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Force Majeure Clauses And Covid-19 Pandemic

The COVID-19 pandemic has thrown global economic ties into disarray, wreaking havoc on workers, customers, and enterprises. Businesses have hurried to renegotiate contracts as supply chains, manufacturing, and other economic activity have been disrupted, therefore as a consequence the term "force majeure" has become increasingly relevant in contractual contexts for businesses today, and it is unclear how this term would be construed in a contract in the context of COVID-19.

Force majeure clauses are contractual conditions that permit one or both parties to suspend or cancel performance if a "force majeure event" happens, and these force major clauses have influenced and will continue to influence renegotiations in many situations. That as Businesses and activities have been impacted on a large scale as a result of the same, contracts and contract obligations are being reassessed to analyse the consequences in the present COVID-19 situation.

The central government released an office memorandum on February 19, 2020, stating that supply chain disruptions caused by COVID-19 should be considered a natural calamity, and that force majeure provisions may be invoked in cases where it is deemed suitable.

Therefore we need to understand what does one mean by force majeure?

The term ˜force majeure has been defined in Black's Law Dictionary, as ˜an event or effect that can be neither anticipated nor controlled. It is a contractual clause that allocates the risk of loss if performance becomes impossible or unfeasible, especially as a result of an unforeseen or uncontrollable incident.

While force majeure has not been defined or expressly addressed in Indian statutes, it is mentioned in Section 32 of the Indian Contract Act, 1872 (the "Contract Act"), which states that if a contract is dependent on the occurrence of an event that becomes impossible, the contract becomes void.

A force majeure clause, from a contractual standpoint, gives a party a temporary relief from completing its contract obligations when a force majeure event occurs. A force majeure clause often specifies out particular circumstances or occurrences that would qualify as force majeure events, as well as the conditions that must be met for the force majeure clause to apply to the contract and the repercussions of such occurrence. As a result, in order for a force majeure clause to apply (should a force majeure event occur), the occurrence of such events must be beyond the parties' control, and the parties must demonstrate that they have made reasonable efforts to reduce the impact of the force majeure event.

If an incident or circumstance falls within the scope of a force majeure event and meets the clause's conditions for applicability, the parties will be excused from performing their respective responsibilities under the contract for the duration of the force majeure event.

Depending on the language of the provision, the parties may be required to provide a written notice informing the other party of the occurrence of such event and invocation of the force majeure clause. Some contracts additionally state that if a force majeure incident lasts for an extended period of time, the parties may be able to terminate the contract.
Therefore, war, natural catastrophes such as hurricanes and earthquakes, and other unforeseeable circumstances that are beyond the parties' control and prevent or negate the economic value of performance are examples of force majeure events.

While the COVID-19 pandemic was undoubtedly beyond the control of contract parties, whether it excuses performance of any particular contractual obligation depends on how the force majeure clause is drafted in the relevant contract, the nature of the pandemic's impact on a party's ability to perform, and related fact-specific contractual relationship conditions.
Parties who claim that a pandemic excuses them from performance may be able to rely on a force majeure provision that specifically mentions pandemics as one of the list of force majeure events. In other circumstances, parties will rely on catchall language like other similar causes (as mentioned above) or included but not limited to, which are meant to ensure that courts interpret force majeure correctly.

The list of force majeure events in a force majeure clause shows but does not exhaust the meaning of force majeure, according to these and related phrases. The COVID-19 pandemic is similar to the types of catastrophes that are commonly described in force majeure agreements. Pandemics, like wars and natural catastrophes, are unusual occurrences that cause huge disruptions to daily living and normal economic activity. Even if a force majeure clause does not specifically mention pandemics (which most do), a party claiming force majeure due to the COVID-19 pandemic will be able to argue that pandemics are implicitly covered.
 
Conclusion
Owing to the COVID-19 pandemic, the concept of force majeure has become a contentious matter, as there have been delays in payments, completion of conditions precedent, and other requirements agreed upon by the parties to contracts, the pandemic has resulted in the breaking of many contracts, and further due to numerous lockdowns and restrictions, force majeure has become a vital ground on which parties bound to execute under a contract are attempting to defend themselves.

Therefore once judgements are rendered in this regard, a clear understanding of force majeure being employed during the COVID-19 epidemic will emerge. Until that time comes, the court will use force majeure on a case-by-case basis.

Written By: Adv. Ruth Diya Chattopadhyay

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