Invoking Force Majeure clause amid Coronavirus Pandemic: Lawyers Advice on Indian Corporate Laws | Corporate Law Advice in Delhi NCR | Corporate Lawyer in Delhi NCR | Corporate Attorney in India

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The coronavirus or Covid-19 has been declared as a pandemic by the World Health Organization (WHO). This pandemic has led to a national lockdown by the Government of India preventing us from stepping out of our houses. This outbreak and the lockdown as its consequence have posed a lot of problems. Owing to the lockdown and the need for people to quarantine themselves, a lot of businesses and a variety of contracts have been affected making it hard for the parties to perform their obligations towards the contract. Due to this unfortunate situation the parties are searching for defenses to save themselves from breach of contract and a principle of civil law, pacta sunt servanda which means “All agreements must be kept”. One such defense is Force Majeure.

Force majeure is a French term which means Superior force. It is defined by the Black’s law dictionary as an event which cannot be anticipated or controlled. A force majeure clause is a contractual clause which says that in case of any unforeseen event or any event beyond the control of the contractual parties, the parties’ contractual liability is excused or kept off for the duration of force majeure. Events that are considered force majeure are such which are beyond human control like Act of God, strikes, lockdowns, change of law, etc. The Force Majeure clause is not explicitly defined anywhere but it finds its mention in section 56 and section 32 of the Indian Contract Act, 1872. Section 56 states that “An agreement to do an act impossible in itself is void”. Section 32 which talks about contingent contracts states that “If the event becomes impossible, such contracts become void.” Since force majeure clause is not recognized by the law as a separate legal concept, it is dealt with by a case by case approach. The facts of the case and the wording of the clause in the specific contract are taken into consideration. There are many precedents that are relevant in interpreting these clauses especially in context of a pandemic. The scope of force majeure is very wide and it does not just include all the aspects or events specified in the contractual clause but it also includes the events which did not exist at the time the contract was made. This was held in the case Navrom v. Callitsis Ship Management.

When a party is claiming for a defense under the force majeure clause, there are certain essentials the party should consider. These essentials exist in the force majeure clauses of contracts. They vary from contract to contract.

1. Before claiming for the force majeure clause the party should inform the other party through a notice about doing so. The clause may require the party to give the notice either within a certain number of days of the event or a notice ahead of an event contemplated by the contract. Timely notice is very essential as a failure of this may lead to the party not getting the benefit of the force majeure clause.
2. The manner in which the notice should be sent is also described in the contract and the party must abide by that.
3. The party claiming the clause should also ensure and prove that the specific event had a direct impact on the ability to perform the contract.

Invoking force majeure clause during the Coronavirus Pandemic
As spoken about above, the prevailing coronavirus situation has slowed down the performance of a variety of contracts. This has led to people seeking the defense of force majeure. If a party of a contract wants to invoke a force majeure clause on account of a pandemic like COVID19, it is essential that pandemic is described under the force majeure clause in their contract. If it is then it will be dealt with as per section 32 of the Indian Contract Act, 1872. But in the real life scenario, most force majeure clauses in contracts rarely involve pandemics or epidemics as they are least anticipated. Even events like government restrictions as a result of pandemics which are force majeure events may also not be mentioned in the contractual clause. This makes things hard as force majeure is not defined in a detailed manner anywhere and the wording of the contractual clause is the only source of reference the Courts can use to decide such cases. But even in such cases, one can be excused from performance of contract as per one of the general principles of contract law. The general rule of contract law states that a party to contract can be excused from performance if the contract becomes impossible or if the core purpose of the contract has been frustrated (section 56 of the Indian Contract Act, 1872).

To put the force majeure clause to action, it is important that the performance of the contract has been frustrated. It cannot be invoked in contracts relating to real estate leases as they are not affected by the pandemic. This was supported is cases Raja Dhruv v. Raja Harmohinder Singh 1968 AIR 1024 and Sushila Devi v. Hari Singh 1971 AIR 1756 where the Hon’ble Court held that force majeure as per section 56 of the Indian Contract Act, 1872 does not apply for contracts which are concluded. Another example where force majeure clause does not apply to is the LIC coronavirus death claims.

It is essential that force majeure clause as a tool should not be misused as an excuse for not performing the contracts. For example, SARS epidemic which happened in 2003, did not excuse the tenants from paying their lease agreements even though they were not allowed into the leased premises owing to the 10 day isolation period as declared by the government. This was case Li Ching Wing vs Xuan Yi Xiong, 2003. In this case the Court held that the 10 day isolation period was not significant or related to the two year lease. It further held that even though SARS was unforeseeable, it did not change the nature of the contractual rights and obligations of the parties in the case.

Now we come to the state of the contract after the force majeure clause has been claimed. The clause usually explains the state of the contract after the force majeure clause has been claimed and it varies from contract to contract. Some contractual force majeure clauses provide for termination of the contract. Some contracts excuse delayed performance. They provide that any failure to perform the contract owing to a triggering event will not be a breach of contract under the particular contract.

The present coronavirus situation and the lockdown following the pandemic have indeed posed a lot of problems to the corporate world. It locked all of us in our houses and made it difficult for businesses to honor their contractual obligations. In such times of distress where one is forced to quarantine and keep safe, force majeure definitely acts as a saviour.
Authored By: Adv. Anant Sharma & Sanjana Akasam