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Force majeure - Breach of Contract and damages

Introduction to Force majeure:

Force majeure is an occurrence of Supervening event which not able to control or assumed by the parties, further it is a relieve to the parties from contractual obligations. In nature these obligations are as rights of the promisee and duties of promisor.

The relief given to the parties are for the temporary period. Force majeure is clause which parties agrees before making a contract and signing this clause them to bind by the contractual obligations and relief under force majeure clause. In Indian though terminology in the sections of Indian Contract Act, 1872. did not prescribe Force majeure' but doctrine is embodying or able to be seen in the section 32 of the Indian Contract Act, 1872.

Section 31 to section 36 deals with the Contingent Contracts, the contracts to do or not to do something is deemed based on the event collateral to such contract. In these contract promisors is bound to perform only after occurrence something (event, circumstances) which are collateral to event. Illustration of section 31 where it is explained that A agrees to Pay B only if B's house is burnt, here burning of house is an event collateral to contract.

Now, section 32 embodies doctrine of Force majeure as it defines that to do or not to do anything means performance of promisor is only possible after occurrence of event and if event becomes impossible then Contract becomes void. Basis of the section 32 are found in the Latin maxim and doctrine of  Here doctrine of Force majeure can be understood as supervening event makes collateral circumstances of contract impossible based on which performance of promisor depended.

Ex- In illustration of section 31, mentioned above, if due to earthquake house of B gets collapse, then event of house getting burn is impossible due to which collapse of house, and contract becomes void. Due to Supervening event, possibility of performance getting impossible is already agreed by parties in contract. But such Supervening event should not be controlled and assumed by the parties to contract.[i]

Absence of Force majeure -As discussed above because it is parties of the contract to oblige to the Force majeure but in cases where force majeure is not signed by the parties in the contract then it becomes a question of fact for the court based on the nature of the contact as it is parties to decide the relief and performance for the promisor, here based on the nature of the contract parties to decide whether to discharge the contractual obligation between them under principle of frustration of contract, under section 56 of Indian Contract Act, 1872.

Under frustration of contract where to do an act under contractual obligations which becomes impossible due to some intervening event, which promisor could not control becomes void due to impossibility of the act. In compare to nature of the force majeure and frustration of contract, main element is that act become impossible' due to event which is beyond the control and assumption of the parties. Relief to parties under is given only if performance of the parties becomes impossible.

What is impossible is defined in the land mark case of Satyabrata Ghosh vs Mugnareem Bangur & Co.[ii], as impossibility does not mean a literal interpretation but it implies two elements as:
  1. The Supervening event should destroy the foundation/ subject matter of the contract and
  2. Thereby continuing a former contract is impractical and unreasonable because object or purpose of the contract is already frustrated and cannot be achieved further.
The purpose and subject matter of the contract is always a question of fact based on the consideration parties to the contract. [iii]

Mere hardship vs impossibility of the event:

The relief under force majeure is given on the basis of discretion of the court and relief may be declined in some cases where there is mere hardship and not an impossibility of the event. In the recent case during the coronavirus and lockdown, many corporate parties faced an issue in performance of the parties. The issue as question of fact and question of law were emerged as to whether epidemic should be covered under force majeure?

In Standard Retail Pvt. Ltd. vs M/s G. S. Global Corp & Ors[iv], where apart from question of fact and factual foundations of the case Bombay High court gave a ratio decidendi as mere hardship to the parties under performance of the contract is not covered under definition of impossibility and avoids the relief under force majeure clause.

Mere hardship only a difficulty for parties to perform the obligations where object and purpose of the contract is still can be achieved through performance. Mere uneconomical/ loss to the parties is not impossibility. So, Mere hardship is embodied to relieve parties through force majeure. [v]

Importance of force majeure- force majeure helps parties to save them from the loss they may suffer due to external event. The importance could be understood more from the contract in corporate sector as it faces loss mainly in the consideration of the contract. Consideration in the corporate contracts in mainly of expensive and significant assets. Importance of force majeure is not only for relief but also to avoid excessive, unfair advantages to the other party (mainly promise). To understand importance of force majeure parties should be aware while making the list of the events to declare under force majeure.

