COVID-19: When Contractual Obligations take a backseat

Its so frustrating! I can’t do a thing: When contractual obligations take a backseat!

The ongoing global Coronavirus pandemic crisis has created an atmosphere of uncertainty and apprehension, particularly for businesses that are highly reliant on high levels of physical interaction, or that require work from offices/premises. Businesses worldwide are understandably keen to understand how their contractual obligations and position might be affected by this outbreak and what remedies may be available if the parties to the contract are unable to fulfill their obligations.

On the face of it, failure to fulfill contractual obligations would lead to a breach of contract. However, it is subject to two exceptions – invocation of an express force majeure clause or application of the doctrine of frustration of contract. A force majeure clause is a clause that allows the parties to the contract to suspend performance of their obligations in a contract, on the occurrence of an unforeseeable circumstance beyond the control of the parties. It essentially halts performance of the contract for a period of time, and such performance is only expected to be resumed when the ‘unforeseeable event’ or its impact comes to an end. However, if this clause has not been incorporated into the contract and the law of the applicable jurisdiction does not codify force majeure (as in India), the parties may rely on the defense of frustration of contract. Claiming frustration of contract means that the party (claiming it) believes that there is no longer any possibility of the contract being performed, and as such, the only remedy available to it is that of termination of the contract. In this article, I discuss force majeure clauses and the applicability of the contractual doctrine of frustration in the context of Indian law.

What are force majeure clauses?

Force majeure clauses generally provide that upon the occurrence of a specified act, event or circumstance beyond a party’s reasonable control, that party will be excused from performing its obligations partly or wholly under the contract. This implies that the performance of the contract will be suspended for the period of time during which such force majeure event continues. Depending on how the clause is worded, the obligations may be suspended until the event has come to an end, or for an extended period of time beyond the end of the event as mutually agreed by the parties.

Drafting Force Majeure Clauses

Force majeure clauses typically form part of those provisions of an agreement that are often overlooked while drafting, or are based on past precedents that are adopted without much thought being given to the specific context of a particular commercial transaction. However, it is imperative that these clauses are carefully worded, and are drafted keeping in mind the contractual understanding and taking into account various considerations that would impact the ability of the parties to perform their respective obligations. Events that may be considered valid triggers of a force majeure clause should be clearly specified in the clause. Below is a sample clause defining a ‘Force Majeure Event’ in an agreement:

Force Majeure Event” shall mean, in relation to a Party, any act, event or circumstance beyond the reasonable control of that Party which affects the performance of its obligations under this Agreement including, but not limited to fire, flood, explosion, war, riots, acts of Government Authorities, acts of terrorism, or any events or circumstance analogous to the foregoing.

The use of “including but not limited to” ensures that the clause is not exhaustively drafted, but is intended to be illustrative. Hence, this could lead to an interpretation to include other unforeseen events, which are not within the control of the affected Party, which is the essence of a force majeure event. At the same time, including “any events or circumstances analogous to the foregoing” ensures that only events on the lines of the events already specified in the clause be included and the clause should not be misused to suspend contractual obligations for mere inconveniences, or difficulties in performance.

Interpreting Covid-19 and Force Majeure clauses:

Long term contracts providing for force majeure, often include specific reference to “epidemics and pandemics” in their wording. While an “epidemic” usually refers to a widespread local outbreak of an infectious disease, a “pandemic” is understood to be prevalent over a larger area, such as the country or the world. At the current stage, Covid-19 could be considered to fall under both definitions. The World Health Organization’s recent declaration of COVID-19 as a pandemic makes a case for it to be considered as a “force majeure event”.

