Articles

As Legal practitioners we have drafted so many Commercial Contracts and have added the Force Majeure clause number of times, fortunately, without having much opportunity to face the real life action of this clause so far! This is definitely the most overlooked clause by most of the contracting parties during negotiations. However, COVID-19 situation has made all of us to rethink on the gravity of this NOT-SO- GLAMAROUS CLAUSE. According to “The Guardian”, the first case of Covid-19 was traced back to 17th November, 2019 which was weeks before the announcement of this newly discovered virus in China. The Chinese government was broadly criticized for failing to break the news globally regarding the seriousness of this virus, and it was too late to stop the multiplying effect of the deadly contagious virus. On 11th March, 2020, WHO(World HealthOrganization) declared Covid-19 as a pandemic after carefully assessing the threat it contains globally. The Covid-19 is malevolence in the eyes of the global economy as it severely threatens the health and economic wellbeing of populations across the globe. The world economy fuels on trade and commerce between countries.. The commercial contracts are drafted in a manner to suit the nature of business and efficient enforcement of such obligations in a time bound manner while also keeping in mind, the contingencies which  are beyond the control of the parties to the contract. Insertion of a Force Majeure clause gives a way out from such unpredictable occurrence of any such devastating events that frustrates the parties from performing the contract on time. “Force Majeure” or “vis major” (Latin) means superior force. The term is similar to Act of God and widely applied to commercial contracts by way of insertion of a Force Majeure Clause. Force Majeure is an exception to what would otherwise result in a breach of contract. Such a clause, allows a party to a contract to take a defense for non-performance or delay in performing contractual obligation due to unanticipated circumstances which the parties have no control over, such as strike, crime, riots, war, pandemic or an event of Act of God (uncontrollable natural forces like earthquake, volcano eruption, flood, hurricane. These clauses are often mis-used by parties to refrain from performing undesirable obligations for which the Court scrutinizes such cases to examine if such event prevented the party from performing its obligations and if any other preventive and cautious measures were adopted. Basically, the willingness and the efforts made by the party to deliver what is promised under the contract needs to be scrutinized to ascertain the applicability of the Force Majeure clause Covid-19 is a situation which has impacted the globe at a very fast pace due to its contagious nature and currently India also like many other countries is at its crucial juncture in the fight against Covid-19. Due to disruption in the supply chain and many other restrictions on movement of the citizens,  caused by the “pandemic”, there have been rising concerns about performing contractual obligations existing between parties to a contract. Most of the parties to contracts  are increasingly getting affected by this Act of God and “Force Majeure” and are contemplating to invoke the provisions for non-performance or  inability to perform contractual obligation due to the pandemic. GLOBAL SCENARIO: – China has also invoked “Force Majeure” to protect businesses by issuing force majeure certificates due to the epidemic. UK is applying the Doctrine of Frustration. Where frustration is applied, the parties are excused from all further performance and are not liable for damages for non-performance. The contract is permanently set aside. INDIAN SCENARIO: – A. The Concept of Force Majeure 1.    Force Majeureconcept is not specifically provided under the Indian Contract Act, 1872. It is a contractual term which is interpreted based on the manner it is drafted and embodied by the parties to the Contract. 2.    Force Majeure instances are governed by the Indian Contract Act, 1872 under Chapter III, Section 32 dealing with Contingent Contracts. The word “contingent” means occurring or existing only if (certain circumstances) are the case. Section 32 defines enforcement of contracts contingent on an event happening. 3.    Exhaustive or Inclusive contents of the Force Majeure clauses: – The contents arranged in an Force Majeure clause are significant when it is required to be invoked. A Force Majeure clause generally covers situations like the invocation of a war, an epidemic, a terrorist strike, floods, fire, lightning strikes, earthquakes, governmental action & embargoes etc….. the list may be  very long sometimes; which impede the performance of contractual obligations. However, in a situation where the Force Majeure clause is not very exhaustively drafted and crafted and in case the same needs to be invoked the aggrieved party would run the risk of burden of proof in case of a dispute on interpretation of the same, the recourse to an aggrieved party is litigation. However, COVID-19 is an unprecedent situation and one need not be worried about the burden of proof with respect to the incapability to perform due to various Lock Down notifications by the Government of India. 4.    A party having a force majeure clause in a contract, needs to prove before the Court, the happening of such an unprecedented event. If such an event makes it impossible for the party to perform its obligation/ the parties’ inability to perform for a particular period due to the intervening circumstances, such contract becomes voidable. 5.    Thus, the contract may be temporarily suspended or in case the intervening circumstances continue for more than reasonable period and causes hardship, the contract may be repudiated by the parties to contract. But what happens when a Contract does not have a force majeure clause? In such cases the party can invoke Section 56 of the Indian Contract Act, 1872 which enunciates the Doctrine of Frustration. Section 56 is based on the maxim “les non cogit ad impossibilia” which means the law does not compel a man to do that which he cannot possibly perform. The Doctrine of Frustration is greatly influenced by the English law and paves the way for parties to seek relief in cases of unprecedented supervening event which hinders performance