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This article is written by Shaily Garg, a Fourth year B.Com. LLB (Hons.) Student of University Institute of Legal Studies, Panjab University, Chandigarh.
Dealing with the issue of contracts, this COVID-19 pandemic has forwarded many new aspects in this area, one of which includes the Force Majeure clause that highly impact formal contracts. The supply chains caused by the pandemic have delayed, interrupted, and even cancelled many contracts. This article deals with providing an overview related to force majeure clauses, their functions, and consequences.
Overview: Force Majeure and Its Implications
The common law of contract proceeds from the basis that liability for non-performance of contractual obligations is strict. Apart from those cases where the promise is to supply personal services, where the presumption is that the promisor undertakes only to exercise due care in performing his or her duties under the contract, inability to bring about the state of affairs promised within the contract will, without more, amount to a breach of contract and give a hike to a claim for damages.
However, it may be possible that a promisor does not wish to assume such an absolute risk and he is free to demit the extent of the obligation in any way he chooses, subject to the agreement of promise and mandatory rules of law. The promisor may be unwilling to simply accept the danger of events over which he has no control and a contract may typically provide that “the promisor shall not be responsible for any losses occasioned by Act of God, strike, lockout, riot or civil commotion, breakdown of machinery, fire or any cause contemplated in the term Force Majeure”. Such clauses are generally referred to as force majeure clauses.
What is Force Majeure?
Force majeure is derived from the French term which means “superior force” and hence literally means “superior strength”. It contains a list of those events or effects that cannot be reasonably anticipated and uncontrollable such as an act of God, terrorism, war, labor stoppages, epidemics, or extreme weather. Therefore, force majeure is a contractual provision that exempts the party from liability or obligation of performing a task that becomes impossible and impracticable due to such unpredictable and intractable events.
Force majeure has not been defined in any of the Indian statutes. However, some of its credentials have been found in Section 32 and Section 56 of the Indian Contract Act, 1872. Section 32 deals with “contingent contracts”, where the accomplishment of the contractual obligations is contingent on the happening or non-happening of an event. If the event becomes “impossible”, the contract becomes “void” under this section.
Section 56 envisages “doctrine of frustration”, where an agreement to do an act impossible in itself is void and a contract to do an act which, after the contract is made, becomes impossible, or owing to some event which the promisor could not intercept, unlawful, becomes void when the act becomes impossible or unlawful. The Central Principle which has been recognized by the Courts is that to constitute force majeure an event must have been irresistible, unforeseeable, external to the debtor, and must have made performance impossible and not merely more onerous or difficult.
Are Force Majeure Clauses Exclusion Clauses?
The question which must be addressed is whether or not a force majeure clause is solely a variant of that other well-known device excusing non-performance, the exclusion or exemption clause. One method of resolving this issue might be to approach the question inductively and ask how the court treats force majeure clauses: do they apply to them the strict rules of construction reserved for exclusion clauses, and do they place the burden of proof on the promisor to prove that he or she comes within the words of the clause?
To differentiate between the exclusion clause and a force majeure clause, we must first define what we mean by the exclusion clause and examine its effect on the contractual relation of the parties. In the exclusion clause, there is no breach of contract since there is no obligation to perform in the circumstances which have arisen, whilst in the force majeure clause, there is a breach but the liability to pay damages in respect of it has been removed. One consequence of the latter approach is that if a clause falls within the second category it is construed separately from the remainder of the contract.
The function of Force Majeure
The function of force majeure is essentially to set a limit to strict liability. It was held that contractual liability is based on fault. It is only in those exceptional cases that force majeure can be relevant since in the ordinary situation all that is necessary to exclude liability was the absence of fault.
In the present scenario, the law has come to recognize in this connection two broad categories of obligation to which a contract can give rise. First is obligations de moyens i.e. due care, where the party is obliged only to exercise reasonable care and second is obligations de resultat i.e. performance requirement, where the party is obliged not simply to show due diligence, but to achieve the result envisaged. If he fails to do so, he is accountable for damages.
The consequences of Force Majeure
Force majeure makes the performance of the obligation or obligations in question wholly or permanently impossible, however, there is another consequence where an obligation to do the impossible is void (impossibilium nulla obligatio) which means the contract should necessarily be void where the obligations are essential for debtor’s performance as a whole.
For example, the contract has been performed partially in part before the force majeure supervenes, or where the force majeure does not wholly or permanently prevent performance, the court may indeed rescind the contract and order restitution, but it may also repudiate to do so. Therefore, this introduces a considerable element of flexibility into the apparent rigor or rigidity of the rules of force majeure.
This has a disadvantage also. Recession, if granted, is retrospective to the beginning of the contract. This has the corollary that restitution must be made from benefits received by each party. This, though it may be satisfactory in cases of breach, could also be inadequate in cases of non-performance because of force majeure. For example, one party has incurred expense when total impossibility supervenes, but the other has not yet received any benefit, a simple restitutionary remedy is inequitable.
It has been concluded that force majeure clauses are interpreted by the courts, our task is to ask whether they are treated as if they were like any other term of the contract or whether or not they are properly classified as exclusion clause and interpreted in a restrictive demeanor.
The courts are presently adopting a more generous approach to the construction of exclusion clauses generally and are less willing than within the past to look for strained constructions by which their application to alleviate the promisor can be kept away.
 Kenyon, Son & Craven Ltd. v. Baxter Hoare & Co. Ltd., (1971) 1 W.L.R. 519, 522.