- Author Name: Anshul Gupta
- Details: Advocate, Supreme Court of India, LL.M.(Catholic University Lyon, France); Master 2( State University Lumiere Lyon, France) E-mail: email@example.com
At this juncture, it is important to understand what is a pandemic? In simple words, it can be said that a pandemic is an epidemic that spreads beyond a country's border. While outbreaks are almost constant even in this modern period, not every outbreak reaches the pandemic stage as the Novel coronavirus (COVID-19) has.
COVID-19 AND FORCE MAJEURE
Force majeure translates literally from French as superior force. It's a common clause in legal contracts that allows either party to limit their liability in the face of some unforeseeable, extraordinary event. In English, the term is often used in line with its literal French meaning, but it has other uses as well, including one that has roots in a principle of French law.
In business circles, "force majeure" describes those uncontrollable events or circumstances beyond human control such as an event described as an act of God (like natural calamity, war, strike, riots, etc) that are not the fault of any party and that make it difficult or impossible to carry out normal business and perform the contractual liability despite of readiness and willingness. Generally, on the activation of the Force Majeure clause in the contract, it absolves both parties from contractual liability or obligation under the contract. The relevant provisions are embodied under Sections 32 and 56 of the Indian Contract Act, 1872
In the present scenario and circumstances where the world is at standstill axis due to pandemic coronavirus, it is likely that performances under many contracts will be delayed, interrupted, or even cancelled. There would be chances that the suppliers in contracts may seek to delay and/or avoid performance (or non-performance liability) of their contractual obligations and/or terminate contracts, either because Covid-19 has legitimately prevented them from performing their contractual obligations, or because they are seeking to use it as an excuse to extricate themselves from an unfavorable deal. Also, parties may also cite Covid-19 as a basis for renegotiation of price or other key contractual provisions (e.g volume of materials exported from or imported into affected areas due to shifts in supply and demand).
Thus, in this set of facts and circumstances, it becomes important to ascertain the answer to the question that,
“Whether Covid-19 Will Be Considered As A 'Force Majeure' Event?”
Generally "Force Majeure" clause is that any event or circumstance or combination of events and circumstances including those stated below that wholly or partly prevents or unavoidably delays an Affected Party in the performance of its obligations under this Agreement, but only if and to the extent that such events or circumstances are not within the reasonable control, directly or indirectly, of the Affected Party and could not have been avoided if the Affected Party had taken reasonable care or complied with Prudent Utility Practices.
In the persisting circumstances, the consideration of the COVID-19 pandemic to be Force Majeure depends on the fact that the clause of Force Majeure is incorporated in the Contract to be considered. A force majeure clause cannot be implied under Indian law. It must be expressly provided for under the contract and protection afforded will depend on the language of the clause. In the event of a dispute as to the scope of the clause, the courts are likely to apply the usual principles of contractual interpretation. In case, if the a force majeure event clause expressly includes a pandemic event then Covid-19 outbreak would activate a force majeure clause in the contract. Although, whether a party can be excused from a contract on account of Covid-19 being declared a pandemic is a fact-specific determination that will depend on the nature of the party's obligations and the specific terms of the contract.
As a matter of fact, the Ministry of Finance, Govt of India has already issued an office memorandum dated 19th February, 2020 inviting attention to para 9.7.7 of the "Manual for procurement of Goods, 2017" issued by Department of Expenditure, stating that disruption of the supply chains due to spread of coronavirus will be covered in the Force Majeure clause (FMC) and should be considered as a case of natural calamity and FMC may be invoked, wherever considered appropriate, following the due procedure. The supply can be ranging from articles, material, commodities, livestock, medicines, furniture, fixtures, raw material, consumables, spare parts, instruments, machinery, equipment, industrial plants, vehicles, aircrafts, ships, railway rolling stock, assemblies, sub assemblies, accessories, or such other goods etc.
What Happens If A Party To Contract Does Not Contain Force Majeure Provisions?
All hope is however, not lost for the party if the contract does not contain force majeure provisions as the party may nevertheless be able to rely on the common law doctrine of frustration of contract. The doctrine will apply where an unforeseen event either renders a contract impossible to perform or makes the outcome of the performance radically different from what was envisaged by the parties at the time the contract was formed.
Also, it is important to draw attention to Doctrine of Frustration. The said doctrine has its root of the English law which expresses this doctrine that acts as a device to set aside contracts where an unforeseen event either renders contractual obligations impossible, or radically changes the party's principal purpose for entering into the contract. The said Doctrine of frustration has been enshrined in Section 56 Of The Indian Contract Act 1872 which deals with those cases where the performance of contract has been frustrated and the performance of it has become impossible to perform due to any unavoidable reason or condition. Although the frustration principle is subject to a very high threshold, it is possible to envisage a range of factual circumstances in which COVID-19 and the ensuing governmental response measures could be construed as a frustrating event.
Since, it depends on what has been stated and incorporated in the clause of force majeure in the contract; it becomes utmost necessary at this point of time of pandemic situation to analyze the key contracts and the clauses inculcated therein. Further, it would be best suitable to invoke clauses like that of escalation, price adjustment, liquidated damages and such so as to avoid the suffocation of the amount involved in commercial contracts and get the amount in circulation. It is crucial that businesses and consumers are aware of their rights under the contracts they have entered into, under the common law and under statute so that they are prepared when confronted with an inability to perform their contractual obligations as a result of COVID- 19. Of course, it is always advisable to seek the advice of a lawyer in such circumstances.
Rajasthan High Court, Jodhpur and Managing Partner, Mehta Chambers, Law offices.