Today the world Economy is struggling to deal with the effects of Pandemic
Covid-19 and India is not an exception to the same. Covid-19 was declared as
Pandemic by WHO on 11th March 2020. This has led to lockdowns and financial
slowdown in all sectors in India and worldwide. Some businesses are going to
find it difficult or impossible to fulfil their Contractual liabilities and to
perform contracts entered into before the outbreak of the Covid-19 pandemic.
There are possibilities that in many contracts, parties will be seeking to delay
and/or to avoid their contractual obligations/performances. The parties will be
further taking a defence of Force Majeure & Doctrine of Frustration wishing not
to be held liable for their non-performance of the contractual obligation.
impact on the businesses has been severe, and the force majeure clauses will
play a crucial role if the businesses are not able to perform their contractual
obligations amidst this crisis. Under this Article we are going to explain the
Force majeure and frustration in the context of Covid-19.
Force majeure is a French term that literally means "greater force." It is
related to the concept of an act of God, no party can be held responsible for an
event, such as a hurricane or a tornado, floods, earthquakes and other "acts of
God," as well as uncontrollable events such as war or terrorist attack.
Force Majeure clause is a provision in a contract that excuses a party from not
performing its contractual obligations that becomes impossible or impracticable,
due to an event or effect that the parties could not have anticipated or
controlled. Generally speaking, for events to constitute force majeure:
- It must be unavoidable and beyond control of the parties to the
- It has prevented or hindered the party's contractual obligation.
- The parties to the contract have taken all reasonable steps with due
diligence and care to avoid/ minimize the negative consequences of the
In Energy Watchdog Vs. Central Electricity Regulatory Commission and Ors
. (2017) SCC 14 1 the Hon'ble Supreme Court of India has held that the contract wherein
Force Majeure clause is explicitly mentioned are out of the purview of Section
56 of the Indian Contract Act, 1872.
- Force majeure clause:
Most commercial contracts contain a force majeure clause. Force majeure clauses
contains an exceptional circumstance (agreed by the contracting parties at the
time of entering into the contract) under which the said contract may be varied
or suspended. As the Circumstances are outside the control of the parties,
protection of the parties from the breach of the contract (if they are not able
to perform their obligation) is the purpose of the Force Majeure Clause. The
Effect and scope of a force majeure provision will depend drafting of the same
i.e. on the words used, as interpreted in the context of the contract.
- Application of Force Majeure Clause:
The force majeure Clause is a part/ creature of the contract. It has no
statutory or common law definition. The contracting parties are at the liberty
to decide what is a force majeure event and what will be the consequences of the
force majeure event, which further makes it clear that there is no specific
answer regarding the applicability of force majeure clause. Each party must look
their own contracts wording and further decide how it works in the relevant
- For relying on a force majeure clause Parties have to prove that:
A Party seeking to rely on a force majeure clause have to prove that:
- If the force majeure clause contains a circumstance like Epidemics or
Pandemic or similar, then the party has to prove that Covid-19 clause falls
within a scope of the said Force Majeure clause.
- The party has to prove that the Performance or Contractual Obligation of
the party has been affected by the Pandemic Covid-19 as specified by the
force majeure provision.
- The party has to prove that they have taken reasonable steps with due
diligence and proper care to avoid/minimize the negative impact of the event
on the performance of the contract. In short, the party has to prove that
the problem caused by Covid-19 is out of Control of a party to resolve it.
- The party has to prove that pandemic COVID-19 is the reason behind
party's failure to perform the contract. If at all there is any other reason
for non-compliance of the contractual obligation, then the Provision of
Force Majeure will not be applied. Similarly, the provision of force majeure will not
be applied if the Pandemic Covid-19 has prevented one way/method of performing
the contract but there exist the alternate methods through which the contract
can be performed (However, this will depend upon the drafting of the said
Consequences if a force majeure clause is triggered:
If the Force majeure clause is triggered, the contract will generally get
suspended, and a party who has failed to perform its contractual obligation will
usually be excused from any fine of penalty. Some clauses are drafted in such a
way that they will allow one or both the parties to suspend the contract
immediately or after some period. The force majeure clause may also contain a
general or specific provision to solve the problem amicably. A carefully drafted
clause will always be helpful while dealing with exceptional consequences.
