Force Majeure Clauses In Commercial Contract: Drafting And Enforcement In India

Force majeure is a contractual provision that excuses one or both parties from performing their contractual obligations when an extraordinary event beyond their control prevents or impedes performance. The term comes from French meaning’ Superior force’ And refers to events that are so unusual and unforeseeable that they fall outside the normal risk that contracting parties are expected to bear. Under Indian law, force majeure clauses are interpreted strictly. An event that the parties did not specifically list or clearly contemplate in their contact generally does not qualify as force majeure, even if it would intuitively seem to be a force majeure event. Indian law does not have a standalone force majeure statute. The relevant statutory provisions are section 32 and 56 of the Indian Contract Act, 1872. Section 32 deals with contingent contracts: Contracts to do or not to do something if an uncertain future event happens where performance is contingent on an event that becomes impossible, the contract becomes void. Section 56 is the doctor of frustration: Where an act that is contracted to be done becomes impossible, Or by reason of some event which the processor could not prevent, unlawful, the contract becomes void. There is an important distinction between contractual force majeure clauses and the statutory doctrine of frustration. A contractual force majeure clause is a negotiated provision that the parties have specifically included to govern what happens in defined extraordinary circumstances. The doctor of frustration applies to contracts that do not have a force majeure clause or circumstances that are not covered by the clause and is a common law doctor that completely discharges the contract.

Indian courts interpret force majeure clauses strictly must specifically fall within the language of the class or be clearly within its scope to qualify. In Energy watchdog VS Central electricity regulatory commission ( 2017), Supreme Court of India held that a force majeure event must be one that makes performance impossible, not merely more difficult or more expensive. Price increases, regulatory changes that make performance more costly, and supply and difficulties that make performance harder but not impossible generally do not qualify as force majeure under the Indian strict interpretation standard. Force majeure clauses in Indian commercial contracts typically cover some or all of the following categories:

• Natural disasters – Earthquakes, floods, cyclones, tsunami, and saviour events that physically prevent performance. For supply chain and logistics contracts, natural disasters in the geographic area where goods are produced, stored, or transported are specifically relevant.
• Act of God – Abroad category that compasses natural events beyond human control or used as a catch all alongside specific natural disaster listings.
• War, civil war, and hostilities – Included armed conflict, invasion, and civil disturbance that make performance in the affected area impossible or dangerous.
• Government action and regulatory changes – Including imposed restrictions, embargoes, sanctions, and statutory changes that make performance illegal or impossible. Government actions that make performance more expensive generally do not qualify
• Strikes and labour disputes – Industrial action at the supplier’s facilities or at ports and logistic infrastructure. Some force majeure clauses exclude strikes internal to the claiming parties on workforce since this may be within the parties’ control.
• Pandemic and epidemic – Following the COVID-19 experience, Pandemic and epidemic are now almost University included in force majeure definitions in commercial contracts. The COVID-19 litigation in India produced mixed results because many existing contracts did not specifically include pandemic as a force major event, and quotes referred to in their treatment of COVID-19 restrictions under pre-existing clauses.
• Cyber-attacks and system failures – Increasingly included in force majeure Clauses as digital infrastructure becomes central to performance. Sophisticated state sponsored cyber-attacks, ransomware affecting operational systems, and denial of service attacks that prevent system dependent performance are being added to force mature definitions.

The COVID-19 pandemic generated a significant body of force majeure and caused unparalleled disruption among all sectors from manufacturing, To hospitality, Logistics, To entertainment. At the centre of countless contractual disputes created by the disruption of the pandemic was a three-word term. Force majeure is often an inconspicuous provision at the back of most contracts. However, after COVID-19 force majeure has been brought front and centre and has become the most important part of the agreement for many businesses. In some instances, businesses were able to say that COVID-19 clause meant that legally speaking, had no obligations to their counter parties in a way that provided some level of protection against contractual claims and penalties, but in other situations, poorly drafted force majeure  Clauses, Or terminations of the contracts in a narrow or vague way, resulted in lengthy and expensive litigation, or no relief whatsoever. Courts in India were not uniform in their treatment of COVID-19 force majeure claims. In the case of M/s Halliburton Offshore Services Inc. V.  Vedanta Limited (2020) The Delhi High Court held that the COVID-19 pandemic and the subsequent lockdown constituted force majeure. The court took a practical approach and allowed the contractor to invoke force majeure for the period during which the lockdown made performance impossible.

Most commercial force majeure clauses include procedural requirements that must be satisfied for the clause to be effective. These requirements are enforceable; A party that fails to comply with the notice requirements in the force majeure clause may lose the right to rely on the clause. The party claiming force majeure typically must notify the other party within a defined period of the force majeure event occurring. Standard notice periods range from a few days to 30 days. The notice must identify the force majeure event, describe its impact and performance, and estimate the likely duration. Many clauses required the claiming party to provide updates at defined intervals while the force majeure event continues, and to notify the other party promptly when the event ends. The claiming party is almost always required to use reasonable efforts to mitigate the impact of the force majeure event and to resume performance as soon as possible. A party that makes no effort to find alternative suppliers, routes, means of performance when alternatives are available may not be able to rely on force majeure. Some clauses required the claiming party to provide evidence that the force majeure event has in fact prevented performance. Government orders, official declaration of natural disaster, independent certificates from industry bodies, and similar documentation may be required. Failure to meet any of these procedural requirements can result in the force majeure clause being unavailable, even where the underline event would otherwise qualify.

DRAFTING PRINCIPLES FOR FORCE MAJEURE CLAUSES

List specific events rather than relying on general language. Given Indian court strict interpretation, the events listed in the clause defined what is covered. Include pandemic, epidemic, government impose restrictions, and cyber-attack attacks alongside the traditional categories of natural disaster, war, and strike. Define’ Prevention’ Rather than relying on’ Impossibility’. A clause that requires complete possibility of performance may be unavailable where performance is severely impaired but technically possible. Drafting the clause to cover events that ‘prevent, hinder, or delay’ performance provides broader protection than requiring impossibility. Specify the notice period, the required content of the notice, and the meaning of giving notice. The court will enforce these procedure requirements. Defined what level of effort is required to mitigate the impact of the force majeure event and to resume performance. ‘Reasonable efforts’ Is the standard in most commercial contexts, but specific mitigation obligations can be defined where appropriate. Specify the period which either party can terminate if the force majeure event has not ended. This prevents an indefinite suspension of performance that leaves both parties in limbo. Some force majeure clauses apply only to the obligations of the performing party. Mutual force majeure clauses excuse both parties’ performance obligations in defined circumstances. Where the contract includes liquidated damages for delay or non-performance, the force majeure clause should address whether a force majeure event suspends the accrual of liquidated damages during the affected period.

Indian government contracts and standard form construction contracts typically include detailed force majeure provisions that differ from commercial contract norms. The FIDIC suite of contracts, widely used in Indian infrastructure projects has specific force majeure mechanisms including a separate “exceptional events” category. Engineering, Procurement, and construction contracts typically include detailed force majeure that address multiple contractors in the same project.