Home Contract COVID 19 AND THE INVOCATION OF FORCE MAJEURE CLAUSE

COVID 19 AND THE INVOCATION OF FORCE MAJEURE CLAUSE

FORCE MAJEURE

FORCE MAJEURE- THE CONTRACT OR THE STATUTE

WHAT IS FORCE MAJEURE?

The word “force majeure” is usually used by commercial parties to describe a circumstance or incident over which they have little power and over which they think they should have no responsibility. However, under English law, there is no legal meaning of the word “force majeure.”

Accordingly, “force majeure” is strictly a contractual concept as a matter of English law and must have been expressly included in the contract by the parties. Only by what has been included in the contract is the nature of its activity described and dictated.

After the occurrence of a stated incident or occurrences outside the control of the parties, a force majeure clause will usually exempt either or both parties from executing the contract. These incidents also include an act of nature (particularly important in the aftermath of hurricanes Harvey, Irma and Maria), rioting, revolt and the outbreak of war.

CONSTITUENTS OF A FORCE MAJEURE CLAUSE

It is vital that the force majeure clause is made very clearly without being at a risk of becoming null and void due to uncertainty. A force majeure clause should generally include:

  1. A LIST OF EVENTS

In such a list, the events which would constitute a force majeure event should be specifically given such as weather, strikes, wars etc. this clause could also include an unspecified provision which could be intended to converge other events that are not mentioned specifically in the list but lie out of the control of the parties.

2. THE REMEDY

It states the course of action to be followed by the contracting parties as to what would be the remedy given out if such an event takes place. The clause could permit either extension, alteration or complete termination of the contract.

3. OBLIGATION TO REPORT THE EVENT

This clause specifies to whom the report should be submitted, the form of the report and the time period during which it should be submitted. It is important to carefully follow any such provision when invoking a force majeure clause.

COVID-19 AND ITS TREATMENT AS A FORCE MAJEURE EVENT

After the Great Depression of the 1930s, COVID-19 has caused the broadest and deepest health and economic effects of any single non-war event. The virus and the associated governmental interventions have now been woven into a single case that cannot be disaggregated for legal purposes conveniently or simplistically. In scope and scale, both of these components are unprecedented, and both will present challenges for businesses and governments seeking to manage the effects of the virus and government actions taken in response to it globally. Whether the COVID-19 case constitutes a force majeure under national or international law is one problem that has quickly arisen.

EFFECT OF COVID-19 ON BUSINESS

The double-edged aspect of the problems of force majeure poses a challenge for governments. Many multinational firms have had to suspend or massively change operations. In some cases, this may be for direct health reasons: managing certain activities and keeping employees safe from COVID-19 is simply impossible. Government measures will have forced business closures in other cases.

And in other instances, government responses outside one company’s jurisdiction may have interrupted the necessary supply chains or caused the products’ markets to collapse or become inaccessible due to interruptions in transportation. The key argument is that both governments and corporations can depend on force majeure in order to justify policies in relation to the possible health impacts of COVID-19 and the economic impacts of virus control. Today, these concerns are so interconnected as to be indistinguishable.

COVID-19 – A FORCE MAJEURE EVENT

If ‘epidemics’,’ pandemic’,’ disease outbreak’ or even ‘public health crisis’ is specifically included in the definition of force majeure, the current situation relating to COVID-19 may fit within that clause. A reference to government action as a force majeure case, including ‘actions, orders, rules, or laws of any government’ or ‘government order or rule’ may also be included in the clause. Regulations and executive orders restricting, inter alia, the size of meetings or mandating the closing of such institutions issued by the municipal government or authorities, which qualify as force majeure cases, where such clauses are present.

The spread of the COVID-19 pandemic and lockdowns imposed by many nations, as illustrated above, have made contract performance difficult and/or impossible. Until recently, India had been under a full lockdown since March 25, 2020. All commercial operations that save a few ‘critical services’ have been suspended. As a result, Indian courts began to witness the onslaught of inter-alia contractual conflicts revolving around the doctrine of Frustration. As can be seen from the latest Bombay High Court and Delhi High Court Orders, the initial approach of the Indian Courts has varied from case to case.