Doctrine Of Frustration
A party who is unable to perform its contractual obligations in the absence of
the force majeure clause, may seek to rely upon a common law concept, Doctrine
of Frustration and it may further prove that the pandemic Covid-19 is
a Supervening event which has rendered it impossible to perform the contract,
which ultimately releases both the parties from further performance of the said
under S.56 doesn't mean literal impossibility to perform (owing
to strikes, commercial hardships, etc.) but refers to those cases where a
supervening event beyond the contemplation and control of the parties (like the
change of circumstances) destroys the very foundation upon which the contract
rests, thereby rendering the contract impracticable' to perform, and
in view of the object and purpose which the parties
intended to achieve through the contract.2
It is to be noted that the
contract will not be frustrated if the event which has occurred has been
predicted at the time of entering into the contract. In the current situation
(Pandemic Covid-19), the event is unlikely to have been foreseen by any party in
advance (Except in recent Agreements).
- A contract will be frustrated when:
When the event occurs, which renders the performance of the contract impossible
or transfers the agreed obligation of the contract into some different
obligation (which was duly agreed by the parties at the time of entering into
the contract) without any party's fault, then the contract will be said to be
frustrated. It is immaterial if the Contract has become more expensive or more
difficult. Delay caused in performance of the contract by Pandemic Covid-19
could be a frustrating event. (Depending upon nature of the contract in question
and the length of the delay)
- Supervening Event:
One of the requirements of the Doctrine of Frustration is that the “supervening
event” must not be the fault of the non-performing party. In current situation
of Pandemic Covid-19, the parties to the contract cannot be held responsible for
the spread of the same but the court may nevertheless take the view that a
failure to fulfil the contractual obligation by performing a contract is a
result of the non-performing party's acts or decisions. If after the party's
have entered into a contract, there are changes in legal implementations due to
which the performance of a contract has become unlawful, then it will be
considered as a frustrating event. Thus in dealing with Pandemic Covid-19, if
the government passes any law/notification which renders the performance of the
Contracts unlawful, then those contracts will be said to be frustrated.
- The effect of frustration:
After the frustration, the contract comes to an end without choice or election
of both the parties. It is not mandatory to issue a notice or notify other party
in case of frustration of a contract. The contracting parties are discharged
from their respective contractual and legal liabilities and also from future
performance and any future obligations. It is to be noted that the amount
paid/cost incurred/Benefit incurred by the party to the contract before the
frustrating event shall be repayable (Subject to the courts discretion). The
amount which is to be duly payable at the time of completion of the contract
will be no longer payable.
In Satyabrata Ghose v. Mugneeram Bangur
3 war condition was known to the parties
while entering into the contract such that they were aware of the possible
difficulty in the performance of the contract, in such circumstances, the
requisition of property did not affect the root of the contract. Secondly, no
stipulation as to time was provided in the agreement such that the work was to
be completed within a reasonable time.
Still, having regard to the nature of the
development contract and the knowledge of the war conditions prevailing during
the contract, such a reasonable time was to be relaxed. Therefore, the contract
had not become impossible of performance under S.56 of the Contract Act.4
Typically, Force majeure and Frustration appears to be similar. However, the
consequences of the both events are different. In case of Force Majeure, the
contract is usually may get suspended, but If the contract is “frustrated” the
Contract comes to an end and the parties to the contract are completely released
from their contractual obligations. The position can be differently applicable
to different contracts.
A well-drafted Force Majeure clause will deal with all the necessary points.
Including how to divide the losses and costs incurred by the parties due to
supervening event. However, when there is lacuna in Force majeure Clause, the
party may opt for Doctrine of Frustration.
Comparison Between Force Majeure And Doctrine Of Frustration:
- The concept of doctrine of frustration is very common wherein the force
majeure clause is a part/creature of contract. Force Majeure has no legal
concept as such and it has to be expressly defined in a contract.
- Occurrence of an unforeseen event is directly linked with the
impossibility to perform the contract under Doctrine of Frustration.
- However, under the Force Majeure clause, contracting parties usually
predict/identify a list of the events which may attract the force Majeure
- Under the doctrine of frustration, the contract subsequently becomes
void and all the parties to the contract are released from their respective
- When a contract does not contain a force majeure clause, the contracting
parties may claim a frustration of a contract. And if the supervening event is
covered in the force majeure clause in a contract, the frustration of such
contract cannot be claimed.
The rise of the Pandemic Covid-19 is going to affect the Financial Market. All
businesses should consider the impact of the COVID-19 crisis with due diligence
whether they or their counterparties will be able to/ are going to continue to
perform their contractual obligations.
If it appears that the performance of the
contract is going to affect significantly, it is vital to review the terms of
the contracts so to understand the rights and obligations which will allow deal
with crisis accordingly. The full impact of this outbreak is currently unknown
and is likely to vary greatly on a project-by-project and market-by-market
Written By: Komal Sawant, Advocate
- (2017) 14 SCC 80
- 1954 AIR 44