DELHI HIGH COURT REJECTS COVID-19 AS A PLEA FOR BREACH OF CONTRACT

The Delhi High #Court has recently passed a Judgment dated 29-05-2020 in M/S Halliburton Offshore Services Inc. vs #Vedanta Limited and Anr., where the Court held that the Petitioner, M/S #Halliburton Offshore Services Inc, USA, cannot take the plea of force majeure to justify non-performance of its contractual obligations.

In this case, the Petitioner and the Respondent had entered into a Contract dated 25-04-2018 (#Contract) which provided that the Petitioner had to construct an oil well and develop surface facilities (#Project). The Contract had sub-divided the Project into three sub-projects, namely, Mangala, Bhagyam and Aishwarya, which had a fixed commencement date and completion dates. Although, the Petitioner had warranted and guaranteed that it would complete the Project within the fixed #deadlines, but it failed to do so. Thus, the Parties had to extend the deadlines on multiple occasions as given below:

PROJECT NAMECOMMENCE- MENT DATECOMPLETION DATEEXTENDED DATEFURTHER EXTENDED DATE
1. Mangala17-01-201816-01-201931-01-202031-03-2020
2. Bhagyam17-01-201816-03-201929-02-202031-03-2020
3. Aishwarya17-01-201816-06-201931-03-202031-03-2020

But as the Petitioner still could not finish the Project within the extended deadlines, it invoked the Force Majeure Clause in the Contract to seek further extension, on the ground of Covid-19 and Lockdown situation, vide Letter dated 18-03-2020. But the Respondent proposed to the Petitioner to terminate the Contract on 31-03-2020 and 07-04-2020. As a result, the Petitioner invoked the Arbitration Clause in the Contract (Arbitration) and also filed a Petition under Section 9 of Arbitration and Conciliation Act 1996 as amended thereof on 13-04-2020 (Petition) before the Delhi High Court seeking interim relief to restrain the Respondent from taking any coercive action including invoking bank guarantees against the Petitioner. On the same day of 13-04-2020, the Respondent terminated the Contract.

The Delhi High Court held that every #breach or non-performance of contract cannot be excused on the ground of #Covid19, i.e. a #ForceMajeure condition. As per the Supreme Court case of Energy Watchdog vs Central Electricity Regulatory Commission (2017) 14 SCC 80, the Apex Court held that courts cannot absolve the parties from performing the contract and that parties must adhere to the contractual terms and conditions. The courts can excuse non-performance only in certain exceptional circumstances.

Thus, the Delhi High Court held that a court has to assess the following factors to determine whether a party was genuinely prevented from performing the contractual obligations due to the outbreak of an #epidemic/pandemic:

  1. Conduct of all the parties to the contract, prior to the outbreak of epidemic/pandemic,
  2. Deadlines set forth in the contract,
  3. Steps to be taken and
  4. Compliances to be made.

In view of the aforesaid factors, the Delhi High Court made the following observations in this case:

1- That the Project was time sensitive, as there were fixed commencement dates and completion dates. Thus, time was the essence of the Contract.

2- That the monthly progress since September to December 2019, and January and March 2020 showed that there was little or no work by the Petitioner in terms of the Project. Thus, the work had stopped long before the Covid-19 and Lockdown situation had occurred.

3- That the Petitioner had failed to complete the three sub-projects within their respective fixed deadlines. This establishes that the Petitioner had committed breach of Contract much before the Covid-19 and Lockdown situation had arisen.

4- Therefore, it cannot be said that the Petitioner was prevented/hindered/delayed by the Pandemic from executing timely performance of its contractual obligations. Thus, the Petitioner cannot take the plea of Force Majeure to justify the non-performance or breach of the Contract.   

The Delhi High Court held that although several opportunities were given to the Petitioner to cure the breach much before the outbreak of the Pandemic, it failed to complete the Project. Thus, the past non-performance of Contract by the Petitioner could not be condoned or excused due to occurrence of Covid-19 and Lockdown in March 2020. Therefore, the Court held that there was no justified reason to restrain the Respondent from encashing bank guarantees against the Petitioner and that all other claims would be adjudicated in the Arbitration proceedings.

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer

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