A few of the landmark judgments have been given in brief below

LANDMARK JUDGEMENTS

  • Rural Fairprice Wholesale Ltd. & Anr. Vs IDBI Trusteeship Services Ltd. & Ors

In this case, the Bombay High Court acknowledged the market situation in the light of COVID-19 and noted that the share market had crashed as a result of COVID-19, so it was necessary to prohibit the bank from acting on the sales notices and to order the withdrawal of any pending sales orders for the pledged shares.

  • Standard Retail Pvt. Ltd vs Gs Global Corp and Ors.

The Bombay High Court declined to grant the petitioner an interim measure, noting that the commodity in question was an essential item and that it was only for a short time that the lockout took place. Consequently, it is not necessary for the plaintiff to rescind its contractual duty to make payments to the respondents.

  • M/s. Halliburton Offshore Services Inc. vs Vedanta Limited & Anr.

The case linked to holding back the invocation of bank guarantees. While granting interim relief on the invocation of bank guarantees, the Delhi High Court observed that, in the nature of force majeure, the country wide lockout was prima facie. It may also be said that, as would explain the grant of the prayer, special equities exist for the injunct invocation of bank guarantees.

  • Indirajth Power Private Limited v. UOI & Ors

On account of the lockdown in the country due to the spread of the COVID-19 pandemic, the petitioner sought prohibition of the bank guarantee inter-alia, which could lead the petitioner to be declared an NPA.

While observing the actions of the petitioner, i.e. despite an extension of 12 months, the Court was not able to satisfy its duty under the contract, it declined to grant the petitioner relief. The Court noted that the status of the applicant under the agreement was not impaired by the imposition of a lockdown.

The solution of the courts was to analyze the problem on the basis of the facts of each case and the parties were given relief accordingly. In a case where success is otherwise feasible, parties should also stay away from attempting to demonstrate frustration. In addition, the proximity of the case to the non-performance that is not attributable or foreseeable by the parties is what achieves importance and thus falls under the three tests highlighted above.

The condition of COVID-19 may be seen as temporary, making it impossible for parties to put an end to contracts simply because of dissatisfaction or failure to perform.

CONCLUSION

One of the primary problems that occur during difficult times for trade are concerns about force majeure clauses, but with vigilant adherence to their contracts and applicable law, parties can effectively negotiate these turbulent waters. A more in-depth review of the approach followed by the Courts on the topic of force majeure indicates that there are no straight jacket rules with regard to the applicability of the notion of force majeure to save a party from contract performance.

The solution of the courts was to analyze the problem on the basis of the facts of each case and the parties were given relief accordingly. In a case where success is otherwise feasible, parties should also stay away from attempting to demonstrate frustration. In the invocation of the force majeure clause under Indian law or under the applicable contract, the notion of ‘one size fits all’ will be anathema.

In the study of the applicability and enforceability of the terms of the contract, the local procedures, the use, the instructions of the legislative bodies, the basic language of the contract, the details relating to the pandemic affecting the parties, etc., are relevant.

REFERENCES

Must Read

DO WE REALLY NEED EDUCATED POLITICIANS?

India, the biggest democracy in the world where people choose their own representatives to rule and have...

A PERUSAL OF THE MEDICAL TERMINATION OF PREGNANCY BILL 2020

INTRODUCTION The Medical Termination of Pregnancy Bill, 2021, was recently approved by the Rajya...

IS TWITTER ENRAGING FARM PROTESTS?

#farmers protest What would you know about the cost of one tweet, Ramesh Babu? One tweet has shaken...

SEXUAL HARASSMENT OF WOMEN AT WORKPLACE

“Legislation may not be the best means to control a problem which is one of society; what is important is to bring...

Related News

DO WE REALLY NEED EDUCATED POLITICIANS?

India, the biggest democracy in the world where people choose their own representatives to rule and have...

A PERUSAL OF THE MEDICAL TERMINATION OF PREGNANCY BILL 2020

INTRODUCTION The Medical Termination of Pregnancy Bill, 2021, was recently approved by the Rajya...

IS TWITTER ENRAGING FARM PROTESTS?

#farmers protest What would you know about the cost of one tweet, Ramesh Babu? One tweet has shaken...

SEXUAL HARASSMENT OF WOMEN AT WORKPLACE

“Legislation may not be the best means to control a problem which is one of society; what is important is to bring...

ANALYSIS OF NEW LABOUR LAWS

In the current scenario, organized sector comprises of only 10% of employment sector. Organized sector is a...