What is force majeure?
Generally, a force majeure event is defined as any circumstance which is beyond a party’s
control. In India, the law on force majeure is embodied under sections 32 and 56 of the Indian
Contract Act, 1872 (“Contract Act”).
The occurrence of any force majeure event excuses a party from performing its part of the contract. The intention behind inserting such a clause is to condone parties from liability under a contract that has been rendered impossible to perform due to materially changed circumstances owing to reasons over which both the parties had
absolutely no control. It can also be said that such an event is an exception to the breach of
contract. In most of the contracts, unless otherwise stated, the force majeure clause does not
absolve a party from the performance of the contract completely and requires it to perform that part
of the contract which is not affected by the force majeure event.
Since the widespread reporting of cases of Coronavirus (“Covid-19”) around the world, many
countries have imposed travel bans, citizens have been quarantined and the infected persons have
been isolated to stop the proliferation of the virus. Amidst such an outbreak, the commercial
sector has been impacted to a significant extent. With emergency measures being put into place
by numerous countries including India, which is a lockdown to contain the deadly
virus, many suppliers are not able to fulfill their contractual obligations within the agreed time
limit. They have either delayed the supply of goods or have sought to terminate their contract.
They are favoring termination of contract majorly because Covid-19 has justifiably prevented
them from performing their obligation as per the contract or to save themselves from unfavorable
deals owing to the fact that Covid-19 has materially changed the circumstances. In light of such a
critical situation, many companies have either sought to terminate the contract or use the
epidemic as the basis for renegotiating the terms of the contract. Consequently, the pertinent
question which arises is – Can Covid-19 be considered as a force majeure event?
Language of the force majeure clause by which a party can validly excuse itself from
performance of the contract
A force majeure clause often includes a list of events, an occurrence of which may excuse a party
from performing it. Under the Indian laws, a force majeure clause must be strictly construed, i.e.,
only those events which are explicitly mentioned in the contract can excuse a party from
performing. If “pandemics” have been specifically included in the force majeure clause of a
contract, then it shall be very easy for a party to invoke the same to excuse performance due to
Covid-19, given that its outbreak has been declared to be a pandemic by WHO in March. But
the problem arises when parties have not explicitly mentioned such a term.
If parties use catch-all phrases like the “clause will cover all other events which are beyond the control of the parties” or“any other similar event”, then the scope of invoking the force majeure clause will depend upon its wording and the specific events mentioned it. In such cases, the common law jurisprudence says that the doctrine of ejusdem generis shall be applicable, i.e., only such events which are mentioned in the provision must be used. For example, if the clause uses the words “acts of God, boycotts, strikes, riots or any other similar event”, then in such cases an event beyond the scope of the aforementioned events, such as a third party suddenly rescheduling delivery, cannot be used as a ground to invoke the force majeure clause despite the event being outside the control of both the parties since from the wording it cannot be contemplated that the parties intended to cover even such an event.
In Seadrill Ghana Offshore v Tullow, the England and Wales High Court had said that for a party
to rely upon a force majeure event, such event must be the sole operative reason because of
which the party is unable to perform the contract. This means that if a party is affected by Covid19 but is also affected by some other reason which is hindering the performance of the contract, then
the party cannot rely upon the force majeure clause.
The court also said that the parties must make reasonable efforts to overcome such force majeure events and while making the endeavors must weigh their own business interest with that of the other parties. In Classic Maritime Inc v
Lembongan Makmur, it was said that if performance of the contract is possible in an alternate
way, then the party must seek to perform the contract in that manner before invoking the force
majeure clause.