The Author, Bhanu Singh Rohilla, is a 2nd-year, BA.LLB student at Himachal Pradesh National Law University, Shimla. She is currently interning with LatestLaws.com.
INTRODUCTION
In the Black Law Dictionary, the word "force majeure" is described as "an incident or result unexpected that cannot be prevented”. The contractual provision assigns potential losses where output is not feasible or practicable, in particular because of an occurrence which even the parties could never have predicted or managed. Although the force majeure has not been either defined or addressed specifically, the Indian statutes contain a reference in Section 32 of the Indian Contract Act, 1872. When there is no explicit mention of a relevant event, the question is whether or not the parties wished to cover such an event. It involves assessing the exhaustiveness or non-exhaustiveness of the number of incidents included. This may be difficult to argue that parties who set up a list of such events but did not include a particular occurrence like an illness expected this occurrence to be protected unless clear terms are used to indicate that a list is not comprehensive.
Force Majeure is often confused with the doctrine of frustration of contract. But these definitions are completely distinct. To be in favor of force majeure, a party must comply with the requirements laid down in the force majeure clause. The contract isn't really cancelled but the fulfillment of the contract is delayed during the existence of a force majeure event. Following the end of such a major event, the party that has taken advantage of this force majeure must fulfill its share in the contract. Whereas, Frustration is the event of an act against the contract (when the contract is exercised), which makes it difficult to enforce the contract. Agreement infringement is a constitutionally applicable solution. The doctrine of frustration of contract is enshrined in Section 56 of the Indian Contract Act. This is literally "impossible." Section 56 must be read in concrete sense and not in a radical manner. While there was no absolute uncertainty, the deal would come under Section 56, but the arrangement has radically changed, a structure that the parties did not understand at the time of the agreement.
A force majeure provision provides a party with a provisional exception from meeting the duties under the contract in the event of a force majeure incident from a legal context. A force majeure clause generally specifies special circumstances or events which would qualify as force majeure events, conditions which would have been fulfilled by that force majeure clause and its consequences. In order to enforce a force majeure clause, this incident must proceed outside the party's control and the parties must show that they have attempted to minimize the consequences of this event. When an incident or situation falls within the parameters of a force majeure case that satisfies the terms on which the provision falls valid, the consequences will be that, for the time these force majeure events are occurring, the parties will be released from their duties under the contract. This provision is useful to undertakings since during the period when force majeure events continue so long as conditions of the clause are complied with and relieved of the parties from their respective obligations to be fulfilled in the context of contracts and consequential liabilities. The implications for all involved in the case of a legitimate force majeure occurrence may depend on the extent of the commitments of the individual concerned under the Agreement and on the repercussions and remedy that the force majeure clause expressly offers. Contractual solutions for force majeure generally include an extension or suspension of contractual performance to fulfill the obligations for the duration of force majeure event. If the force majeure event is prolonged, the parties may be permitted to terminate the contract under certain provisions.
It is important to stress two fundamental principles, which should be taken into account in dealing with contractual principles, before considering the field of force majeure. The first one is the ‘Pacta Sunt Servanda’ maxim in Latin. This tells the object of the contract alluded to in compliance with the contract conditions. ‘Rebus Sic Stantibus’ is another concept. It is the enforcement of binding commitments regardless of the events that happened, violating the underlying presumption made by the parties at the time the deal was entered into. It helps you clarify the applicability of force majeure greatly. The Supreme Court upheld Section 56 of the ordinance and found that, in the meaning of physical or literal impossibility, the word "impossible" isn't used in Article 56. The act might not be unattainable practically, though from the viewpoint of the interpretation and application of the parties it may be impossible and pointless. And if an unexpected incident or situation affects entirely the very ground on which the parties concluded their agreements, it could be argued that it is unlikely for the Promiser to execute the act that he agreed. "Prevented" means that it cannot be performed physically or legally. It's an elevated bar. Quality is not enough to be tougher, more expensive, or less competitive. In spite of the fact that the word 'prevented' was not used in particular, courts interpreted force majeure clauses as only applicable in cases where the provision is impossible, where the clauses state that a party has to be excused from cases outside their control and where a contract for the performance provides that 'unforeseen contingencies are exempted.' Likewise, wording is frequently viewed as "unable to do" and is likely to be treated by the courts in a similar way.
