File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Covid-19 And Force Majeure: An Analysis

Coronavirus is the member of the zoonotic community of viruses and it can affect the human beings with a variety of health disorder varying from the common cold to severe problems such as fatal respiratory illness which can even cause the death of the human being. The latest epidemic of coronavirus which started from Wuhan in China has been spread to 216 countries in the world and has caused more than 310,000 deaths in the world.[1] The World Health Organization and many nations including, the U.S.A, have called it an  International Public Health Crisis.[2]

The novel coronavirus epidemic in India has forced the government to lockdown the whole country and this has largely impacted the air transport and supply chains in the country. All the air carriers have stopped taking bookings from the passengers and there are complete restrictions on the travel of people in the country.

The manufacturing work of huge business houses has stopped as migrant workers are restricted from working in the factories. Many companies in India such as Larsen and Toubro, UltraTech Cement, Aditya Birla group etc. have indefinitely stopped or substantially shortened their activities. Also, the e-platforms such as Flipkart and Amazon have stopped delivering the non-essential items and focused more on providing essential items to the people of India.[3]

The shortage of workers and restrictions on transportation are the results of the lockdown that has created problems for the business houses in the country. These disruptions have caused a delay in business activities and hence, many enterprises in India cannot meet their contractual commitments.

Failing to meet the contractual obligations, this could expose them to corporate lawsuits that could have an effect on both their finances and their image in the market. In this case, it becomes important for the enterprises that they should be allowed to avoid their liability for performance of the contract due to the epidemic in India. This is one of the conditions where the concept of Force Majeure plays an important role. It helps the businesses to avoid the responsibility for the performance of the contract. [This article talks about the contract in which time is of an essence.]

What Is Force Majeure?

Force Majeure is a Latin expression that means a superior force. It is a provision of the contract which is agreed upon by the parties while forming the contract. In case of breach of contract, the party to contract is prevented from liability when there is an occurrence of a force majeure event. The force majeure events include an Act of God or natural disasters, war or war-like situations, labour unrest or strikes, epidemics, pandemics, etc.[4]

Force majeure signifies those conditions which are outside the control of ordinary man and no ordinary man can take precautionary measures to stop it. Moreover, it depends upon the provisions of the contract whether the liability can be avoided on the grounds of force majeure in case of breach of contract.

The courts in India need to examine the events in each situation and should determine how the event is preventing the party from meeting its contractual obligations.
Generally, there are three requirements that should be fulfilled to invoke the force majeure clause in the contract.

The three requirements are[5]:
  1. The Impediment Must Be Beyond The Control Of The Party.
  2. The Impediment Must Have A Continuing Effect On The Performance Of The Party.
  3. The Party Failing To Perform Must Provide Notice.

A. The Impediment Must Be Beyond The Control Of The Party:

The force majeure provision must not be an excuse for a party to avoid responsibility owing to a specific incident or an occurrence which may have been avoided by taking sufficient measures. In order to show that the incident occurred outside the influence of the parties, it must be determined that it was not possible that the parties could have taken any action to avoid the consequences of the occurrence of the event. It is very essential to show that the parties do not have any prior knowledge regarding the event during the time of formation of the contract and also, any reasonable man could not have predicted the occurrence of the event.

B. The Impediment Must Have A Continuing Effect On The Performance Of The Party:

The liability for non-compliance can be avoided if the party can prove to the court that the occurrence of the force majeure event directly affected the performance of the party under the contract and it was impossible for the party to cope with force majeure event. Also, the contracts in which time is of an essence, it must be noted that mere discontinuation of performance that would make the transaction commercially unfeasible would constitute an element against the conduct of the party. A force majeure event generally requires that there should be a causal relationship between the failure of the party to perform and the impacts of the force majeure event.

C. The Party Failing To Perform Must Provide Notice:

Generally speaking, the primary condition to avoid liability is that the grantor of force majeure should be notified in a reasonable time of the event so that he can take the necessary action to consent to force majeure or to cancel the contract, whichever the agreement holds. This procedure is needed to be followed by the party who wants to escape from the liability to avail the benefit of the clause.

