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Applicability of Force Majeure in India Amid the CoVid-19 Lockdown

The COVID-19 pandemic in India is part of the worldwide pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The first case of this pandemic disease in India, which originated from China, was reported on 30 January 2020. As of 1 June 2020, the official government website has confirmed a total of 190,535 cases, 91,818 recoveries (including 1 migration) and 5,394 deaths in the country.[1]

As the country continues to agonize the wrath of this disease whose cure is still far from reality, the problems the citizens suffer do not just pertain to healthcare. The Indian economy was in its worst phase even before the coronavirus outbreak, with growth in the gross domestic product (GDP) falling to a 11-year low of 4.2 per cent in 2019-2020.

The Monthly Economic Report released by the Department of Economic Affairs shows that India’s economic activity (Manufacturing and Services) came to standstill in April 2020 following the preventive nationwide lockdown and resulted in supply side disruptions and demand falling to unprecedented lows. 4.1 India’s Manufacturing PMI fell sharply from 51.8 in March 2020 to 27.4 in April 2020. Record contractions in output, new orders and employment reflected a severe deterioration in demand conditions.

India witnessed sharp contractions in March 2020 both on the production and consumption side with a seven-day lockdown enforced in the last week of the month. Industrial production steeply contracted by 16.7 per cent (YoY) in March 2020 with manufacturing shrinking sharply by 20.6 per cent (YoY).

Based on data gathered only up to 19th March, 2020 due to lockdown, Consumer price inflation (CPI) showed signs of price levels abating in March 2020, decelerating for the third month in a row. Decline of Wholesale price inflation (WPI) to 1 per cent in March 2020 (2.26 per cent in February 2020) also reaffirmed weak demand pressure.

Similar trend was also seen in CPI-AL (Agricultural Labour) and CPI-RL (Rural labour), which decreased from 10.14 per cent and 9.84 per cent respectively in February 2020 to 8.98 per cent and 8.69 per cent in February 2020. IMF has projected India’s GDP growth at 1.9 per cent in FY 2020-21 but Government is cognizant of the relative severity of lockdown on economic activity in the country and is cautiously optimistic about the signals from Indian benchmark equity indices.[2]

As India breathes heavily through this period of economic recession, uneasiness perpetuates at the ground level with unemployment proliferating at an enormous pace. With means of livelihood put to hold, different classes of citizens are faced with a multiplicity of problems. One of such class is tenants and their landlord. Tenancy has been more prevalent in urban and sub-urban cities of India. This case becomes more complex due to lack of specific laws and more because most lease agreements (especially of houses and shops) are not formalized contractual agreements with pre-decided provisions to the particular contract of lease.

Landlords wholly or partly dependant on the rents from their lessee are experiencing a cash crunch. They in turn are mounting pressure on the tenants to pay the rents or vacate the premises. There are cases where the central and state governments may have, from time to time, given protection to some classes of tenants such as migrants, labourers, students, etc.

These include Order No. 40-3/2020-DM-I (A) dated 29th March, 2020 issued by the Ministry of Home Affairs (MHA), Government of India[3] and Order No. F/02/07/2020/S1 dated 13th April, 2020[4] issued by the Delhi Disaster Management Authority (DDMA), Government of NCT of Delhi. However, their awareness and execution at the ground level is faulty and same can be observed from the mass dislocation of migrants who are walking back to their villages on foot.

There are handful legal remedies which may become life saving in this pandemic situation. One of them a force majeure provision.

What is Force Majeure?

‘Force Majeure’ means an “event or effect that can be neither anticipated nor controlled . . . [and] includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars).”[5] It is a term French which means ‘A superior or irresistible power’.

It defines an event that is a result of the elements of nature, as opposed to one caused by human behaviour.[6] The ambit of Force Majeure is greater than Vis Major (Act of God). This is so because the former encompasses both natural and artificial unforeseen events whereas the latter contemplates only natural unforeseen events.

What is a Force Majeure Provision?