ANALYSING FORCE MAJEURE FROM VARIOUS ASPECTS IN TIMES OF COVID-19
As we all know the situation right now, world is suffering a-lot due to the current pandemic, affecting every bit of so many countries. In addition to the debilitating effect of COVID-19 on individuals and countries around the world, it has also entered trade and industry. In Some nations, COVID-19 has triggered lockdowns and restricted activities. As a result, businesses were affected and activities were therefore updated, and arrangements and contractual commitments are then evaluated for the assessment of those impacts. Few economic disasters in the past may also include the 2001 earthquake in Gujarat, as well as the 2004 Indian Ocean Tsunami. There were many disturbances. Nevertheless, the Covid-19 epidemic has put a stop to the economies of the world. Today for companies the phrase which has been in the contract setting and it is the most commonly used expression is known as "force Majeure." It is to be noted that the Govt. of India vide its Memo No. F. 18/4/2020 PPD dated 19-02-2020 issued by the Deputy Secretary of Govt. of India, Ministry of Finance discussed: It has arisen that a major clause is in place where the supply chains compromised as a result of the outbreak of coronavirus in China or some other area. In this sense it is clear that a natural catastrophe and a place main clause may be invoked, if applicable, after the necessary procedures. Difficult and/or not feasible contract execution has been the propagation of the COVID-19 pandemic and lockdowns enforced by many countries. Since 25 March 2020, India has been in complete lockout until recently. All business operations were suspended, with the exception of a few important and essential facilities.
The Indian courts have thus started to witness rise in occurrence of commercial conflicts, which revolve around the frustration doctrine. The Indian Courts have originally followed a case by case approach, as shown in the latest judgments from the High Court of different areas. It has not been directly adjudicated in Indian courts about whether an epidemic/pandemic like Covid-19 is an "Act of God," The Indian Contract Act of 1872 includes two clauses applicable to the Force Majeure and the Act of God. Article 32 of the Act deals with contingent contracts and specifies that the contract would be void if an arrangement depends on the occurrence happening in the future and this case becomes unlikely. The Supreme Court ruling of the KSRTC c. Mahadava Shetty, which claims that "Act of God" means natural causes free of human involvement, and is prudent that anyone should not have to deal with an outbreak. The Madras High Court and the Kerala High Court have also passed similar decisions.
The court found that the epidemic of infectious illness, cholera, excused employment under a labor arrangement in Lakeman v. Pollard, 43 Me. 463 (1857), the Court held that claimant was not under any duty to impair his life by staying at work near a prevailing outbreak of such a horrific disease that the exercise of such qualities would have warranted a man of normal care and prudence to leave it nor did it make any difference for the men who remained at work after the complainant left the court.
In Sandry v. Brooklyn School District, the North Dakota Supreme Court found that the schools were being shut down as a result of the influenza epidemic in appeal for claims from the school bus drivers on payments / compensation under their travel contracts. Around the time classes were shut down due to the influenza crisis, the North Dakota Supreme Court prohibited the school board from charging the drivers for buses. The reasoning was that the contract was made impossible due to the shutdown. It is appropriate to note that the contract is not possible.
In the Case Energy Watchdog and Ors. v. Central Electricity Regulatory Commission and Ors.: It was found that the reason for the contract was neither abolished nor frustrating despite the increase in coal prices. While at a higher price, alternate output modes were available. It will not end as a contract as a whole. When the foundational premise of the contract remains unchanged, an unanticipated price increase will not exempt the party from executing its portion of the contract by taking the risk consciously. Force Majeure provisions will be understood broadly and a simple rise in rates does not make the deal more difficult to execute.
Everyone will not be exempted from fulfilling contractual obligations, even if a pandemic, such as Covid-19, falls within the scope of a force majeure clause. The incident must have a clear effect on failure to deliver and the party attempting to focus upon the incident must therefore be responsible for managing and/or investigating alternatives. In unpredicted immense circumstances such as the present (COVID-19), courts are inclined to have such a liberal interpretation in the face of legitimate difficulties in performing parties. However, as discussed below, these parties would also have to show that their inability to deliver or late production was actually beyond their influence and could not be avoided or mitigated. The other question to consider is the impact on the ability of the party affected to execute its contractual commitments, even if the pandemic or associated consequences of the Covid 19 event, such as government action, is a type of case covered by the force majeure clause in question. Force majeure clauses are commonly used to indicate the impact the event or circumstances must have to trigger the clause. The event or circumstances with "prevented," "impaired" or "delayed" performance, may be mentioned. Both definitions require specific minimum rates before a group is cleared of responsibility.
