May 19, 2020 16:59 UTC
Jun 14, 2020 at 07:21 UTC
Can Covid-19 fall under the Legal phrase of Force Majeure?
It is evident that apart from the chaotic and disturbing impact of COVID-19 on the economy, the health of the people of different countries worldwide, and now it is also penetrating into the trade and commerce of our country. We are well aware of the lockdown phases, which recently got extended till 31st May 2020. There is a possibility of various contracts, agreements and event which might have got affected in this process. The questions which are being raised is whether this pandemic can be considered as an act of god or legally speaking, “Force Majeure”. This article deals with the basic understanding of force majeure and its relation with the pandemic around the world. It states the event taking places and different ways how the other countries are taking in respect of force majeure in the functioning of industries.
The article also gives a perspective of the effect of COVID-19 and force majeure on various industries and the intentions of the judiciary in treating COVID-19 as a force majeure. It has impacted various business and contracts are being rendered void due to non-performance. However, the Indian statutes do not include this concept directly by defining, but we can find reflections of it in Section 32 and 56 of the Indian Contract Act, 1872. We have seen the way the performances are being disrupted and that is not within the control or such calamity cannot be anticipated too.
Hence, in this view based on the current situation and global impact of COVID-19 which is the primary reason for the downfall of the business, economy and various other sectors in the market, it has become important to understand its correlation with force majeure.
Force majeure is a French phrase which means a “superior power or force”. It is an occurrence of any event which was not anticipated or which is beyond the control of mankind. It helps the contracting parties to safeguard themselves in a situation where the performance of the contract becomes impossible or impracticable due to uncontrollable circumstances. Force Majeure basically involves situations like war, the act of God, natural calamities, strikes, epidemics, pandemics etc. The Indian statutes although does not deal with this concept specifically, but however Section 32 and 56 of the Indian Contract Act, 1872 has few aspects. The intention of any Force Majeure Clause (FMC) is to protect the parties for non-performance of contractual duties due to circumstances which are not under his control.
Section 32 of the Indian Contract Act, 1872 states the
“Enforcement of contracts contingent on an event happening”.
It further states that
“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.”
The contract to do act afterwards becoming impossible or unlawful. A contract to do an act which, after the contract made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. It should be also taken care of that the impossibility should be natural and beyond control and shall not be self-induced by the parties or due to negligence. However, FMC cannot be implicitly used in contracts, but has to be specifically mentioned in such language, to enforce the same.
In case if there is no mention of FMC in the contracts and agreements, the parties can also include the provisions of Section 56 of the Indian Contract Act, 1872 which deals with frustration of contract. To establish this law, the parties need to justify that the performance of the contract became impossible by happening of an event which technically was not under control of the concerned parties, or beyond prediction.
Inter-relation between COVID-19 & Force Majeure
Force Majeure and COVID-19 are correlated in many ways. This calamity is making it troublesome for the parties to perform their contractual duties and obligations. The government has declared coronavirus as pandemic on 11th March 2020. The question is whether the force majeure includes the concepts of a pandemic like coronavirus and whether we can involve it in the contracts. The inclusion of the above will provide clarity to the legal aspects of the contract in cases of extraordinary situations which are beyond the reasonable control of the parties. As we see, there are certain contracts which are getting cancelled and few are impossible to perform due to the lockdown situation prevailing in our country. With this, the question arises whether any person can be excused from performing his duties, due to COVID-19 being declared as a pandemic. In my opinion, this is a fact-specific consideration which is dependent on the nature of the contract and part of the performance to be done by the parties and the terms of the contract in specific. Every contract is unique and so are its terms and duties. In this pandemic, it is highly impossible to perform any contract which involves public gatherings like concerts, events, sports etc. The contract related to delivered of goods or services also cannot be fulfilled as there is a restriction on going outside to avoid the spread of coronavirus.
Coronavirus and Force Majeure is related in respect to its impossibility clause, which unable any person to predict the situation which is going to take place. Likewise, the spread of coronavirus was also impossible to predict, and any reasonable person couldn’t have comprehended the said spread. The parties also couldn’t have anticipated it. We can strongly say that coronavirus does come within the legal phrase of force majeure on the basis that it couldn’t have been predicted.
COVID-19 pandemic has made it difficult for the parties to perform their obligations. The possible instances where FMC can be included are first, if the contractual definition of a force majeure event expressly includes a pandemic. Inclusion of pandemic to the list of force majeure events will provide clarity as to whether COVID-19 outbreak would trigger a force majeure clause in a contract, or (b) if the force majeure clause covers extraordinary events or circumstances beyond the reasonable control of the parties.
Around the world
As the pandemic is the current topic of discussion, everyone, every industry, every state and country’s government are taking reasonable and extra precautionary measures to avoid the situation as much as possible. The Indian Government in this regard, issued a notification as well, in which they have taken care of the disastrous impact of coronavirus on different industrial sectors and our economy which will help in balancing our markets too. There are certain departments of government which have taken steps in respect of force majeure.
