The COVID-19 disease was declared as a pandemic by the World Health Organisation. The Indian Government has therefore mandated a full national lockdown with effect from 25 March 2020. Both public and private entities have taken appropriate steps to alleviate the consequences of this pandemic. The country has also seen a rapid increase in injury claims to recover costs arising from disruptions in business.[1] The accelerated development of the COVID-19 disease outbreak produces new incidents every day that impact the right of a party to justify contractual non-performance through force majeure clauses or other procedures. COVID-19 prompting the government to enact ever more intense usage limits and more constrictive quarantines, companies across the nation are required to consider their capacity to complete contract agreements. Shortage of workers, lack of equipment and lack of confidence has also prompted certain businesses to lodge litigation about their failure to meet contractual obligations. Production facilities have been drastically interrupted, and there is doubt surrounding the rights and liabilities of the contracting under their respective contracts.
Force majeure provisions and the impact of recent event
The validity of a force majeure clause is licensing agreement-specific, and a proclamation of such a contract has a good precedent. Recent incidents, including COVID-19 declaration as a “pandemic” and the execution of constraints on transportation, mobility, and large-scale gathering, have changed the force majeure landscape in a way that could affect the supply of such regulations to non-performers. Thus, events under several agreements are likely to be postponed, expelled, or even revoked.
When determining the validity of force majeure, the courts analyze as to if: (1) the incident constitutes as force majeure under the agreement; (2) the probability of breach of duty is unavoidable and can be mitigated; and (3) it is genuinely difficult to execute. The court’s investigation mainly focuses as to whether the event that gives rise to breach of duty is explicitly mentioned in the contract at issue as a major qualification force.[2] In other terms, circumstances that occur outside the contemplation of the contractor and that preclude either or more of the partners from meeting their contractual responsibilities can be considered force majeure. However, the definition of ‘force majeure’ can be viewed differently in civil law and common law, since the principle of ‘force majeure’ is still not codified in certain customary law countries, such since India, and is enforced by statute, i.e. specified for in the arrangement among the parties.
Clause on force majeure-the reach and duration can vary according to the context. Force Majeure is generally set up as a protection against inability to execute the contract attributable to obstacles outside the company’s control. Force Majeure would seem to be an exception to breach of contract or a defense. It must be comprehended that under each agreement or under each situation, COVID-19 is loath to offer rise to a legitimate force majeure defensive to all organization, as different contracts and regulatory steps specify different rules for various situations.[3] Therefore, a recurring ‘force majeure’ incident that affects work efficiency can also contribute to work termination. In India, the Ministry of Finance by the circulation of official notification on 19 February 2020, Government of India, has announced that Covid-19’s spread comes under the scope of ‘Act of Nature’ as a ‘natural calamity.’
Similarly, other departments imposed information concerning the incantation of force majeure contract, respectively. Such Office Memoranda/updates, however, apply only to govt. contracts and not to private company agreements.[4] The Government of India also invoked some provisions of the Epidemic Diseases Act, 1897, and has declared this Covid-19 a ‘notified disaster’ under the provisions of the Disaster Management Act, 2005.[5] This Lockdown Order covers all organizations and business owners not involved in the delivery of necessary products/services. Thereby, as that of the Lockdown Order imposed by the state, prima facie, initially appeared to be a Force Majeure incident, all agreements, including that of rental agreement, lease, licensing etc., as to if commercial and otherwise, have been significantly affected. Federal, state, and local government entities have imposed various confinement strategy in order to COVID-19, which will unquestionably get a drip-down impact on the ability of firms to fulfill contract agreements. The federal government put constraints on traveling internationally. Domestically, local states and towns have implemented varying rates of control policies, such as shutting colleges, restaurants and pubs, and preventing more than 50 people from events.[6] Such approaches-aimed at halting the spreading of the COVID-19 epidemic-that potentially contribute to shortages in the workplace and supplies. Depending on the particular language of a force majeure clause, parties experiencing these shortages can refer to such consequences as a way to escape contractual loss. That’s because the Covid-19 pandemic has also been categorized as a force majeure event doesn’t really obligate the parties even under agreements to override the provision. To invoke some contract one needs to show that there is direct link between the pandemic and the provision failure by the party to in performing some part of it. The path ahead in the current situation is by referring to the force majeure provision found in their individual deal. Moreover, where there is no such provision in the contract, parties to contract claim under section 56 of the Indian Contract Act, 1872.[7]
A lot of measures, such as the recent in Nafed v. Alimenta,[8] mentioned that even if the contract includes a force majeure provision, it should be evaluated in accordance with Section 32 and Section 56 is not applicable. It’s because the agreement itself is considered to be predicated on the occurrence or non-occurrence of an eventuality, i.e. if a specific incident including a disease outbreak or disaster occurs, the contract parties believe in advance that their agreement will be terminated or forced to cancel. In just such a situation, case law indicates Section 56 does not apply.[9]
Essentials For Invoking Force Majeure
The event shall render the contract impossible to perform
For an incident to count as Force Majeure dehors the contract – the occurrence would totally destroy the very basis upon which parties stood in their dealings. The incident or condition alteration that occurs at the heart of the contract shall be viewed as irritated. What needs to be examined is that the new conditions totally demolished the framework of the contract and its fundamental object.[10] The arrangement is ex facie invalid as conditions shift dramatically and the changed situations have never been analyzed or imagined. The doctrine ‘non haec in foedera veni’ is applicable (it wasn’t this I promised to do). The courts agree that an agreement which is virtually unlikely will not need to be enforced.
