Force Majeure

The phrase force majeure comes from French, meaning¹ “superior force” . In legal terms, it refers to extraordinary events or circumstances beyond the control of the parties that prevent them from fulfilling their obligations.

Force Majeure is a contractual provision that allows the parties to suspend, delay or excuse the performance of contract upon occurrence of an event that is outside the control of both the parties and one which makes the performance of contract impossible. It is pertinent to note that force majeure is a negotiated provision in a contract and not a general rule of law that is applied automatically, and it is often linked to the legal doctrine of frustration of contract. In the Indian Contract Act 1872² reference to force majeure is found in Sec 32³ (contingent contracts) and Section 56⁴ (Doctrine of Frustration).

Force Majeure events typically include act of war, natural calamity, armed conflict, government action and more, however, every contract has its own definition of what would constitute a force majeure. Since the definition, application and consequences flowing from such an event may vary from contract to contract the question whether businesses can rely on the Force Majeure provision to excuse performance, would depend firstly on the existence of such a clause in the contract and secondly, on whether the current events constitute force majeure as per terms of contract between the parties.

What should Businesses Do Now

For businesses struck by disruptions caused by recent events in Middle-East, it becomes critical for them to pull out and scrutinise the Force Majeure clause of the eDected contracts to check the following factors:

1. Find and review the wordings of the Force Majeure clause and check if the Force Majeure clause in the contract cover events like war/hostilities, acts of government, blockade or if it contains a catch all clause of “events beyond reasonable control” that could be interpreted to include the ongoing situation.
2. Examine the contract to ascertain the materiality required for an event to be categorised as a Force Majeure event. Certain clauses require performance to become impossible, whereas certain forces majeure clauses may include in their drafting and interpretation, events that hinder or delay the performance of the contract. A clause where hindering and delay in performance is categorised as force majeure, such a clause is more beneficial to the party invoking force majeure.

3. Verify the notice requirement. Upon occurrence of the Force Majeure event the effected party is required to notify the other party within the timelines and form prescribed in the contract and in accordance with the Notice clause of the contract. It’s extremely important to adhere to the contractual scheme with respect to the format, mode , timing and the recipient while notifying the other party else the effected party may not be able to derive relief under the force majeure clause if the force majeure notice is not a valid notice under the contract.

4. Mitigation measures are crucial. Force Majuere Clauses usually require the effected party to undertake reasonable mitigation measures to overcome the effects of the Force Majeure event. Such mitigation measures must be undertaken in accordance with the terms of the contract and the same must be recorded. In case the contract is silent on such mitigation measures then the parties will be expected to take reasonable steps to reduce the losses.
5. Identify the precise cause that prevented or delayed the performance of the contractual obligation. The party invoking Force Majeure must copiously record the occurrence of the force majeure event and its correlation with the said party’s inability to perform its contractual obligation. Establishing the cause and effect for non-performance of the contract owing to the occurrence of force majeure event will be critical to prove impossibility of performance.
6. Preserve documentary evidence like correspondence, security advisories, suspension notices, cancellations, etc. to bolster the claim under force majeure.
7. A word of caution to the parties negotiating the force majeure clause now. Since the war is ongoing it no longer is an unforeseen event and the parties must be more specific while covering events under the Force Majeure clause in the background of the ongoing nature conflict. Terms like Act of God and other generic terms alone will not make the cut, therefore inclusion of specific war related terms like war (declared or undeclared), invasion, hostilities, mobilization, requisition, sanctions, cyber warfare, sabotage etc. must be included in the Force Majeure clause.

Force Majeure Invoked due to Hostilities in the Middle-East

Many companies facing disruptions have already invoked Force Majeure under the contracts and they are as follows:

1. India’s largest LNG importer, Petronet LNG invoked force majeure clauses with its LNG supplier QatarEnergy, citing the ongoing conflict in the Middle-East as a barrier to safe maritime passage of its LNG tankers Disha, Raahi, and Aseem through the Strait of Hormuz as these tankers are unable to reach Ras LaDan, QatarEnergy’s loading port in Qatar, due to the ongoing hostilities in the region⁵.
2. QatarEnergy too issued a force majeure notice to Petronet LNG on account of the hostilities⁶.
3. Petronet LNG has further issued force majeure notices to its downstream oD-takers: Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited (BPCL) and GAIL (India) under their respective Gas Sale and Purchase Agreements.
4. Mangalore Refinery and Petrochemicals has also declared force majeure on gasoline export cargoes for March and April citing disruption to crude supply from the gulf.
5. Gujarat Gas is in the process of invoking force majeure in supply contracts as regasified LNG’s availability has become severely constrained due to supply constraints⁷.
6. Iraq is understood to have ordered force majeure on oilfields run by foreign firms due to increasing military action in the region that has cut most of the crude oil exports of the country by halting most of the exports through the Strait of Hormuz⁸.
7. Kuwait Petroleum Corporation and Bahrain’s Bapco Energies declared force majeure on gas exports following the conflict in Middle-East, while India invoked emergency measures to redirect gas supplies to priority sectors internally⁹.

Challenges

The courts interpret Force Majeure narrowly. Court distinguishes non-performance on the grounds of impossibility and economic hardship. Therefore the court may excuse the performance on the basis of impossibility but it does not excuse the performance on the grounds of commercial hardship.

In short, Force majeure is about impossibility, not inconvenience. Higher cost of performance, whether due to inflation, market shifts, or supply chain issues, does not excuse obligations unless the contract explicitly provides for hardship or economic disruption.