Evolution and Impact of the Force Majeure Clause

Force Majeure : A Breakdown

Force Majeure, generally referred to as “Act of God” is a French word that translates to “superior force”. A Force Majeure clause is a clause referred to in English laws majorly in contract cases. Herein the parties to a contract are freed from their obligations or duties laid down in the contract agreement between the parties. The major point that needs to be looked at is as to why and how can a party be freed from its legal obligations mentioned in a contract without fulfilling them. 

When can Force Majeure be invoked?

The clause of Force Majeure comes into play in situations wherein both or either one party to the contract is unable to fulfil his legal obligation mentioned in the Contract due to an exceptional instance or event like epidemic, earthquake, tsunami, riots, etc. that is not in any manner within the control of the party to the contract.

Generally, a Force Majeure clause does not extinguish the liability of the party, instead it suspends it during a particular time period. 

An important thing we need to realise is that, the Force Majeure clause is a clause that has unlike to the popular belief very rare usage.

Now, having understood the basic of what “Force Majeure” clause means and stands for, let us legally understand as to the grounds on which it can be invoked.

There are three basic points that need to be looked into by the Courts before invoking the Force Majeure Clause:

1. Impossibility of the Contract
2. Temporary test
3. Availability of Alternative Means

• Impossibility of the Contract:

The party to the contract wishing to invoke the Force Majeure clause has to satisfy the Court that under the exceptional circumstances that arose, it was impossible for the party to fulfil the legal obligations he was sworn to do under the contract agreement.

• Temporary Test

The Court will look into the exceptional circumstance that arose and will look into the nature and impact it has on the party to the contract. The Court will specifically notice the fact that whether the impact it has on the party is temporary or permanent in nature in regard to the party’s legal obligation prescribed in the contract agreement at hand. Only in cases wherein the impact of the exceptional circumstance is permanent in nature, will the Court invoke the clause to extinguish the legal liability of the party, otherwise the court will invoke the clause only to suspend the legal obligation during the time period in which the exceptional circumstance was believed to impact the party.

• Availability of Alternative Means

The party wishing to invoke the Force Majeure clause has to satisfy the Court of the fact that they have no alternative means to fulfil their legal obligations to the contract in the present exceptional circumstances. Only in absence of any other available means to fulfil the legal obligations, will the Court invoke the clause.

Important List of Authorities vis-à-vis Force Majeure

1. House of Lords – 1962 – Suez Crisis Case
2. Hong Kong – 2003 – Tenancy Issue during SARS virus 
3. Supreme Court of India – 2017 – Energy Watchdog Case

1. Suez Crisis Case

The House of Lords in the case of Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH^[1] dealt with a case regarding the “Force Majeure” clause. The basic facts of the case stood as under. A trader had taken up a contract to deliver goods from Mumbai to London. During the Second Arab-Israel War or as popularly known as the ‘Suez Crisis’, the trader could not use the Suez Canal owing to the war. Thereby, the trader went to the Court to nullify the contract owing to the fact that he could not travel via the Suez Canal. The Court found that the trader had another route, via the Cape of Good Hope available, only that it was comparatively very expensive. 

The Court herein held that in cases where the act that needs to be done as per the legal obligation is not impossible to do. If the act is impossible to be done in the manner it was originally done, then the party should avail the alternative means of fulfilling the legal obligation irrespective of the fact that the alternative mean available would be costly. The Court clearly laid down in the case that if any alternative mean of fulfilling the legal obligation is available to the party, then the “Force Majeure” clause cannot be invoked, and the party cannot escape the legal obligations undertaken by them in the contract.

2. Tenancy Issue during SARS virus

The Hong Kong Courts in the year 2004 dealt with a tenancy case. The basic facts of the case stood as under. A person had contracted a two year tenancy agreement with the landlord. On the spread of SARS virus, the government issued an order for isolation of the area for a period of 10 days. The tenant on the spread of the virus vacated the premises and moved in with his family. Post the expiry of the isolation period the tenant returned to the city and communicated to the landlord that he was terminating the tenancy agreement. 

The Court herein held that yes, there did arise an exceptional circumstance with the outbreak of SARS virus, but the isolation period was of ten days, and the tenancy agreement of 2 years. Thus, the court held that the relative time of the exceptional circumstance was very minimal in comparison to the agreement that was sought to be nullified. Therefore, herein the “Force Majeure” cannot be invoked to terminate the tenancy agreement.

3. Energy Watchdog Case

The Hon’ble Supreme Court of India in the case of Energy Watchdog v. Central Electricity Regulatory Commission^[2] dealt with the “Force Majeure” clause. The basic facts of the case stood as under. A company had contracted with the CERC that the company will be providing coal to CERC. The company had proposed to deliver the coal at a price that no other company could provide for. The company provided the coal from Indonesia. Due to change in laws in Indonesia, the price of coal increased due to which the company was unable to provide coal to CERC from Indonesia at the decided price. The company tried to extinguish their liability to deliver coal to CERC at the decided price.

The Court held that the contract did not mention at any point that the coal was to be provided from Indonesia alone. Also, the company acquired the contract on the ground that they were providing coal at the cheapest price. Therefore, the Court held that the “Force Majeure” clause could not be invoked to frustrate the contract, as the company had alternate options available to them. Like the Suez Crisis case earlier dealt, the Court laid down the rule that in cases wherein any alternative means are available to fulfill the liabilities undertaken in the contract, then the party is bound to use those means, irrespective of the cost difference.

Conclusion

The amount of litigation involving the ‘Force Majeure’ clause during and post the Covid-19 world is going to be huge and strenuous at the same time. The most difficult part of such litigations is for the parties themselves to decipher whether the said clause will be engaged at all. Since the parties not many times face direct, straightforward and matter of fact dilemma but highly convoluted ones, a sound decision on the behest of the parties concerned in a contract is better for both the parties. Thus, a new dawn of litigation is going to be faced by the courts worldwide because of the disruption in social, economic and cultural lives of the people. The author would finally suggest the litigants to devise their contracts judiciously and always be aware about the ensuing laws, never undermining the uncertainty revolving in and around our lives!

^[1] [1962] AC 93

^[2] [2017] 14 SCC 80