The event must be unforeseeable
The event must be incapable of being anticipated or predicted by common due diligence. An advance warning for an expected Force Majeure event, shall not trigger the Force Majeure clause.[11] One of the important tests for establishing Force Majeure’s defense is the test of predictability at the time when the contract was entered into. A CEITAC Tribunal taking into account the protection of the epidemic of SARS in 2005, held against non-performing person on the floor that perhaps the epidemic of SARS occurred two months before the contract was executed, and thus the same was predictable.[12]
conclusion
Even after quarantines and the possibly resulting reduction of a disease outbreak employed population or other negative impacts, the show has to continue for many companies. And in view of this changing rationality, companies must take special preventative measure when entering into the contract to comprehend any relevant force majeure clauses including what might activate the requirement and who carries the risk of a force majeure occurrence. As it can become even tougher to claim that the matter how long the pandemic goes on, a disease outbreak is unforeseeable and companies should hesitate to rely on widely inducted force majeure regulations.
Parties should also take into account to unseen events as causes for legal instruments force majeure. For example, an agreement may specifically require that the parties should release from their contractual obligation only upon an unexpected crisis by the President of the country, upon such a disease outbreak declaration by the World Health Organisation, upon a number of verified jurisdictional events, or upon any such unique and distinct occurrence.
In consideration of these changes, it is important that companies constructively examine the particular terms of service of their regulatory insurance plans to decide if disruptions from the COVID-19 disease outbreak would be protected, and check the insurance company notice requirements of their rules to ensure their diligent enforcement in the case that protection is necessary. Insurers can also take preventive measures by updating their existing contract wording in advance of these allegations and planning for the almost likelihood that insurance to cover cases may be brought in conjunction with undisclosed damages.
[1] Leslie Scism, “U.S. Businesses Gear Up for Legal Disputes With Insurers Over Coronavirus Claims” The Wall Street Journal, (March 06, 2020).
[2] “Force Majeure in the Wake of the Coronavirus (COVID-19)” Paul, Weiss, Rifkind, Wharton & Garrison LLP, (March 3, 2020).
[3] Amit Jajoo, Darpan Bhatia, Sushmita Gandhi & Bhargav Kosuru, “India: A Closer Look At Force Majeure, Frustration Of Contract And Impossibility To Perform Contracts During The COVID-19 Pandemic” Induslaw (May 04, 2020).
[4] Gaurang Kanth, “Force Majeure and the Covid-19 pandemic” The Statesman, (April 30, 2020).
[5] Noval Corona Virus Disease (COVID-19) Situation Update Report – 7, World Health Organization, (March 14, 2020). https://www.who.int/docs/default-source/wrindia/situation-report/india-situation-report-7.pdf?sfvrsn=cf4a7312_2
[6] Daniel Balk, “COVID-19: Force Majeure Event?” The National Law review, (March 17, 2020).
[7] Pallavi Rabinathan Dugar, “Taking Legal: Covid-19, a force majeure event” Bangalore Mirror, (April 23, 2020).
[8] Civil Appeal No. 667 of 2012.
[9] Energy Watchdog v. Central Electricity Regulatory Commission & Ors., (2017) 14 SCC 80
[10] Sharda Mahajan v. Maple Leaf Trading International Pvt. Ltd., [2007] 78 SCL 367 (Delhi), see also, Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310.
[11] Vedanta Limited v. Global Energy Pvt. Ltd., 2017 SCC OnLine (Bombay) 9439.
[12] Nishant Menon & Raheel Kohli, India: COVID-19 – A Force Majeure Event or Simply a Pandemic?” Kochhar & Co., April 06, 2020.
Written by Ritvik Chouhan
(Via Lex Jura Law Journal)