When Disaster Strikes: Act of God and Force Majeure

A Concise Practical Guide and Case Law Analysis

Commercial contracts generally require strict performance under the maxim pacta sunt servanda. Extraordinary events may prevent performance, but Act of God and force majeure doctrines do not automatically excuse an unprofitable bargain.

1. Act of God and Force Majeure: The Difference

Act of God (Vis Major): A narrow common-law concept covering extraordinary, irresistible natural events without human agency, such as earthquakes, tsunamis, volcanic eruptions and lightning. If human negligence contributes to the loss, the defence may fail.

Force Majeure (“Superior Force”): A broader contractual concept associated with French civil law and Article 1218 of the French Civil Code. Depending on the wording, it may cover natural disasters and external human disruptions, including war, civil unrest, strikes, trade embargoes, pandemics and government lockdowns.

Origin: Act of God derives from traditional common law; force majeure is usually defined by the contract.

Scope: Act of God concerns natural forces without human fault; force majeure may include external human events.

Interpretation: Courts read force majeure clauses according to their wording. A general reference to Acts of God may not cover disease outbreaks or government orders.

2. Four Requirements for a Force Majeure Claim

Unforeseeability: The event could not reasonably have been anticipated when the contract was made.

Uncontrollability: The event must be external; internal financial problems, poor planning or self-caused disruption generally do not qualify.

Direct causation: The event must prevent performance. Hardship, inflation, reduced profits or higher costs alone are insufficient. In Langham-Hill Petroleum Inc. v. Southern Fuels Co., an oil-price collapse was not treated as an Act of God.

Mitigation and notice: The affected party must take reasonable steps to limit the impact and meet the contract’s written notice deadline. Late notice may defeat a claim.

3. Pandemics and Climate Change

COVID-19 and Contract Wording: The pandemic tested force majeure clauses. Relief depended on each agreement’s wording. A clause limited to “Acts of God” might not cover a viral outbreak; express references to epidemics, pandemics, quarantine measures or government shutdowns may support a claim. The party must still prove the event caused the non-performance.

Climate Change and Foreseeability: Climate risks include acute events—storms, floods and wildfires—and chronic changes, such as rising sea levels and changing rainfall. Gradual or increasingly predictable risks may be difficult to call unforeseeable. Contracts should address local climate risks and consider consultation, renegotiation and risk-sharing mechanisms.

4. Landmark Indian Case Law

A. Satyabrata Ghose v. Mugneeram Bangur & Co. (AIR 1954 SC 44)

Facts: A purchaser agreed to buy a residential plot. During World War II, the government temporarily requisitioned the land for military purposes. The company argued that the contract was frustrated.

Issues: Did the temporary requisition make performance impossible under Section 56 of the Indian Contract Act, 1872?

Decision: The Supreme Court held that the contract was not frustrated because the requisition was temporary, there was no rigid completion deadline, and the transaction’s foundation remained.

Principle and significance: Section 56 covers more than physical impossibility and may apply where a supervening event destroys the contract’s foundation. Temporary delay without destruction of the underlying purpose is insufficient. This is a foundational Indian authority on frustration.

B. Energy Watchdog v. CERC (2017) 14 SCC 80

Facts: Power producers entered long-term power purchase agreements based on expected low-cost Indonesian coal. Indonesian regulatory changes increased coal prices, and the producers sought relief under force majeure and Section 56.

Issues: Did the price rise qualify under Section 32 or frustrate the contracts under Section 56?

Decision: The Supreme Court rejected the claims. Coal exports were not prohibited, alternative supplies remained available, and the producers had assumed the relevant commercial risks.

Principle and significance: A contract is not frustrated merely because performance becomes costly or unprofitable. Express force majeure clauses are governed by Section 32; Section 56 cannot be used to escape a bad bargain. The case is a leading authority on commercial risk allocation.

C. M/s Halliburton Offshore Services Inc. v. Vedanta Ltd. (2020 SCC OnLine Del 542)

Facts: Halliburton’s petroleum project was delayed before the March 2020 COVID-19 lockdown. It invoked force majeure and sought interim relief to prevent Vedanta from encashing unconditional bank guarantees.

