A court in Delhi has granted Halliburton Offshore Services of the US an interim injunction preventing the originally Indian natural resource giant Vedanta from invoking or encashing a bank guarantee on the grounds of force majeure created by the coronavirus lockdown.

This may prove to be a significant precedent for an anticipated surge of similar cases involving bank guarantees and letters of credit (L/Cs) that guarantee that obligations under a commercial contract are met.

Lockdown's irreparable damage

Halliburton argued that the project it was working on for Vedanta for the development of three oil blocks in India could not be completed by the date specified on the contract - 31 March 2020 - owing to the coronavirus lockdown.

According to the US company the lockdown had a severe impact on industrial activities as well as on movement of personnel in the country and from overseas, including, specifically the state of Rajasthan. As a consequence, Halliburton said it was unavoidably handicapped in performing the contract.

Moreover the oil field services firm said invocation and encashment of the bank guarantees it had provided could cause it irreparable damage.

Counter-argument

London-headquartered Vedanta however argued that in law the only ground on which invocation of a bank guarantee can be stayed, is the existence of egregious fraud.

The company also said it had neither extended the timeline of the project nor condoned the delay caused by Halliburton in completing the project.

Decision

The court decided to issue an injunction on Vedanta preventing it from invoking the bank guarantees given by Halliburton until one week from 3 May 2020, the last date on which the lockdown in India has been imposed.

The decision acknowledged that the lockdown was prima facie in the nature of force majeure since such a lockdown is unprecedented, and was incapable of having been predicted by either of the parties.

The court found that "special equities" - circumstances in which invocation of bank guarantees could be admitted - do exist in this case, and this justified Halliburton's plea for an injunction.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.