The parties to the contract must define the events under force majeure very specifically because force majeure is never an open interpretation for the court rather it is a direct, literal interpretation for the court to decide the case. In the case Energy Watchdog vs Central Electricity Regulatory Commission [vi], Supreme court gave a ration that force majeure should interpreted strictly and relief from performance of contract can only be given in the cases where events which are explicitly defied under the force majeure clause. So it can be understood that responsibility of the parties is not only to include force majeure but also by corporate understanding to make a clear exhaustive list of events under force majeure to get relief from the performance of contract.

Case laws- Discussing some case laws and significant ratio decidendi and obiter dictums from Supreme court and High courts in India. In case of Hindustan Steel Works Construction Ltd. vs Tarapore & Co. and Ors[vii]. court held that relief (injunction) under force majeure is given to plaintiff for reason being that in absence of granting such relief plaintiff would have suffered irreparable harm for eighter insistence of performance or termination of the contract. So further though such reliefs are granted by the courts, but along with it some conditions and guarantees need to be obliged by the parties of the contract.

In case Gandhi Sahakra Sakkare Karkhane vs National Heavy Engg. Coop. Ltd. and Ors[viii], it was held that failure to meet with conditions, guarantees will be led to breach of the contract.

In case The Divisional Controller, KSRTC v. Mahadava Shetty[ix], Supreme Court held that not every natural event is covered under Act of God' to relieve the parties from contractual obligations, relief may be decline on the reason being presence of reasonable possibility of anticipating the threat by parties.

In case Sri Ananda Chandra Behera v. Chairman, Orissa State Electricity Board[x], the court discussed on issue regarding causation link to prove What is Natural Cause', general interpretation is always taken that Natural Cause should not have any human intervention, but sometimes it is observed that human and nature by together led to natural cause. In this case court held that in such circumstances immediate and direct cause should be taken to determine whether it is Act of God or Human Cause.

In case Nafed vs Alimeta[xi], difference between Frustration of Contract and Force majeure was cleared as force majeure is assumption of threat of supervening event before execution of contract whereas frustration of contract is intervening event frustrating the contract at the time of execution of the contract.

Court held that relief under frustration of contract can be declined for reason being presence of force majeure in the contract. These all case laws help us to understand the substantive and procedural aspects regarding breach of contract and damages covered under force majeure in India under Indian Contract Act, 1872.[xii] [xiii]

End-Notes:
  1. https://economictimes.indiatimes.com/small-biz/legal/what-is-force-majeure-the-legal-term-everyone-should-know-during-covid-19-crisis/articleshow/75152196.cms
  2. Satyabrata Ghosh vs Mugnareem Bangur & Co., 1954 AIR 44.
  3. https://www.mondaq.com/india/litigation-contracts-and-force-majeure/930674/force-majeure-in-times-of-covid-19-challenges-and-the-road-ahead
  4. Standard Retail Pvt. Ltd. vs M/s G. S. Global Corp & Ors, Commercial arbitration petition (L) No. 404 of 2020.
  5. https://www.jurist.org/commentary/2020/05/tushar-behl-force-majeure-india-covid19/
  6. Energy Watchdog vs Central Electricity Regulatory Commission, (2017) 14 SCC 80
  7. Hindustan Steel Works Construction Ltd. vs Tarapore & Co. and Ors. 1966 SCC (5) 34, JT 1966 (6) 295.
  8. Gandhi Sahakra Sakkare Karkhane vs National Heavy Engg. Coop. Ltd. and Ors, CASE NO.: Appeal (civil) 2952 of 2007.
  9. The Divisional Controller, KSRTC v. Mahadava Shetty, CASE NO.: Appeal (civil) 5433 of 2003.
  10. Sri Ananda Chandra Behera v. Chairman, Orissa State Electricity Board, 1997 I OLR 390.
  11. Nafed vs Alimeta, Civil Appeal No. 667 of 2012.
  12. http://www.lawstreetindia.com/experts/column?sid=393
  13. https://corporate.cyrilamarchandblogs.com/2020/04/force-majeure-in-the-times-of-covid-19/#_ftnref4

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