On February 17, 2020, China Council for the Promotion of International Trade (CCPIT) has already issued over 1600 “Force Majeure Certificate” to thirty sectors which are worth USD 15billion.
In India, The Department of Expenditure, under Procurement Policy Division, the Ministry of Finance had released its notification on February 19, 2020 which is dealing with force majeure under the Manual of Procurement of Goods, 2017. It has mentioned that FM clause tends to freeze the parties to perform their contractual obligations and prevents them to fulfil the terms. FM clause doesn’t excuse party’s non-performance, but only suspends them for a certain duration. It also states that the firm has to intimate the same as soon as the event takes place, else it cannot be done ex-post facto. It has given a time period of 90 days where if the obligation remains undone even after this time frame, either party has the option to terminate the contract with no financial repercussions on both sides. The disturbance in the supply chain will be covered in the FMC (Force Majeure Clause) as a case of natural calamity, and hence parties and organisations can invoke the same whenever necessary.
Likewise, other states and countries have also taken relevant steps for inclusion of FMC in their industries and business for the better and smooth functioning of a business.
Effect of Force Majeure and COVID-19 on industries
It is pertinent to observe that there are various changes and notifications being released in regards to the applicability of the FMC. The Ministry of New & Renewable Energy (MNRE) in regards to the solar developers has decided to grant a suitable extension for projects on account of coronavirus in China and other countries in respect to the inclusion of FMC in their various projects and contracts, through the release of circular dated March 20, 2020. The parties can invoke FMC to prevent financial penalties if they miss out on any contractual responsibility due to outbreak of COVID-19.
Likewise, other ministries have also released similar notifications regarding the Force Majeure Clause. However, owing to the widespread effects on the economy caused by the pandemic, it is necessary to address the effect of the Force Majeure clause and the doctrine of frustration on those sectors which under the prevalent circumstances have a deeper exposure than others.
Recent incidents in judiciary
As we are well aware of the critical situation going on in the world, and now when all the organisations and the government itself has suggested invoking FMC in the contract and businesses, it has put the burden on the judiciary and has given them to have a quick check-in all the cases pertaining to the FMC and COVID-19. All the cases should be read on the basis of their facts and facts only and have to be determined whether the parties are genuine enough to invoke FMC or is it just a random excuse for their non-performance. The parties need to prove and justify that the duty of reasonable care has been taken and all precautionary measures have been adopted to prevent the non-performance. This is absolutely subjective and shall be interpreted according to the case. It should be taken care of that the event shall be and must be causative to the breach of contract and the same shall be proved.
However, this law was settled in the year 1954, where SC in the case of Satyabrata Ghose v. Mugneeram Bangur & Co. has led down the entire jurisprudence, Justice Nariman has summarised the same in the recent case of 2017. The Delhi High Court Division Bench recently released in TGV Projects and Investments Private Limited v. the National Highways Authority of India, though observing the Supreme Court’s decision as discussed above, observed that if unexpected circumstances arise during the execution of the contract, rendering it difficult to execute, the fundamental foundation will be excluded so that the contract thus does not need to be enforced because it would be unjust to rely on its execution under these circumstances.
Recently, in the case of Standard Retail Private Limited v. GS Corporation & Others, the High Court of Bombay has decided that in this outbreak of coronavirus, if the seller has performed its part of the contract, the purchaser cannot use the FMC to delay the payment. The payment has to be done without making any claims.
Therefore, taking all aspects into consideration, we can justify that coronavirus can be included in the legal phrase of force majeure. There is a high chance of impossibility of performance of various contractual and other tasks due to COVID and the lockdown situation of our country. The authorities are focusing and emphasizing on staying at homes and do all possible work online. Hence, even in the contract, this should be taken care of that it anything which can be done through electronic means, shall be adopted. The court a government should see that no one can take undue advantage of the FMC.
 Poorvi Sanjanwala and Kashmira Bakliwal, ‘What is force majeure? The legal term everyone should know during Covid-19 crisis’, The Economic Times, May 4, 2020.
 Section 32, Indian Contract Act, 1872.
 Vijay Pal Dalmia, The Doctrine of Frustration and Force Majeure: Covid 19, (May 2, 2020), available on Source Link
 Bharat Vasani, Molla Hasan, Samiksha Pednekar & Esha Himadri, COVID-19: OFFICIALLY A PANDEMIC, (May 2, 2020), available at Source Link.
 Government of India, Ministry of Finance, Department of expenditure, Procurement Policy Division, Force Majeure Clause (FMC), No.F. 18/04/2020-PPD, available at Source Link.
 Abhishek Bagga and Gaurav Singh Gaur, State-Wise Applicability of ‘Force Majeure’ Clauses in India Amidst Outbreak of Covid-19, (May 3, 2020), available at Source Link.
 Prachi Kothari, India invokes Force Majeure Clause as renewable supplies face disruption, Energy News live, (May 4, 2020) available at Source Link.
 AIR SC 44 (1954).
 Energy Watchdog v. CERC, 14 SCC 80 (2017).
 (173) DRJ 717 (2019).
 Commercial Arbitration Petition (L) NO. 404 OF 2020.