If the clause does not specifically provide for epidemics or pandemics as a force majeure event, then the affected party could seek to rely on phrases such as “governmental action” or “any law or action taken by the government” to suspend its contractual obligations in light of Covid-19. For instance, the Government of Delhi has imposed restrictions on large gatherings of people in excess of 50. If the performance of a contract is dependent on delivery of a service that requires a gathering of people in excess of 50 persons, then the party that has assumed the responsibility for delivery of such service may be prohibited from doing so because of the aforementioned governmental action. For instance, a wedding planner has committed to manage a wedding that has a 100 guests. Such wedding planner could potentially invoke “force majeure” and ask to be excused from performance of such service if the force majeure provision in its service agreement makes a reference to a governmental action beyond its control. Similar restrictions have been imposed across various other States in India. For contracts sought to be avoided in the early stages of the Covid-19 outbreak, it may be relatively difficult to prove that their performance was actually prevented by Covid-19. However, at the current stage where substantial governmental restrictions and embargoes have been imposed, with respect to movement of people, gathering of people and even imports to a great extent, proving the applicability of the force majeure clause maybe easier to argue.

Proving force majeure

For a party to establish that the Covid-19 outbreak constitutes force majeure for the performance of its contract, it may have to demonstrate the following to argue a strong case for force majeure (due to Covid-19):

  1. Covid-19 has prevented, hindered or delayed the performance of its obligations;
  2. The party would have been able and willing to perform its obligations under the contract but for Covid-19;
  3. Covid-19 is the only or predominant cause of such prevention, hindrance or delay in performance; and
  4. The impact of the Covid-19 outbreak is such that it is completely beyond the party’s control and the party is taking reasonable steps to contain its impact on the contract.


It may be important to note that if a party is claiming force majeure at this stage of the outbreak when it has already been receiving widespread attention for the past few months, it is essential that the party show that it has been taking steps to mitigate the potential impact of Covid-19 on the performance of the contract. Often these clauses themselves provide that the parties should have taken reasonable steps to mitigate the impact of the force majeure event. It is on demonstrating such mitigation that the party can have a valid and strong case to suspend performance of the contract till such time that the impact of the outbreak subsides.

However, as pointed out earlier, this remedy is dependent on the manner in which the force majeure provision has been drafted in the contract. What about contracts that do not include force majeure clauses and the parties are faced with impossibility of performance? What if the force majeure clause in the contract does not extend to the specific case of the Covid-19 outbreak? In such situations, one may seek refuge in the doctrine of frustration of contract. Note that this should only be relied upon as a last resort, as the courts take a very strict stand on parties seeking to avoid contractual obligations.

Doctrine of frustration under the Indian Contract Act, 1872

Section 56 of the Indian Contract Act, 1872 (“ICA”) envisages two situations of impossibility of performance of contractual obligations:

a. The act underlying the contract was impossible to perform from the very beginning -An agreement to do an impossible act is void.

b. The act underlying the contract becomes impossible or unlawful to do, at a later stage

  1. Imminent impossibility – Where a contract to do an act is executed, and the act becomes impossible after such execution, the contract becomes void at such stage of impossibility.
  2. Imminent unlawfulness – Where a contract to do an act is executed and the act later on becomes unlawful due to the intervention of some event, which the promisor (the person required to commit the act) could not prevent, the contract becomes void at such stage.


Impossibility of performance may be physical impossibility, but even if the object with which the parties entered into the contract has completely failed to materialize, the contract may be said to be frustrated. In the English case of Taylor v. Caldwell [122 ER 309], the performance of a contract between the parties allowing one party to use the music hall owned by the other for holding a concert, was rendered impossible when the music hall was destroyed by a fire (no fault of either party). Here, the impossibility of performance was due to disappearance of subject matter to the contract, leading to a direct finding of frustration of contract.

What is impossibility of performance?

In the landmark case of Satyabrata Ghose v. Mugneeram Bangur & Co. [AIR 1954 SC 44], the Supreme Court of India observed that performance of the contract may not be physically or literally impossible but it may be impracticable and useless from the point of view of the object and purpose of the parties to the contract. As such, if an unforeseen event drastically alters the performance of the contract, it may be said to be impossible to perform.

