COVID-19 Force Majeure and it’s Effect on the Performance of Contracts.

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  This Article is written by Parth Soni, a Student of Amity Law School Chhattisgarh, Raipur.  

INTRODUCTION

As the world is going on through tough times because of the COVID-19 virus which is not only affecting the people’s day to day life but also the business activities which was bound to be done but due to this Global pandemic various businesses are facing contractual issues. So, one of the major concerns that arose out of this position is that will the business will ever be go back to normalcy and will parties continue to perform their obligations as agreed under the contracts entered. This situation has led to several discussions around whether this pandemic will be treated as ‘Act of God’ or ‘Force Majeure’ event.

So, to excuse a party of non-performance of contract or frustration of contract, what will the courts play the role in a situation if a party is sued for breach of contract.

  1.  WHAT IS “FORCE MAJEURE”

As Force Majeure is not being defined or specifically dealt with in Indian Statutes, some reference can be found in The Indian Contract Act,1872, so far as a force majeure event occurs de hors the contract, it is dealt with by a rule of positive law under Section 56 of the Contract. Sections 32 and 56 are set out herein:

Section 32[1]: Enforcement of Contracts contingent on an event happening – Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void.”

Section 56[2]: Agreement to do impossible act – An agreement to do an act impossible in itself is void.

Force Majeure has been defined in the Black Law Dictionary[3] as ‘an event or effect that can be neither anticipated nor controlled. It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.’

A ‘Force Majeure’ event specifically spells out that in a particular circumstance which would qualify as a force majeure events the occurrence of the event should be beyond the control of the parties. The circumstances include Acts of god, war, terrorism, earthquakes, hurricanes, acts of government, explosions, fire, plagues or epidemics and other acts or events that beyond the control the parties. If a contract does not include the force majeure their will be consequences which may include the suspension of obligations of the parties upon occurrence of such force majeure event. If the contract does not include a force majeure clause in such situation both the parties in light factors have to ascertain Section 56 of the Contract Act (which deals with agreements between the parties to do an impossible act) and which has been briefly discussed above, can be applied to such contract so as to discharge the parties from their contractual obligations.

2.  CAN COVID-19 BE CONSIDERED A FORCE MAJEURE EVENT?

Force majeure clauses provide that upon the occurrence of a force majeure event, the party affected by such an event would be entitled suspend the performance of its obligations during the continuance of the force majeure event. Further, if the force majeure event continues for a certain period, the other unaffected party would be entitled to terminate the agreement. Some contracts may go into further details and provide for other specific consequences.

The Court would assess the circumstances presented to it on a Case-to-Case basis, it is crucial for you to review the terms of your contract and understand your rights and obligations and plan accordingly.

3. EFFECT OF COVID-19 ON TIME OF PERFORMANCE OF CONTRACTS.

Due to COVID-19, performance of some contractual obligations may become impossible for the time being. In contracts where time is of the essence, the Force Majeure event may even lead to frustration of the contract because of the supervening impossibility to perform obligations under the contract. The law in relation to frustration of contract can be seen Previously by having a look at the landmark cases of  Satyabrata Ghose vs Mugneeram Bangur.[4]

There will be contracts where COVID-19 may render performance impossible only during the lockdown period in which the Force Majeure event is in operation, thereby providing a window for resuming normal contractual obligations after the lockdown ends.

4. CONCLUSION.

On March 11,2020 the government of India declared COVID-19 as a global pandemic which lead to the lockdown and many businesses around the globe are facing hardships as their contractual agreements are pending and due to the lockdown many hardships are also been faced like cost of raw material, transport of materials in inter-state, closure of factories , no availability of labour etc. And hence, Under Indian Law and English Law both there is no allowance to escape from any contractual obligation and any party still faces strict liability. So, force majeure and the doctrine of frustration play very crucial roles in non-fulfilment of performance of contracts. There is legal maxim that is based on the frustration of contracts i.e. ‘les non cogit ad impossibilia’ which means “a man cannot be compelled by law to do what he cannot possibly perform.

[1] https://indiacode.nic.in/show-data?actid=AC_CEN_3_20_00035_187209_1523268996428&sectionId=38636&sectionno=32&orderno=33

[2] https://indiacode.nic.in/show-data?actid=AC_CEN_3_20_00035_187209_1523268996428&sectionId=38660&sectionno=56&orderno=57

[3] https://www.latestlaws.com/wp-content/uploads/2015/04/Blacks-Law-Dictionery.pdf

[4] Civil Appeal No. 80 of 1952, Supreme court of India; MANU/SC/0131/1953

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