Force majeure provisions in project contracts

To deal with variables which cannot be foreseen when contracts are executed for long-term infrastructure projects, parties typically include a force majeure provision. Force majeure originated as a civil law concept although, in common law jurisdictions, statutory provisions relating to “frustration of contracts” and “contingent contracts” are applied. Usually the scope and extent of force majeure provisions are contractually determined.

The Supreme Court has stated that force majeure is a term of wide import and has observed that whenever reference is made to force majeure, the intention is to save the contracting parties from the consequences of anything over which they have no control.

Last month, in the matter of Energy Watchdog and Others v Central Electricity Regulatory Commission and Others, the Supreme Court analysed the force majeure clause in a power purchase agreement (PPA), reversing an order of Appellate Tribunal for Electricity (APTEL). Before the Supreme Court, the power generators contended that: (a) due to a coal price rise caused by a change in Indonesian law, the force majeure clause of the PPA could be invoked; and (b) even if the clause did not apply, the performance of the contract would be frustrated under section 56 of the Indian Contract Act, 1872.