, but will do therein what is just and reasonable."

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 4. HALLIBURTON OFFSHORE SERVICES INC. V. VEDANTA
LIMITED

Facts of the case

The genesis of the present dispute emanates from an international tender floated
by the Respondent in 2018 for the integrated development of three-block fields
via the building of oil wells and rigs in the State of Rajasthan. Pursuant to the
bidding process, the Petitioner was awarded the contract in April 2018. The
Contract executed between the Parties mandated submission of eight bank
guarantees which were issued by ICICI Bank, Respondent No.2 and submitted
by the Petitioner. The relevant chronology of facts which led to the present
dispute is that while the project was nearing completion the project could not be
completed owing to restrictions imposed by the Government of India vide its
Circular dated 26.03.2020 due to Covid-19. Accordingly, the Petitioner invoked
the Force Majeure Clause of the Contract.
In essence, the case of Petitioner was that it was unavoidably handicapped in
performing the contract as the performance of the contract required travel of
person from overseas, as well as workmen from various parts of the country. In
reply, the Respondent countered the contentions of the Petitioner by arguing
that the production of petroleum was an “essential commodity” and therefore
was exempted from various orders relating to the restrictions imposed owing to
Covid-19. Accordingly, the Petitioner with an intention to arbitrate the above
dispute approached the Hon’ble Delhi High Court under Section 9 of the Act,
1996 apprehending the termination of the Contract by Respondent and
subsequent invocation of the bank guarantees. During the course of the Court
proceedings, the Petitioner informed the Court that the Respondent had

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terminated the contract and had written to the Bank for invocation of the eight
bank guarantees.

The Delhi High Court was of an unequivocal opinion that:

“62. 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. Every breach or non-performance cannot be justified or excused merely on
the invocation of COVID-19 as a Force Majeure condition. The Court would
have to assess the conduct of the parties prior to the outbreak, the deadlines that
were imposed in the contract, the steps that were to be taken, the various
compliances that were required to be made and only then assess as to whether,
genuinely, a party was prevented or is able to justify its non-performance due to
the epidemic/pandemic”.

Further, while discussing the scope of the force majeure clause in contracts it
was observed by the court that:

“Para 63. It is the settled position in law that a Force Majeure clause is to be
interpreted narrowly and not broadly. Parties ought to be compelled to adhere to
contractual terms and conditions and excusing non-performance would be only
in exceptional situations. As observed in Energy Watchdog it is not in the
domain of Courts to absolve parties from performing their part of the contract. It
is also not the duty of Courts to provide a shelter for justifying non-
performance. There has to be a ‘real reason’ and a ‘real justification’ which
the Court would consider in order to invoke a Force Majeure clause”.

The lockdown caused due to the pandemic of COVID-19 could invoke the
Force Majeure clauses in a contract, however, parties cannot take shelter under
this situation to hide contractual breaches that have occurred before or escape
from
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their contractual obligations. As held by the Delhi High Court in the present
case “Parties ought to be compelled to adhere to contractual terms and
conditions and excusing non-performance would be only in exceptional
situations.”

5. DHANRAJAMAL GOBINDRAM v. SHAMJI KALIDAS & Co.25

The relevant portion of this judgement reads as follows:

"2. ..............We confirm having sold to you African raw cotton on the following
terms and conditions subject to the usual Force Majeure Clause. "

"17. McCardie 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". It is 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 of rulings
on the subject into which it is not necessary in this case to go, shows that 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. This is
the widest meaning that can be given to "force majeure", and even if this be the
meaning, it is obvious that the condition about "force majeure" in the agreement
was not vague. The use of the word "usual" makes all the difference, and the
meaning of the condition may be made certain by evidence about a force
majeure clause, which was in contemplation of parties."

25
AIR 1961 SC 1285

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"19 The addition of the word "usual" refers to something which is invariably
to be found in contracts of a particular type. Commercial documents are
sometimes expressed in language, which does not, on its face, bear a clear
meaning. The efforts of Courts is to give a meaning, if possible. "

"20. Applying these tests to the present case and in the light of the provisions of

s. 29 of the Indian Contract Act, it is clear that the clause impugned is capable
of being made certain and definite by proof that between the parties or in the
trade or in dealings with parties in British East Africa, there was invariably
included a force majeure clause of a particular kind.

In our opinion, the contract was not void for vagueness or uncertainty by
reason of the reference in the terms stated, to the force majeure clause."

