COVID-19 (CORONA) PANDEMIC, FORCE MAJEURE AND DISPUTES

ABOUT FORCE MAJEURE:

Force majeure is a French term meaning “greater force.” The concept of force majeure originated in French civil law and is an accepted standard in many jurisdictions that derive their legal systems from the Napoleonic Code. This clause relieves one or both parties from liability to perform contract obligations when performance is prevented by an event or circumstance beyond the parties’ control and force majeure events may include fire, flood, civil unrest or terrorist attack or lock down. The purpose of a force majeure clause is two-fold: it allocates risk and puts the parties on notice of events that may suspend or excuse service. The intention of a force majeure clause is to save the performing party from consequences of something over which it has no control. Force Majeure is an exception to what would otherwise amount to a breach of contract.

COVID-19 AND FORCE MAJEURE CLAUSE:

Covid-19 has been declared as Pandemic across the world and has caused tragic human losses and at the same time widespread economic disruptions have been caused as a result of the unprecedented measures taken to control the viral outbreak: workplace shutdowns, disruption of production, port closures, and suspension of air travel. Therefore, failure to perform the contractual obligation in such circumstances empower the parties to rely on the Force Majeure clause in their contracts, however, the scope of clause depends upon the contents of clause incorporated in the contract.

The disruption to supply chains due to the Covid-19 outbreak would be considered a force majeure as notified by the Ministry of Finance, Government of India. Further, the ministry has stated that this clause can be invoked wherever appropriate, subject to due procedure being followed. For non-government and other contracts, where a contract contains a force majeure clause, the yardstick is whether the Covid-19 outbreak would fall within the scope of the clause.

WHAT IF YOUR CONTRACT DOESN’T HAVE FORCE MAJEURE CLAUSE:

The absence of a force majeure clause may result in reliance on the Doctrine of Frustration as set forth in the Indian Contract Act, 1872, which states that an agreement to do an impossible act is void. The provision also relieves a party from the discharge of their duties in the event of an intervening act which renders the performance of the contract impossible or unlawful.

HOW TO EXERCISE THE CLAUSE:

The application of law and contention of Force Majeure, depends upon the wording of clause in your contract, wherein, first line of action will be to serve the notice to the other party, wherein, delay in performance of contract or failure to perform contract or termination in contract can be the possible conclusion. All contracts related to goods or services or supply of goods or services or any other contract which is impossible to perform on account of the present circumstances may fall in the shield of Force Majeure, however, the applicability of clause depends upon the facts and circumstances along with wording of agreement.

WHICH INDUSTRY CAN USE THE SHIELD OF FORCE MAJEURE

Any industry, provided it is able to establish the impossibility in performance, for instance; Real Estate Builders for delay in handing over possession, Pharmaceutical Companies for failure in performance, E-commerce on account of failure to perform the internal obligation towards the vendors as well as delay in delivery or failure therein, FMCG Industries on account of non-availability of raw material, Cosmetics Industries, Oil and Gas industries, Energy Industries including renewable, Insurance Claims, Every contract wherein time is the essence of contract, international contracts, however, in all circumstances the other party is required to serve the notice.

“Force majeure means all circumstances independent of the will of man, and which it is not in his power to control, and such force majeure is sufficient to justify the non-execution of a contract. Thus war, inundations and epidemics are cases of force majeure; … [and also] a strike of workmen.”

                          – (Lebeaupin Vs. Crispin, [1920] 2 K.B. 714 at 719)