Difficulty of performance

A situation of commercial hardship which may make performance of the contract unprofitable or more expensive is not sufficient to prove grounds for frustration. Only a fundamentally different situation such that it completely frustrates the basis of the contract would qualify as a ground for frustration and hence courts have been cautious in finding in favor of frustration and discharging parties from their obligations.

Typically, to prove a strong case for frustration the party will have to demonstrate the following:

a. The intervening event must cause the obligation owed under the contract to become impossible or radically different from the obligation contemplated at the time of entering into the contract;

b. The occurrence of this event that caused the radical change should not be attributable to either either party; and

c. The contract must not provide for or adequately provide for what will happen on the occurrence of the alleged frustrating event. Essentially, the contract should not contain a force majeure clause and does not otherwise allocate risk in the event of such a situation.

To be able to establish that the event has caused a radical change, it has to be proved that the event has led to a situation, which could not have been anticipated by the parties reasonably at the time of entering into the contract. The example of the wedding planner’s agreement to manage a wedding of 100 guests described above would be relevant in this context.

What can be gathered here is that whether a defense of frustration will be successful or not depends on the individual circumstances surrounding the contract’s performance. The key question in the present context will be whether Covid-19 has made the performance of the contract impossible or just impractical/difficult. As mentioned earlier, the latter will most likely not result in a finding of frustration. If the Covid-19 outbreak merely delays performance or increases the cost of performance, it is highly unlikely that the defense of frustration will succeed.

Author’s Take

In conclusion, the impact of the remedy opted for is important to take into consideration while making the choice. While invoking a force majeure clause (if the claim succeeds) will most likely result in a pause in the contract’s performance, invoking frustration will terminate the contract in its entirety. Hence, if the contract contains short-term obligations such as a short-term brand collaboration contract to create and publish content, it would make sense to invoke frustration. In such a situation, the content being created may not be as relevant or attractive in the changed social circumstances after the effects of the outbreak have subsided, hence essentially defeating the purpose of the contract. However, in contracts containing long-term obligations like a contract for a partnership to set up a solar power plant, the negotiations for the terms of the contract would have taken a substantial amount of time and resources. In such contracts, it would not be commercially prudent to merely terminate the contract because of the uncertainty resulting from Covid-19. Unless, the situations have changed so drastically that maybe supply chains for raw material required by the contract have come to a halt for the foreseeable future, invoking frustration would not be the way to go about things. Here it may be beneficial to enforce the force majeure clause (which typically would be incorporated in contracts having such high stakes), to suspend the contract, rather than terminate it. One may infer from the above, the sheer significance of the force majeure clause and its effectiveness at the time of drafting, and at the time of its invocation. Though these clauses are just copied from existing drafts without realizing their import, it is times like these that one is forced to take a strong, hard look at how words are used, and how these clauses can make or break an entire business (in case of high stakes contracts).

What if the defense of frustration fails?

A potential issue that may arise if one invokes frustration, is that the other party may terminate the contract on the ground of anticipatory breach. Unless the party claiming frustration (“Claiming Party”) believes the situation to be strong enough to warrant this defense, the process of invoking frustration could result in substantial risks. Section 39 of the ICA allows a party to put an end to the contract, if the other party (the promisor) has refused to perform the contract or disabled himself from performing the contract in its entirety by words or by conduct. So it is possible for the claimant’s defense of frustration to be construed as his refusal to perform the contract, thereby allowing the other party (“Aggrieved Party”) to safely terminate the contract without incurring liability for breach as per the terms of the contract. Further, the Aggrieved Party may be able to recover damages from the Claiming Party for causing such breach, depending on how widely the terms of the contract are worded. Hence, a lot of factors have to be taken into consideration while even choosing to opt for either mechanism to defend one’s non-performance, and there is no hard and fast rule for when either mechanism is more appropriate.

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Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.



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