Force Majeure

What is Force Majeure?

Force Majeure (FM) is a civil law concept that has no real meaning under the common law. However, force majeure clauses are used in contracts because the only similar common law concept ­ the doctrine of frustration ­ is of limited application because for it to apply the performance of a contract must be radically different from what was intended by the parties. In addition, even if the doctrine does apply, the consequences are unlikely to be those contemplated by the parties.

Suspension of obligations in the event of force majeure:

Without  prejudice to the previous for the adjustment of the guaranteed completion date and contract price in the event of  Force Majeure, if either party is prevented or delayed from or in performing any of its obligations under the Contract by Force majeure, then it may notify the other party of the circumstances constituting the Force majeure and obligations performance of which is thereby delayed or prevented, and the party giving  the  notice shall thereupon be excused the performance or punctual performance, as the case may be, of such obligations for so long  as the circumstances prevention of delay may continue.

The events and circumstances to be taken as FM in FM clause should be carefully identified and prescribed keeping in view the project, nature of agreement and contracting parties. These events or circumstances or any combinations of these events and circumstances should not be defined in ‘generic’ manner...

NOTIFICATION OF OBLIGATION

The agreement should provide that party affected by Force Majeure Event ( FME) should issue a Notice of FM to the other party of any event, which constitute FME within a specified time. If due to some valid reasons like break­down of communication as a result of FME, and it is not practically possible to give notice in the specified time limit the affected party should issue Notice of FM to the other party as soon as possible and practicable after the reinstallation of communication system within some time limit after the reinstallation of communications system. Such time limit may be one day or two days after the communication system is restored. This is necessary in the view if the gravity of the situation, the consequences following the FME taking place and rights and obligations of parties to the contract under these circumstances. the Notice of FM should give full particulars as far as possible and practicable , about the FME, its effect on the affected party informed as regular basis, say, every week or every fortnight, on the progress of the proposed Remedial Action plan. The other party should have the right to seek any related information about FME and the affected party under obligation to furnish the same to extent available with him. The affected party should also give Notice to the other party of the cessation of FME along with the report, which may follow the Notice within a reasonable time about the full effect of the FME and the cessation of the effect of the FME on the enjoyment by such party of its rights or performance by it of its obligations.

DUTY TO MITIGATE

Any party claiming Fm should use its reasonable efforts to mitigate and the effects of any act, event or circumstances of FM as soon as possible after the occurrence of FME including incurring of a reasonable sum of money. He should also co­operate with the other party to develop and implement a Remedial Action plan to remove FME. Duty and care and co­operation required between the parties it that of “Reasonable prudence.”

Neither party should generally be liable for nay delays in complying with it’s obligation under the Agreement to the extent that such failure or delays have been caused or contributed to, by or more events constituting FM, provided  the affected party properly informed the other party within a reasonable time limit specified and has been taking appropriate actions on the Remedial Action plan worked out by the parties to mitigate the impact of the FME and to overcome the FME as early as possible. However, if the failure or delays could not have been avoided even if FME had not occurred , the party affected bye FME should not be exempted from his obligations any should not be entitled for any relief.

CONSEQUENCES OF FME

The consequences of FME generally are of two fold, viz  (1) Abundant  or (2) adjustment in the terms of agreement. For example in case of construction of hydro power station on BOT/BOLT/BOOT basis, if some major changes are required in the project design due to unforeseen and unpredictable conditions, including but not limited to geographical and hydrological structures, ground water and geophysical configuration of the areas below the surface of the ground and which would make the project  uncompetitive and uneconomical , the sellers of the power i.e. project company or (IPP) or, buyer of the power  (SEB/PTC) may decide to abandon the project or construction of the project be terminated permanently. 

Dr. VedulaGopinath, 

Advocate and Arbitrator 

Email: vgnath@gmail.com