Word on Quality

Force Majeure - A short profile

 ‘Force majeure’ is a legal principle developed to deal with a contractual relationship when an event beyond the reasonable control of the parties upsets the contract. In the Common Law, the issue of force majeure, to a limited extent, is dealt under the topic of frustration of contract. A force majeure event is often confused with an ‘Act of God’. Although, there is a similarity between the two, the term force majeure has a broader meaning than Act of God.

It has been a concern for the jurists, how to address the issue of non-performance caused by supervening unexpected events. Various legal systems evolved the principles for contractual non-performance, namely the French concept of force majeure, the Common Law concept of frustration, the American and German concepts of impossibility of performance and widely accepted doctrine of changed circumstances. The common string that runs through all of these concepts is that contractual non-performance will be excused, if it is caused by unforeseen events beyond the control of the parties and either performance impracticable or frustrate the purpose of such performance.

The modern doctrine of force majeure has its origin in the French ‘Code of Napoleon’. The doctrine excuses contractual non-performance caused by events unforeseeable at the time of contracting and beyond the control of the non-performing party. An event of force majeure may have three different effects on obligations to perform under a contract, i.e.

It may delay the performance ;

It may render the performance impossible;

Alternatively, it may render the performance more costly and inconvenient.

The contractors usually, while calculating their prices for contracts, assume the risk of non-performance due to unforeseeable risks. The primary purpose of contract is to explain responsibilities (including performance and payment obligations) and to allocate risk. Therefore, considerable attention is given to frame the contractual concepts of foreseeable, control, fault avoidance, and non-performance in order to permit a clear allocation and assumption of force majeure risks by the parties. In order to avoid disputes regarding the force majeure conditions and their consequences, parties prefer to state the relevant risks and appropriate reliefs clearly in the contract itself rather than keeping them open to interpretations. It should be noted that the doctrine does not excuse the performance of the contract or obligation to perform the contract if the force majeure event could have been reasonably anticipated or avoided.  Therefore, the test of force majeure event is whether the same was in the reasonable contemplation and control of the parties.

As mentioned earlier, force majeure is more extensive than an Act of God. Consequently, force majeure clauses are usually drafted in wider terms, which can cover potentially any situations. However, there is another argument that such wider terms may create ambiguity and extend the ambit of the clause wider than what is envisaged. Therefore, while drafting a force majeure provision, usually, the general concepts are provided and they are further explained with specific examples for clarity of the concept. There are many approaches to draft force majeure clause in the contract. A force majeure clause normally contains the definition of force majeure, notification and proof of the occurrence, cost and expenses allocation, handling procedure and extension of time.

In short, force majeure should be defined appropriately in the contracts to cover all possible contingencies that are foreseeable, as the occurrence of such contingencies can release the parties to contract from their respective obligations under the agreement.

-Manoj R. Varma