Force majeure provisions are contractual clauses which alter parties' obligations and/or liabilities under a contract when an extraordinary event beyond their control prevents one or all of them from fulfilling those obligations. These clauses generally describe events, which are acts of God, war, government action, terrorism, floods, earthquakes, and other natural calamities, in which the contracting party shall be entitled to suspend the performance agreed under the contract.

‘Force Majeure’ is wider than ‘Vis Major’/ ‘Act of God’ since the former encompasses both natural and artificial unforeseen events whereas the latter contemplates only natural unforeseen events. In fact, ‘Vis Major’/ ‘Act of God’ actually forms a sub-set of ‘Force Majeure’. The Supreme Court has, in Dhanrajamal Gobindram v. Shamji Kalidas & Co.,[7] recognised the distinction between ‘Act of God’/ ‘Vis Major’ and ‘Force Majeure’.

Notwithstanding the differences, the effect of both the terms is to excuse non-performance of a party and prevent a party from being liable for a breach of contract[8] whilst also saving the non-performing party from the consequences of something over which it has no control.[9]

Depending on their drafting, such clauses may have a variety of consequences, including: exempting the affected party from performing the contract in whole or in part; excusing that party from delay in performance, entitling them to suspend or claim an extension of time for performance; or giving that party a right to terminate. Though the Indian Contract Act does not particularly define ‘Force Majeure’, it envisages provisions related to force majeure in section 32, which renders a contract void when an event upon which performance of contract is depended, becomes impossible (contingent contracts).

Force majeure is a contractual remedy under English law. So, if a contract is silent on force majeure, English law will not imply it into the contract. Similarly, undefined references to force majeure in an English law contract, without any contractual definition or interpretation, will not have an implied definition at law.

If the contract does not have a force majeure provision, you cannot rely on force majeure (relief may be sort through frustration of contract). If the contract does have a force majeure provision, the interpretation of is fact-specific and contract-specific.

Force majeure is typically not a feature in property leases.[10]

CoVid-19, a Force Majeure event or not?

Contracts often contain a force majeure clause that is settled between parties and mentions the events that qualify as force majeure events such as, acts of god, wars, terrorism, riots, labour strikes, embargos, acts of government, epidemics, pandemics, plagues, quarantines, and boycotts.

General Force Majeure clauses in contracts

The clause generally describes:
  • The event which shall be considered as force majeure (general examples include act of God, earthquakes, tsunamis, labour strikes, war, act of terrorism, pandemic
  • The period for which such an event continues (such as 15/30/45/60 days).
  • The way the notice for such an event has to be sent to the other party (such as by email, fax or registered post and within what time of the event occurring should the notice reach, eg. 7 days).
  • The next steps involved in resolving the situation (such as suspension or termination of agreement in case force majeure event continues beyond stipulated timeline).
  • The legal consequences for the parties (in general, the party who claims force majeure will be given the right to not perform the contract at all or at least for a certain time without breaching the contract or possibility of dispute and damages for incorrect invoking of force majeure).[11

Other than these a contract may mention broad criteria (for example, refer to events or circumstances beyond the parties’ reasonable control) or may explicitly mention the phrase ‘Force Majeure’, although this is rare in India owing to the fact that there is no particular statute to support it.

On February 19, 2020, the Indian Government issued Office Memorandum, stating that covid-19 pandemic shall be considered as natural calamity and force majeure clause may be invoked wherever necessary. It should be noted however that the memorandum was related to Government contracts. As a result, it would only serve as an indication for private contracts.[12]

CoVid-19 has been covered under the terms epidemic, pandemic or even natural calamity, prescribed in a force majeure clause. However, it is important to note that the failure to perform an obligation is primarily due to lockdown implemented by the Government, therefore, the respective force majeure clause should also contain term ‘lockdown’, in order to be invoked.

Although Indian Courts have not directly ruled on whether an epidemic/ pandemic like Covid-19 is an ‘Act of God’, Courts in the United States of America and the United Kingdom have specifically held that the expression ‘Act of God’ includes a pandemic/ epidemic.

