Force majeure means extraordinary events, situations or circumstances beyond human control such as an event described as an act of God or superior force. They obstruct the continuation or lawful existence of a contract amidst the parties.
A force majeure clause in a contract is an expressed provision to identify those circumstances or situations in which performance under the contract by either one or both the parties become impossible to be carried out.
In other words, a force majeure clause in the contract frees both parties from contractual liability or obligation when prevented by stipulated or specified events from fulfilling their obligations under the contract.
Parties to the contract mutually decide over the list of events to be categorized under this clause which includes acts of war, riots, fire, flood, hurricane, earthquake, explosion, strikes, lockouts, slowdowns, prolonged shortage of supplies, governmental action prohibiting or impeding any party from performing its respective obligations under the contract causing its frustration.
It is pertinent to note that a force majeure clause does not excuse a party’s performance entirely, but only suspends it for the duration of the force majeure. However, if the force majeure clause provides that where force majeure continues for more than a stipulated period then either party may at its own option terminate the contract without any financial repercussion on either side.
However, the onus lies on the party who wants to invoke the force majeure clause to establish an existence of such events, circumstances or conditions which result into force majeure.
Once it is established, the burden of proof stands discharged for the stipulated or specified period of force majeure.
It must be also noted that the Indian Government has considered the outbreak of COVID19 as Force Majeure.
The Ministry of Finance of India has issued a clarification through an office memorandum vide F.18/4/2020-PPD as below:
2. A doubt has arisen if the disruption of the supply chains due to spread of corona virus in China or any other country will be covered in the Force Majeure Clause (FMC). In this regard it is clarified that it should be considered as a case of natural calamity and FMC may be invoked, wherever considered appropriate, following the due procedure as above.”
What is Force Majeure Evaluation
There are various incidental aspects for making a correct Force Majeure evalaution as below:
a. Is your business immune to Covid-19 risk implications?
b. Have you rightly invoked the force majeure?
c.Have you correctly identified the events of the force majeure?