Can Force Majeure Be Invoked As An Excuse For Breach Of Deadline Before The Pandemic Outbreak?

inbatv Blog, India, Legal Reforms

Force Majeure is a contractual clause, in which parties tends to agree that on the occurrence of any unavoidable event where the parties are unable to fulfill their contractual obligation then, under those circumstances, then neither of the parties will be held liable that is no party will incur any liability for the non-performance of the obligation.

This condition is similar to that the defense of Act of God, but under force majeure, the events covered are generally pre-specified in contract agreements and would cover not only natural cause but also causes like war, or any human-made disaster which is unavoidable and the parties are unable to fulfill it in the prescribed period.

Therefore, in the present scenario of the pandemic spread of COVID-19, the actions were taken by the government including lockdown, restricting movements across borders, etc, this COVID- 19 events are considered as force majeure event.

Even though the courts have considered COVID as a force majeure, but its implication and application depend on case to case basis. Therefore where a party fails to meet its deadline for the fulfillment of its obligation before COVID-19 lockdown cannot use force majeure event as an excuse for non-performance of the contract.

  • The case herein referred to is from the Halliburton’s plea (petitioner) for restricting Vedanta Ltd. (Respondent) from invoking the bank guarantee based on force majeure invocation.
  • In 2018, the contractor (Halliburton) was given the contract by the Vedanta for integrated developments of Mangala, Bhagyam, and Aiswarya oil and gas fields and the same petitioner furnished various bank guarantees.
  • According to the contract the work was supposed to complete by Jan. 31, 2020, which the contractor failed and asked for extensions, thereby the deadline was extended to 29 Feb and thereafter to 31 March 2020.
  • However, due to the ongoing pandemic of COVID on 18 March, the petitioner sent the respondent stating the invocation of force majeure clause, to which in response the respondent rejected the request of relief under force majeure and reserve its rights for the appropriate recourse under the contract.
  • Which in response the petitioner (contractor) moved the Delhi High Court to restrain the respondent from invoking bank guarantees extended by petitioner during the signing of the contract.

Courts Observation:

The plea by the Delhi High Court was rejected by the Delhi High Court. The judgment was pronounced by the single bench of Justice Prathiba M Singh.

The court thereby on this issue stated that the doctrine of Force Majeure under the COVID-19 event can be justified or excused based on facts and circumstances of each case. It further noted that the following condition the courts are needed to observe for force majeure event:

  1. Conduct of parties before the outbreak,
  2. Deadlines so far imposed by parties in the contract,
  3. Steps taken by parties,
  4. Various compliances that were required,

Thereby fulfilling such conditions only the party can have to assess for preventing or justifying its non-performance due to pandemic.

Therefore the court noted, “The contractor has defaulted in performance despite repeated opportunities by the company. The Bank Guarantees are unconditional and irrevocable. All the bank guarantees are valid. The language of the financial and performance Bank Guarantees makes it clear that simply on-demand, the bank would have to make payment.”

By

Sakshi Raje

Student Reporter, INBA