CONCLUSION
In view of the Covid-19 pandemic, while some contracting parties may try to escape from the contractual obligations, sufficient dependence on either the force majeure clause of the contract involved or Section 56 of the Act is not given to do so. It is the responsibility of the party seeking an excuse for non-performance to demonstrate whether Covid-19 has actually affected the exercise of specific contractual obligations in a specific case. As a consequence, it is therefore important to analyze topics such as causal ties, and mitigating obligations when determining if the Covid-19 pandemic comes under the applicable force-major provision. Relevant letters and correspondence (including force majeure notices), should also carefully show that a force majeure event occurred, but also that the parties seek to exempt themselves from the contractual obligation. When it is read that the courts have very sparingly upheld the application of force majeure in the wake of many decisions taken by the tribunals in India.
It can be concluded, however, that during the present lockdown in India and around the world the parties may invoke force majeure clause if these events are contained in the contract clause or if they can apply the doctrine of frustration if it becomes impossible to carry out the contractual obligations. However, in cases where the contractual obligations can be carried out by alternative means, there will be no application of the Force Majeure clause and the parties shall execute the contract in alternative available ways. An in-depth examination of courts' approach to the question of force majeure showed that, with the application of the concept of force majeure, no straight jacket principles existed to prevent a party from carrying out obligations under a contract. The Court's approach was to examine this matter on the basis of the facts in each case, and the parties were accordingly granted relief. Parties should therefore avoid trying to show frustration where otherwise performance is possible. Moreover, the closeness of the event to the non-performance that the parties do not assign or foresee is significant.
The situation of COVID-19 might be regarded as temporary, making contractual termination difficult for parties solely on account of frustration or inaccuracy. Likewise, policy will be implemented to contain the outbreak COVID-19 that could facilitate the invoking of an unprecedented force majeure clause. The constantly increased current restrictions on travel, and public gatherings have resulted in substantial disruptions to commercial enterprises and widespread events and tour and travel stopped, restaurant, airliner, sports and entertainment sectors, and have had a particularly significant effect. Around 15 March, hundreds of thousands of public schools, restaurants and bars locked up in New York 's biggest lockdown and similar punitive measures were enacted by other cities and governments.
Businesses may claim force majeure clauses to prevent contractual default arising out of the steps provided that such clauses contain regulatory directives or legislation making it difficult for them to comply. As with the terms set out in the pandemic Declaration, the delineation of government regulations which render it difficult for the courts to perform does not stop the study, and parties attempting to use force major still have to create their incapacity to counteract, along with their inability to perform (or some other requirement that is needed by the clause). In that context, businesses should track COVID-19 changes closely and should take all appropriate action to reduce their effect on business practices whenever possible and record their future effects on contractual results. In light of the changes, it is important for businesses to proactively analyze the clear terms and conditions of their regulatory compliance plans in order to decide whether COVID-19 risks are protected and to review insurance scheme criteria in order to guarantee that these clauses are complied with scrupulously in the case of a claim. In anticipation of such claims, insurers should also take proactive measures, reviewed their standard policy language and prepared to make sure that insurance coverage proceedings for uncovered losses are filed.
The COVID-19 has halted economic development and disrupted the chains of production, procurement and delivery, among other issues. However, it would be extremely difficult, if not impossible to prove without reasonable doubt that disturbances in the qua unprecedented outbreak of a pandemic in COVID-19 have, in view of the temporariness of such disruptions or the total probability of the 'pre-Corona' period, dissipated in a radical and irreversible way the agreement itself. Mere inconveniences, difficulties, pauses or delays in carrying out contractual obligations due to the pandemic of COVID-19 and the consequential restrictions would not allow the same event of violence to be dealt with because the courts of law offered such parameters of low judicial importance while defining high standards of force majeure for the application of such parameters. Nonetheless, as the courts should determine, by resorting to a theory of fair justice or by taking a more pragmatic approach, the interpretation of the rule of force majeure in terms of the facts and circumstances of each case before them, it would be necessary for parties to be vigilant of the provisions inserted into the contract and the contractual rights.
Picture Source :