In the present case, Messrs Dhanrajamal Gobindram (buyer) entered into an

agreement with Messrs Shamji Kalidas & Co. (seller) for the purchase of 500
bales of African raw cotton. The contract was in the form of a letter written by
the sellers and confirmed by the buyers. The contract was not performed. The
seller wrote 5 letters to the buyer between March 1, 1958 and May 26, 1958 but
received a reply only on June 3, 1958. The seller had by that time exercised its
right of resale after giving notice and claimed Rs. 34,103.15 np. for which a
debit note had been issued. The note was returned by the buyer with a letter
dated June 3, 1958 stating that the contract was void and illegal and they were
not obliged to perform it. The contract in this case used the words "usual force
majeure clause". There is no clear force majeure clause in the contract or no
contractual provision stipulating as to what events shall constitute force
majeure.

The Hon'ble Court observed "usual" refers to something which is invariably to

be found in contracts of a particular type. Commercial documents are

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sometimes expressed in language which does not, on its face, bear a clear
meaning. The effort

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of the court is to give it a meaning, if possible. The Hon'ble Court dismissed the
present appeal made. The contention advanced that the contract is vague on
account of the vagueness and uncertainity in the aforesaid terminology in
contract "usual force majeure clause", was rejected.

Therefore, the principle underlying the aforesaid judgement is where in a

contract, the reference is made to force majeure, the intention of the parties is to
save the performing party from the consequences of anything over which it has
no control. If this is the underlying meaning that comes out from the specified
contractual provision, that condition about force majeure cannot be considered
vague. Even if there lies some vagueness in such a clause, it is capable of being
made certain and definite based on the dealings of the parties in the ordinary
course of business and other related proofs.

6. In COSID Inc v. SAIL26, the Delhi High Court was deciding whether a
foreign arbitral award ought to be enforced in India. The contract was governed
under Indian Law. The arbitral tribunal rejected SAIL’s plea of force majeure
and awarded damages against it. The foreign party sought enforcement of the
award in India against SAIL. The Delhi High Court, upon a review of the
reasoning of the tribunal noted that its appreciation of SAIL’s force
majeure claim was incorrect and enforcing the award against it would violate
the public policy of India. The Delhi High Court accordingly refused
enforcement.

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26
COSID v. Steel Authority of India Ltd. AIR 1986 Del 8 (‘COSID’)

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CONCLUSION

Force Majeure has always been a crucial and important aspect of law due to the
protection that it provides when used by the parties to a contract. The case laws
have made it clear that making a force majeure claim is not always successful.
In order for a party to be relieved from the performance of its bargain, without
the levy of damages it must successfully meet a range of considerations. First,
the event must be unforeseeable to the parties and not within their reasonable
contemplation at the time of contracting. Second, the event must have a material
impact on the very purpose of the contract. Third, if the written contract has a
force majeure clause, the said stipulation will have to be examined to determine
whether the event in question qualifies as a force majeure event and if so, what
impact it has on the contract. Even if these considerations are met, the party
making a force majeure claim may be required to give timely notice of the event
and its impact on its performance and will have to discharge the requisite
burden of proof placed upon it.

However, due to the disruption created by the COVID-19 pandemic, force

majeure has gained a considerable amount of attention. In the wake of the
pandemic, we explore a range of possible speculations on the future
development of the law on force majeure. Given the duration of India’s
lockdown measures, many ‘non-essential businesses’ were forced to close for a
long period of time. Even as the economy opens up and works to rebalance
itself, a disruptive effect on business and trade is likely to be felt for some time.
In this context, there is an intuition that the frequency of force majeure claims
are likely to increase as business will eagerly look to renegotiate their contracts
and/or seek to be relieved from their previously concluded contracts. While
checking whether the Covid-19 pandemic (and/or actions by authorities in
response thereto) fall within the scope of the relevant force majeure clause is a
good starting point, issues such as causal link and duty to mitigate also need to

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be examined in order to assess the relative

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strengths and weaknesses of such party’s stand. Relevant letters and
correspondence (including force majeure notices) should also meticulously
document not just the fact that a force majeure event has occurred, but also the
specific effects of the same on the contractual obligation which the party seeks
to be excused from performing.

The situation on account of the outbreak of corona virus, the subsequent lock
downs and restriction on movement as declared by the Government and a halt to
the economic activities is something which no reasonable and average
contracting party could have foreseen. Based on the current jurisprudence as it
stands, the aforesaid exceptional circumstances may only result in litigation in a
catena of commercial contracts. It is then a matter of interpretation by the courts
whether a contract containing force majeure clause would cover such
restrictions in movement and lock downs imposed by the Government. The
recent interim Order of the Hon'ble High Court of Delhi in M/s Halliburton
Offshore Services Inc.
v. Vedanta Limited (supra) is certainly a step in evolving the jurisprudence in
this direction.

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