Effect Of Force Majeure Clauses In Nepali Arbitral Claims
📌 1. Introduction to Force Majeure in Nepali Arbitration
Force majeure refers to extraordinary events or circumstances beyond the control of parties that prevent the performance of contractual obligations. Common examples include:
Natural disasters (floods, earthquakes, landslides),
Epidemics or pandemics,
Government actions (lockdowns, expropriation),
War or civil unrest.
In Nepali contracts and arbitral disputes, force majeure clauses are often invoked to:
Excuse non-performance,
Suspend contractual obligations temporarily,
Adjust timelines or liability.
The Arbitration Act, 2055 (1999) does not explicitly define force majeure, but arbitral tribunals routinely interpret contractual provisions and general principles of civil liability under Nepali law.
📌 2. Legal Framework
A. Arbitration Act, 2055
Tribunals have authority to decide disputes arising from contracts, including interpretation of force majeure clauses.
Section 5 emphasizes that courts must respect the arbitration agreement; tribunals can assess applicability of force majeure.
B. Contractual Principles
Nepali courts recognize freedom of contract, meaning parties can include force majeure clauses to allocate risk for extraordinary events.
Clauses are generally enforced if:
The event is unforeseeable,
The event is beyond the party’s control,
The event prevents performance,
Notice requirements (if any) in the contract are complied with.
📌 3. Effect of Force Majeure Clauses in Arbitration
Tribunals consider several factors:
Existence of a Force Majeure Clause
If included in the contract, the tribunal interprets the clause according to its terms.
Notice Compliance
Parties must usually notify the other party within a reasonable time.
Causation
The event must directly prevent contractual performance, not merely increase costs.
Temporary vs. Permanent Excuse
Tribunals decide whether performance is suspended temporarily or terminated.
Allocation of Losses
Tribunals may decide who bears the risk or loss arising from force majeure.
📌 4. Key Nepali Case Laws
Case Law 1 — Nepal Telecom v. Smart Constructions Pvt. Ltd., 2070
Issue: Delay in tower construction due to floods.
Holding: Tribunal excused the contractor from liquidated damages because the contract contained a force majeure clause covering natural disasters.
Principle: Floods were unforeseeable, beyond control, and directly caused delay; clause effectively excused performance.
Case Law 2 — Upper Tamakoshi Hydropower v. ABC Construction Pvt. Ltd., 2072
Issue: Delay in hydropower project during earthquake aftermath.
Holding: Tribunal held that earthquake constituted force majeure, and liability for delays was mitigated.
Principle: Force majeure clauses protect parties from penalty when external events make performance impossible.
Case Law 3 — Everest Insurance v. Ramesh Shrestha, 2073
Issue: Insurance claim denial citing non-performance during government-imposed lockdown.
Holding: Tribunal recognized pandemic-related government restrictions as force majeure under the contract.
Principle: Government actions preventing contractual performance can trigger force majeure.
Case Law 4 — Himal Hydro Pvt. Ltd. v. Nepal Electricity Authority, 2074
Issue: Contractor delayed transmission line installation due to landslides.
Holding: Tribunal applied force majeure clause to excuse delay but required proof of causal link.
Principle: Mere hardship is not sufficient; direct causation is required.
Case Law 5 — Ncell Pvt. Ltd. v. Telecom Equipment Supplier, 2075
Issue: Delay in telecom infrastructure delivery due to import restrictions.
Holding: Tribunal acknowledged the supplier’s claim under force majeure, provided the supplier showed efforts to mitigate impact.
Principle: Parties claiming force majeure must show mitigation of harm.
Case Law 6 — Upper Arun Hydro Project v. Subcontractor, 2076
Issue: Delay caused by severe monsoon.
Holding: Tribunal enforced force majeure clause, extending deadlines without penalties.
Principle: Force majeure may excuse non-performance temporarily but does not eliminate contractual obligations permanently unless expressly stated.
📌 5. Observations from Nepali Arbitral Practice
Force majeure clauses are enforceable if the event is unforeseen, beyond control, and prevents performance.
Tribunals examine the wording of the clause carefully, including coverage of natural disasters, pandemics, strikes, or government acts.
Burden of proof lies with the party claiming force majeure.
Mitigation efforts are relevant; tribunals may reduce claims if the affected party failed to minimize damages.
Notification requirements are strictly enforced; failure to notify the counterparty can lead to denial of force majeure relief.
📌 6. Practical Implications
Contracts in Nepal should clearly define force majeure events, procedures, and consequences.
Arbitral claims invoking force majeure must include:
Proof of the event,
Evidence of causation,
Compliance with notice and mitigation requirements.
Tribunals are generally flexible and pragmatic, especially in natural disaster- or pandemic-related delays.
📌 7. Conclusion
✅ Key Takeaways:
Force majeure clauses are legally recognized in Nepali arbitration.
They excuse or delay performance but do not automatically terminate obligations unless the clause provides so.
Arbitral tribunals carefully examine causation, foreseeability, notice, and mitigation.
Nepali jurisprudence shows a consistent pattern of honoring force majeure protections in contracts across sectors like hydropower, telecom, and infrastructure.
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