Contracts are entered with the ultimate aim of performing the mutual obligations, undertaken by the parties. However, there may be circumstances, which are beyond the control of either party and which were not even anticipated at the time of entering into a contract, that makes the performance of the obligations stipulated in the contract impossible, temporarily or perpetually. This may be caused due to events which have been brought in by an act of god (vis major) or a great force (force majeure). Force majeure clauses in contracts were devised to relieve the defaulting party, of the adverse impact of the breach of contract, caused due to force majeure event.
What is Force majeure?
Force Majeure is not a term defined in Indian statute nor is it a term in English Common Law, but is a term in French Codified Law, which has been picked up as a convenient expression by the courts both in India and in England. Though in France, the concept has the force of law, in India and in England, it is just a contractual concept. The term force majeure appears in Article 1148 of the Code Civil (Napoleon), which provides that “there is no place for any damages when, as a result of force majeure, the debtor has been prevented from conveying or doing that to which he was obliged or has done what was forbidden to him”.
It is a rule of law that when the law creates a duty and a party is disabled from performing it, without any default in him, by a force beyond his control or by an act of god, the law will excuse him. Where reference is made to force majeure, the intention is to save the non-performing party from the consequences of anything over which he has no control. This is the widest meaning that can be given to force majeure.
Force majeure and vis major (act of god) have been used interchangeably, but the term force majeure has a wider meaning and includes vis major. Vis major has been defined as something occasioned by the elementary forces of nature unconnected with the agency of man or other cause. Whereas Force majeure covers a wider class of events than vis major, including man-made events such as strikes or wars, but it must be beyond the control of the person alleging it, and must be construed in the light of the general background and terms of the contract in question.
The concept of events beyond the control of parties plays an important role in contracts, especially construction contracts. Construction projects often suffer from delays for various reasons and the allocation of risk between parties is crucial. Some reasons for delays may be within the reasonable control of parties (such as an increase in the cost of raw materials, labour cost, fuel prices, etc) while other causes are beyond the control of parties (earthquakes, floods, etc) and are referred to as force majeure events.
Typical force majeure events are:
- Acts of God or acts of nature -Damage or loss is solely attributable to natural causes independent of any human intervention
- strikes or lockouts
- changes in the law
- foreign government policy
- Ban on trade with source country
- civil commotion
Requirements of a force majeure event
- It must proceed from a cause not brought about by the defaulting party’s default;
- The cause must be inevitable and unforeseeable;
- The cause must make execution of the contract wholly impossible.
Purpose of a force majeure clause
- Provide for the risk of unforeseen events;
- Provide a procedure if such events occur;
- Allow the termination of the contract if such events are prolonged.
A force majeure event relieves the defaulting party partially or fully from its obligation/s to perform all or any obligation/s under the contract. It is also possible to agree to a limited scope and much depends upon the circumstances under which the clause is negotiated.
Once the parties agree that they are indeed faced with a force majeure event, the consequences would generally include the following:
- Suspension of work:The affected party´s obligation to perform during a specified period may be suspended. Again, an important consideration will be whether the force majeure event has affected the entire project or only a part of it. In some cases, the affected party may be able to recover additional costs it has incurred as a result of force majeure
- Termination of contract:Normally, in some standard contracts, the affected party is relieved from his obligations and also the liability to pay damages and either party has the option to terminate the contract should the force majeure event continue for a specified period of time.
- Extension of time to the affected party:Extension of time is not granted automatically to the affected party and may be granted only in situations where it affects the critical obligations of the contract.
A force majeure clause should not be treated as just another standard boilerplate clause in a contract. It should be closely examined and must clearly state the intention of the parties. The interpretation of the clause by courts depends purely on contractual terms and therefore it is open to the parties to decide the events which are potential force majeure events. As long as contract provisions define the force majeure event and the remedies stated clearly, legal disputes on interpretation can be avoided to a great extent.