Is Coronavirus A Force Majeure?

The important question that needs to be looked upon is whether coronavirus is an epidemic or not. The illness is an epidemic or not depends upon the number of infected cases in the country. In India, there are more than 99,000 people who are infected from the novel coronavirus disease.[6] Also, it has been declared a Global health emergency by the World Health Organisation. Hence, it is clear that novel coronavirus disease is an epidemic which is creating many complications for the people of the country.

The next major issue is whether coronavirus being an epidemic is covered under the force majeure clause or not. For coronavirus to be considered under the clause, it is essential that coronavirus satisfy all the conditions of force majeure clause.

Condition 1: Whether the impacts of coronavirus were foreseeable or not?
The quarantine policies introduced by the government of India, where several business houses have been shut down, have been quite unparalleled or unprecedented. The lockdown has been declared in all the parts of India. Due to this lockdown, all over the country, there has been a restriction on transportation of all type, whether it is business-related or not. There has also been complete stoppage on the flow of products and movement of the workers throughout the country.

The movement of the migrant workers have also been restricted and they are not permitted to return to work in an attempt to control the spread of coronavirus in the country. This shortage of staff and workers has impacted the manufacturing sector in the country by contributing to the delay in output which in effect, has contributed to interruption in the supply chain and has majorly resulted in the breach of contract for many businesses.

It is also very important to note that even if the event is unpredictable, the execution of the contract can be upheld if there was a chance to minimize the consequences of the incident and the party had an obligation to seek and mitigate it. However, in the case of the coronavirus outbreak, the impact and the steps taken by the government of India to avoid that epidemic is much more severe as compared to other epidemics.

This degree of severity renders the disease unpredictable in such a manner that the affected party could not have taken any reasonable action to avoid its effect on the contract between the parties. The impacts of the coronavirus epidemic on the Indian economy have been unparalleled and the courts will likely allow the claim of force majeure of the affected parties that refuse to comply with the conditions of the contract because the implications of coronavirus were so unexpected that it was not in their control to mitigate its effects.

Condition 2: Whether the Consequences of the Coronavirus have Impacted the Performance of the Parties?
The force majeure claim has been effectively enforced in situations of strikes, labour disputes, machinery breakdown, epidemics, disturbances or any other causes occurring out of the conditions outside of the control of the supplier. Courts have also held that hindrances arising from government action on product supplies, such as ban or lockdown, should also be treated as a force majeure.[7]

In the case of coronavirus epidemic, the measures taken by the states have had greater bearing on day-to-day business activities and this impact has resulted in disruptions and cancellations in the transportation of supplies. Coronavirus disease has taken many lives in the country and due to the strict quarantine policies of the government, the performance of the parties has been largely affected and they are unable to fulfil the conditions of their contract.

Hence, the courts need to accept the argument of force majeure on the part of the parties that refuse to comply with the conditions of the contract.

Also, it is very important to know that the fulfilment of the above two conditions is not enough until there is a force majeure clause explicitly mentioned in the contract between the parties. If the force majeure clause is not mentioned explicitly in the contract, the party to contract can also invoke the doctrine of frustration under section 56 of the Indian Contract Act, 1872.[8] In order to invoke the doctrine, the parties must prove that the performance of the contract has become impossible as the terms and conditions related to the contract have become radically different and the failure of the contract is neither self-induced by the affected party nor due to the negligence of the party.[9]

The concept of frustration is used when the possibility of the incident that has happened has not been introduced by the parties during the formation of the agreement. Since the coronavirus disease has never been detected in humans before, it can be fairly assumed that the reference to the virus has not been included in the commercial contracts. Hence, the doctrine of frustration can be used by the parties to avoid the contractual obligations arising due to coronavirus.

Burden Of Proof

The burden of proof lies on the affected party seeking to discharge from its contractual obligations. The party needs to show that facts and situation of their case come under the legal definition of the force majeure clause.

Remedies Available

The remedies available to the parties is determined by the language of the force majeure provision in the contract. There are some contracts which can be terminated after the occurrence of a force majeure event. Some contracts need to be put on hold until the force majeure event has been resolved.