Issues: Could the lockdown trigger force majeure, and could it excuse defaults that occurred before the lockdown?

Decision: The Delhi High Court said the lockdown could prima facie be a force majeure event, but it could not excuse earlier defaults. The requested protection against the guarantees was refused.

Principle and significance: A direct causal link is necessary between the event and non-performance. A later emergency cannot cure a pre-existing breach. Courts examine the facts and timeline of each claim closely.

D. Alopi Parshad & Sons Ltd. v. Union of India (AIR 1960 SC 588)

Facts: The agents contracted with the government to supply clarified butter (ghee) to the armed forces. Due to World War II, military demands surged and market prices escalated drastically. The agents continued supplies but claimed compensation at substantially higher rates, arguing that the contract had become commercially frustrated under Section 56.

Issues: Does an abnormal, unexpected rise in operational costs and market prices during wartime justify altering or discharging a contract under Section 56 on grounds of frustration?

Decision: The Supreme Court rejected the claim and held that the contract was not frustrated. The Court ruled that contracts are not discharged merely because circumstances turn out to be onerous, burdensome, or economically disadvantageous.

Principle and significance: The doctrine of frustration does not protect parties against bad or unprofitable bargains. Section 56 requires supervening impossibility, not mere commercial difficulty or market price inflation. Courts have no general equitable power to absolve parties from express contractual bargains.

E. Standard Retail Pvt. Ltd. v. G.S. Global Corp. & Ors. (2020 SCC OnLine Bom 702)

Facts: Indian commercial steel importers entered into contracts with South Korean suppliers for cold-rolled steel coils, with payments secured by letters of credit. When the Government of India declared a nationwide COVID-19 lockdown, the importers sought an injunction under Section 9 of the Arbitration and Conciliation Act to restrain banks from honoring the letters of credit, arguing frustration under Section 56.

Issues: Does a pandemic lockdown legally excuse a commercial buyer from honoring payment obligations and letters of credit, especially when the commodity is categorized under essential services?

Decision: The Bombay High Court dismissed the petitions. The Court noted that steel logistics and distribution were classified as essential services and exempted from the lockdown prohibitions. Port operations continued, and letters of credit were independent commercial commitments that must be honored.

Principle and significance: Reduced domestic demand, market slowdowns, and financial difficulties during a lockdown do not constitute force majeure or impossibility. Where a commodity or service is legally permitted under government exemptions, parties cannot claim performance was barred by law.

5. Practical Contract-Drafting Checklist

List events clearly: Name pandemics, epidemics, quarantine restrictions, government shutdowns, power-grid failures and severe weather where intended.

Exclude financial risks: Clarify whether market-price changes, currency fluctuations, inflation and increased costs are excluded.

Preserve payment duties: State whether payment for goods delivered or services rendered remains due during suspension.

Set notice rules: Specify a deadline, such as 48 hours or 10 business days, and require details of the event, its impact, mitigation and expected duration.

Provide an exit: Consider mutual termination without penalty if disruption continues beyond an agreed period, such as 60 or 90 days.

6. Conclusion

Act of God and force majeure clauses allocate risk when extraordinary events disrupt contracts. Indian case law shows that courts do not rewrite agreements simply because performance becomes difficult or unprofitable. Effective protection requires precise drafting, proof of direct causation, reasonable mitigation and timely notice.

Practical Takeaways

Force majeure relief depends on the contract’s exact language and evidence connecting the event to non-performance.

Financial difficulty alone is not impossibility. Parties should distinguish external events from ordinary commercial risks.

Notice requirements, mitigation efforts and the chronology of default can determine whether a claim succeeds.

Drafting should define covered events, excluded risks, payment obligations during suspension, notice procedures and termination mechanisms.

Over to You: How should commercial agreements balance climate risks and contractual certainty? Share your thoughts and questions.

Author Profile

Chandana R is an aspiring legal scholar at ABBS School of Law, Bengaluru, with academic interests in contract drafting, corporate law, intellectual property law, competition law and civil laws.