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Force Majeure Clause And Its Application In COVID 19

Written By: Aadya Soneja




INTRODUCTION


The term "force majeure" is defined as "an event or effect that cannot be expected or controlled," according to Black's Law Dictionary. A force majeure provision in a contract relieves the parties from the uncertainty of the effects of an incident over which they have no control. It is incorporated into a contract to avoid ambiguity in the case of a supervening incident beyond the parties' control and for which they cannot be held liable. In a contract, the force majeure clause reads as follows: “Neither party shall be liable for any delay in performing, or failure to perform, its obligations under the agreement if such delay or failure arises from a Force Majeure event. If a delay is caused, the affected party shall be entitled to a reasonable extension of time for performing its obligations. Notice of cancellation or postponement under this provision shall be received, by the non-cancelling party, within five days of such occurrence.


“Force Majeure” shall mean any cause beyond a party’s reasonable control including, but not limited to, governmental orders, regulations, labour strikes, epidemic, an act of war or terrorism, acts of God, fires, floods, curtailment of transportation, electrical failure, or other emergencies including university closure.” Although there is no particular section in the Indian Contract Act,1872 that define force majeure.


Two relevant sections deal with the force majeure clause. These two sections are:

  1. Section 32, Indian contract act 1872 “Enforcement of Contracts contingent on an event happening - 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”.

  2. Section 56, Indian contract act 1872 (doctrine of frustration) Agreement to do impossible act - An agreement to do an act impossible in itself is void. "Contract to do act afterwards becoming impossible or unlawful. A contract to do an act which, after the contract made, becomes impossible or, because of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful".


ESSENTIALS TO INVOKE FORCE MAJEURE


  1. Happening of an unforeseeable event.

  2. The event such happened must be beyond the control of human beings.

  3. All reasonable means must be taken to mitigate the specific damages.

  4. The burden of proof rests with the affected party to demonstrate that non- performance of the contract has an impact on them.


FORCE MAJUERE AND VIS MAJOR


Force majeure is often confused with the concept of vis major. But the major difference that lies between the two is that force majeure covers both types of unforeseeable events i.e. natural and artificial. Whereas, vis major only covers the unforeseeable events that are natural.

In the case of Dhanrajamal Gobindram v. Shamji Kalidas and Co., the Supreme Court has stated that the idea of Vis Major is regarded as a subset of Force Majeure.


FORCE MAJEURE CLAUSE IN PANDEMIC


Acts of God, wars, terrorism, riots, labour strikes, embargos, acts of government, epidemics, pandemics, plagues, quarantines, and boycotts are all examples of force majeure events that can be specified in contracts. The Ministry of Finance of the Government of India published a memorandum on February 19, 2020, declaring that supply chain disruptions caused by the influence of Covid-19 will be covered under the force majeure clause and will be deemed a natural calamity. It is defined as an unpredictable or uncontrollable event induced by natural forces that include human acts and must be included in the category of "force majeure event" and taken into account under the force majeure clause and put into action whenever necessary. However, it was stated in the memorandum that this clause does not excuse the non-performance of the party entirely. It only suspends the contract for the duration of the force majeure clause. One thing to keep in mind is that all disrupted contracts will not be included, and they will be unable to use force majeure provisions to defend the non-performance of the contract due to any unforeseeable incident.


Three major factors must be met for force majeure to be granted:

  1. Before engaging in a contract, the inclusion of a force majeure clause is a necessary condition.

  2. Before entering into a contract based on the provision of force majeure, the relevant parties must check whether the phrase "pandemic" is specified in the contract.

  3. Third, it is largely determined by how the court interprets the language or provision, which changes from case to case.


IMPLEMENTATION OF FORCE MAJEURE IN INDIAN COURTS


In India, there are severe penalties for incorrect use of the force majeure provision, and the courts have strict compliance regulations for contracts containing force majeure clauses. The court will not grant permission to the parties or favour them to resort or adopt the process of contract frustration until and until there is convincing proof that the contracts cannot be further executed. The court has the authority to dismiss any application under the following circumstances:

  • There is a possibility of performing only a portion of the contract's obligations,

  • There is a future change of circumstance that will influence the contract's expected or ordinary performance.


CONCLUSION


To conclude, we can say that the force majeure clause in the contract proves to be a big relief to the parties in such unexpected and unforeseeable events as a pandemic. It discharges the parties from its liability as a result of the impossibility of the contract. Having said that, the doctrine of frustration, as well as force majeure clauses in a contract, play a vital and indispensable role, as the contracts of force majeure have been examined carefully and in detail since the pandemic, and in the era of global disruptions caused by the outbreak of covid-19, many companies are having difficulty performing contractual obligations, and the term "force majeure clause" plays a very important role here. It is important to remember that parties must be able to identify the source of non- performance of a contract, and force majeure provisions such as pandemic-epidemic must be included to imply the impact of the deadly Covid-19 outbreak and other worldwide outbreak outbreaks that impacted thousands of people as well as the global economy. As a result, contracts including a force majeure clause should be carefully scrutinised because it helps contractual defence, which is highly dependent on the express terms of the contract.


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