9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?
India
The Indian Contract Act 1872 does not define or enlist situations or circumstances that would qualify as a force majeure event.
Generally, force majeure events are those where performance by the promisor becomes impossible. Construction contracts usually contain a force majeure clause under which specific events are enlisted, for example: floods, sabotage, earthquake, strikes, riots or epidemics. A construction contract would also contain provisions detailing the consequences of such force majeure events and the allocation of risks between the parties.
Parties may exclude certain circumstances from qualifying as force majeure events, such as: fluctuations in foreign exchange rates, increase in cost, machinery, equipment, materials, spare parts, fuel or consumables, etc.
If the contract does not contain a force majeure provision, then such an event would be tested as per section 56 of the Indian Contract Act for impossibility. If the performance of the contract becomes impossible, the parties would be dispensed from performing it. Mere difficulty to perform would not qualify as a force majeure event and dispense the parties from their obligations under the contract.
A force majeure event need not necessarily have a permanent effect as circumstances, such as strikes and riots, have been considered as a force majeure event.
The Supreme Court in Energy Watchdog v Central Electricity Regulatory (2017) 14 SCC 80 held that when a contract expressly provides for certain force majeure events, excluding others, the events that were consciously excluded by the parties at the time of entering into the contract cannot be relied upon subsequently to claim benefit. In NTPC v Voith Hydro Joint Venture, 2019 SCC Online Del 9014, it was held that where there exists a force majeure clause in the contract, the parties would be bound by such a clause and would be precluded from relying on section 56 of the Indian Contract Act to escape performance of the contract.
In light of the covid-19 pandemic, Indian courts and tribunals have been evaluating the force majeure clause in a contract, to ascertain if covid-19 pandemic would qualify as a force majeure event and frustrate the performance of the contract. There is a divergence of opinion between high courts regarding the applicability of covid-19 as a force majeure event. In Standard Retail v GS Global Corp, 2020 SCC Online Bom 704, the Bombay High Court rejected covid-19 as a cause of frustration and held that even in the case of a force majeure event, contracts may not be avoided if the event does not affect the performance of the contract.
Whereas, in M/s. Halliburton Offshore Services Inc v Vedanta Limited & Anr O.M.P. (I) Comm. No. 88/2020, the Delhi High Court held that whether covid-19 would justify non-performance or breach of a contract would have to be determined on the facts of each particular case, taking into consideration the conduct of the parties before the outbreak, the deadlines imposed in the contract and whether a party was genuinely prevented from fulfilling its obligations. The court further held that the past non-performance of the contractor cannot be condoned due to the covid-19 lockdown in March 2020 in India.
Answer contributed by
Binsy Susan,
Akshay Sharma and
Amogh Srivastava
Shardul Amarchand Mangaldas & Co
10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?
India
Section 56 of the Indian Contract Act 1872 stipulates that the underlying contract becomes void, when either:
- the act itself is impossible to perform; or
- where by reason of an unforeseeable supervening event beyond the control of the parties, the performance of the contract becomes frustrated.
However, merely because the contract has become unduly expensive, or otherwise hard to perform would not dispense the contractor from performing the contract and discharge him or her from the obligations and liabilities under the contract. In Energy Watchdog and Others v Central Electricity Regulatory Commission (2017) 14 SCC 80, the Supreme Court held that an unexpected rise in the price of the commodity would not absolve the party to a contract from performing its part merely because the performance had become commercially onerous or unviable.
It is only if there is a change of circumstance that fundamentally alters the entire nature of the contract can a party or contractor be entitled to dispense with the performance of the contract. Rules relating to consequences of impossibility to perform can be modified or even excluded by the agreement of the parties.
Answer contributed by
Binsy Susan,
Akshay Sharma and
Amogh Srivastava
Shardul Amarchand Mangaldas & Co