For instance, in Lakeman v. Pollard[13], a labourer at a mill left his job early during a cholera epidemic due to concerns of contracting the disease and, therefore, failed to complete his work contract. In an action by the mill owners seeking compensation for work done by the labourer, it was argued that the work contract had been breached. The Supreme Court of Maine held that the cholera outbreak was an ‘Act of God’ and the labourer was thus not in breach of his contract since duty to perform under the contract was discharged.

In Sandry v. Brooklyn School District[14], the Supreme Court of North Dakota considered an appeal pertaining to claims by school bus drivers for their wages/compensation under their transportation contracts during the period that the schools were shut owing to the influenza outbreak. The Supreme Court of North Dakota discharged the school district from paying the bus drivers during the period that the schools were shut due to the influenza epidemic. It is pertinent to note that the reasoning was based on the fact that the contract had become impossible to perform due to the shut-down.

Under UK law, it has been held that the inability of a party to deliver an aircraft on time due to a pandemic causing a dearth of pilots fell within the catch-all residuary wording of a force majeure clause.[15]

Thus, whether it is a force majeure event will depend from case to case and the actual facts must be taken into consideration. The nature of the obligations and whether the parties are truly unable to discharge these obligations under the agreement are to be noted. The pandemic/ lockdown cannot be said to be a force majeure event, if the parties are able to somehow continue operations, either digitally or partially and there is an extended time within which they can complete their obligations, post the lockdowns in the city/country.

End-Notes:
  1. Government of India, COVID-19 Dashboard (June, 01, 2020, 08:00 IST), https://www.mygov.in/covid-19
  2. Department of Economic Affairs, Macroeconomic Report May 2020 Economic Division, Ministry of Finance (June, 01, 2020, 10:43 PM), https://dea.gov.in/sites/default/files/April_2020.pdf.
  3. Ministry of Home Affairs (MHA), Order No. 40-3/2020-DM-I (A), Government of India (June, 02, 2020, 08:50AM), https://www.mha.gov.in/sites/default/files/PR_MHAOrderrestrictingmovement_29032020.pdf.
     
  4. Delhi Disaster Management Authority, Order No. No. F/02/07/2020/S.I/ 48, Government Of NCT Of Delhi(June,02,2020,08:52AM),http://health.delhigovt.nic.in/wps/wcm/connect/d5eb15804deb9216b020f3d194e333e1/epasses.pdf?MOD=AJPERES&lmod=2041423100&CACHEID=d5eb15804deb9216b020f3d194e333e1.
  5. Bryan A. Garner, Black’s Law Dictionary (11th Edition 2019).
  6. Donna Batten, Gale Encyclopaedia Of American Law (3rd Edition, 2011).
  7. AIR 1961 SC 1285
  8. Phillips P.R. Core, Inc. v. Tradax Petroleum Ltd., 782 F.2d 314, 319 2d Cir. (1985).
  9. Dhanrajamal Gobindram v. Shamji Kalidas & Co., AIR 1961 SC 1285.
  10. Stephen Wright et al. Is coronavirus a force majeure event?, DLA PIPER (Mar., 30, 2020, 01:00 PM), https://www.dlapiper.com/en/uk/insights/publications/2020/03/is-coronavirus-a-force-majeure-event/
  11. Rahul Oza et al., India: Force Majeure and CoVid-19, Rodll and Partner (May, 06, 2020, 01:20 PM), https://www.roedl.com/insights/covid-19/corona-india-force-majeure-pandemic#force.
  12. Procurement Policy Division, Department of Expenditure, Ministry of Finance, No. F. 18/4/2020-PPD, https://doe.gov.in/sites/default/files/Force%20Majeure%20Clause%20-FMC.pdf.
  13. 43 Me 463 (1857).
  14. 182 N.W. 689, 690-91 (N.D. 1921).
  15. Aviation Holdings Ltd. v. Aero Toy Store LLC, 2 Lloyd’s Rep 668 [2010].

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