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  • Writer's pictureRoyzz & Co

Delhi High Court: Force Majeure Not An Excuse For Breach Of Contract During The Pandemic

On 29 May 2020, The Delhi High Court rejected a plea to restrain the invoke of bank guarantees on the event of Force Majeure clause being adduced due to the COVID-19 pandemic. The judgment decided by Justice Prathiba M. Singh was filed by M/s Halliburton Offshore Services Inc. under Section 9 of the Arbitration and Conciliation Act, 1996 in order to seek to restrain in the invocation of bank guarantees, five of which were set to expire on 30th June 2020 and remaining three on 24th November 2020.

After studying the facts of the case, the Court was of an opinion that the non-performance of the contract cannot be simply excused on the ground of ‘force majeure’ due to the pandemic. It further stated that the force majeure event will depend on facts and circumstances of the case, which is not applicable in the case of non-performance of a contract. Every breach of contract cannot be construed as an event of force-majeure condition. For better decision making in such events, the Court stated that it has to duly examine on the basis of the access with regard to the conduct of the parties prior to the outbreak, the deadlines of the contract, the steps taken for prevention of contract, various compliances required to be made and scrutinize whether the parties genuinely prevented the same to justify the non-performance of the contract. Further, it stated that it is a settled position in law that the force majeure clause is to interpreted in a narrow, not broad context. It is essential that parties adhere to contractual terms and conditions and not excuse for non-performance of the contract (which is only permissible in exceptional circumstances).

In the present case, the contractor can not be condoned due to pandemic in March 2020, since the breach of contract was since September 2019. Opportunities were given to the contractor to cure the contract in various instances. The bench further clarified that the claims and counterclaims should be adjudicated duly before the Arbitral Tribunal in accordance with the law and prima facie should not bind the arbitral proceedings in any manner whatsoever.

With regard to bank guarantees, the Court noted that the contractor has clearly defaulted in its performance despite the repetitive opportunities. The Bank Guarantees in the present case are unconditional and irrevocable. Also, all the bank guarantees are valid in nature as the language of the financial performance of the Bank Guarantees makes it quite evident that simply on-demand, the bank has to make the payment. Additionally, on the issue of advanced bank guarantees, the Court noted that the Advance Bank Guarantees should be invoked and encashed in a separate ‘joint account’ to be held jointly by the contractor and the companies. The ‘joint account’ should be opened within the duration of 3 days and the amounts of the Advance Bank Guarantees should be directly deposited on the said account. The reconciliation procedure should be completed in two weeks. Nonetheless, the ad-interim order passed on 20th April 2020 stands vacated by the Delhi High Court.

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