However, in this case, if the non-performance caused by the force majeure event is permanent, then the affected party can terminate the agreement by giving written notice to the other party and also inform about the legitimate reasons regarding the non-performance of the conditions of the contract. These two remedies depend upon the wordings of the clause and hence, the parties need to carefully frame this clause while creating the contract.

Conclusion
Force Majeure is a specific concept that includes actions of ‘superior power’ that are not under the control of the individuals. This concept is much wider than the concept of ‘Act of God’ which is restricted to only natural causes. It is a framework for suspending or absolving the parties form liabilities for non-performance of the conditions of the contract due to the event which was not in their control. However, the doctrine doesn’t include a leeway to the negligent party to escape performance when the incident could have been avoided by precautions or no-fault.

In the present scenario, coronavirus is a disease which is completely different from other viruses and it can affect human beings with a range of health conditions. Coronavirus has largely impacted every level of business due to the consequences of the quarantine steps taken by the country, has resulted in delay and termination of the contract. Due to these consequences, the parties to the contract are facing challenges in the execution of the contract and to escape from liability, they need to recourse to the doctrine of force majeure as a defence.

Moreover, the circumstances and events that have followed the coronavirus epidemic satisfy all the characteristics of a force majeure event. Hence, it follows that no preventive measures could have been taken by the parties as there was no reason to predict the virus. The disruptions created by the coronavirus epidemic have impacted the performance of the parties and therefore, coronavirus epidemic fulfils all the necessary conditions of the force majeure event.

End-Notes:
  1. Coronavirus disease (COVID-19) pandemic, World Health Organization, available at https://www.who.int/emergencies/diseases/novel-coronavirus-2019, last seen on 19/05/2020
  2. Bodhisattwa Majumder and Devashish Giri, Coronavirus & Force Majeure: A Critical Study, 51 Journal of Maritime Law & Commerce 51, 53 (2020)
  3. Economic impact of the 2019–20 coronavirus pandemic in India, Wikipedia, available at https://en.wikipedia.org/wiki/Economic_impact_of_the_2019-20_coronavirus_pandemic_in_India, last seen on 19/05/2020
  4. Coronavirus, Force Majeure And Impact On Commercial Contracts, Bloomberg, available at https://www.bloombergquint.com/coronavirus-outbreak/covid-19-coronavirus-force-majeure-and-impact-on-commercial-contracts, last seen on 19/05/2020
  5. Bodhisattwa Majumder and Devashish Giri, Coronavirus & Force Majeure: A Critical Study, 51 Journal of Maritime Law & Commerce 51, 54 (2020)
  6. India COVID-19 coronavirus by city and state, Pharmaceutical Technology, available at https://www.pharmaceutical-technology.com/news/india-covid-19-coronavirus-updates-status-by-state/, last seen on 19/05/2020
  7. Holcim (Singapore) Pte Ltd. v. Precise Development Pte Ltd., [2011] 2 SLR 106
  8. Supra 4
  9. The Doctrine of Frustration and Force Majeure: COVID 19, Lexology, available at https://www.lexology.com/library/detail.aspx?g=d63bbf8d-64ec-4595-ab87-633934115ab0, last seen on 19/05/2020

Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers



Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


LawArticles

Section 482 CrPc - Quashing Of FIR: Guid...

Titile

The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of th...

How To File For Mutual Divorce In Delhi

Titile

How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Whether Caveat Application is legally pe...

Titile

Whether in a criminal proceeding a Caveat Application is legally permissible to be filed as pro...

The Factories Act,1948

Titile

There has been rise of large scale factory/ industry in India in the later half of nineteenth ce...

Constitution of India-Freedom of speech ...

Titile

Explain The Right To Freedom of Speech and Expression Under The Article 19 With The Help of Dec...

Copyright: An important element of Intel...

Titile

The Intellectual Property Rights (IPR) has its own economic value when it puts into any market ...

Lawyers Registration
Lawyers Membership - Get Clients Online


File caveat In Supreme Court Instantly