“Let This Also Be The Time For Us To Appreciate What We Have!!”
“Let The Force (Majeure) Be With You!!”
Covid-19 And Its Effects On The World Are The Talks Of The Town. No Wonder This Small Virus Has Created Major Havoc In The History Of Humankind. The Entire World Is Grappling Over The Pandemic Situation, Not Knowing What Will Happen Next. Lockdowns, Restrictions, Curfews, Rules And Regulations, Safety Measures, And What Not- These Are Words We Can Hear And Feel From Every Corner Of The World. The Degree Of Improbability Due To The COVID-19 Has Shifted The Focus Back On The Force Majeure. Force Majeure Clauses Have To Be Reconsidered If The Parties Wish To Seek Protection From All The Havoc And Pressures Created Owing To The Current Pandemic Situation. These Are Simple Boilerplate Clauses Present In The Contracts And Agreements That Can Save The Parties’ Agreement From All The Major Consequences Arising Due To The Factors Not In Their Control.
This Article Shall Understand The True Meaning Of Force Majeure And Why The Parties Should Reconsider It.
Etymology:
According To The Black’s Law Dictionary, Force Majeure Can Be Categorized As An Event Or Effect That Can Neither Be Predicted Nor Measured. The Ambit Of Force Majeure Covers Both “Acts Of Nature” (Natural Disasters) And “Acts Of People” (Human Disasters).
The Expression “Force Majeure” Is An Extended Version Of The French Cum Latin Phrase ‘Vis Major.’ The Term Is Used In A Wider Connotation And Includes All Human-Made Disasters Such As Strikes, Breakdown Of Machinery, Riots That Are Otherwise Not Included In The Ambit Of Vis Major.
Force Majeure- Contractual Right Or Statutory Right?
- Statutory Provisions:
To Understand The Concept Of Force Majeure, Reference Has To Be Taken From Chapter 3 Of The Indian Contract Act, 1872. The Chapter Deals With Contingent Contracts And Gives A Detailed Idea About Express Or Implied Clauses Connected With Contingent Contracts. (Energy Watchdog And Ors. V/S Central Electricity Regulatory Commission And Ors)
Section 32 Of The Act Deals With Enforcement Of Contract On The Happening Of A Particular Contract: “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.”
This Section Should Be Read Along With Section 52, Which Those Agreements In Which The Performance Of The Contracts Becomes Impossible Or Might Be Impossible At A Later Stage.
A Conjoint Reading Of Both Sections Gives Us A Brief Understanding Of How Force Majeure Clauses Are Operative And How To Deal With Them.
- Two Fundamental Principles Of Contract:
Force Majeure Clause Operates On Two Basic Fundamental Principles Of Contract, And It Is Important To Understand These Before Proceeding Towards The Understanding Of Force Majeure:
- Pacta Sunt Servanda – Speaks Of The Purpose Of The Contract Following The Terms Of The Contract.
- Rebus Sic Stantibus– This Principle Destroys The Foundation Assumption That The Parties Had When Entering Into The Contract. It Deals With The Discharge Of Contractual Obligations Owing To Events That Had Occurred.
- Impossibility Of Performance Of The Contract- The Given Principles Prove To Be Handy In Understanding The Concept Of Impossibility Of Performance Of The Contract And Invoking The Applicability Of The Force Majeure Clause. The Supreme Court In The Case Rural Fair Price Wholesale Ltd. & Anr. Vs. IDBI Trusteeship Services Ltd Has Interpreted Section 56 Of The Act And Noted That The Word “Impossible” Used In Section 56 Does Not Indicate Physical Or Literal Impossibility. The Performance Of An Act For Which The Contract Was Executed Is Not Impossible In The Literal Sense But Might Be Impracticable To Perform.
Thus, If Due To Unavoidable Circumstances Or Change Of Events Shakes Away The Very Foundation Of The Contract, It Is Practically Impossible For The Promisor To Perform The Promised Act.
Essentials Of Force Majeure:
The Following Are The Essential Ingredients Of The Clause:
- Occurrence Of An Unexpected/Unforeseen Intervening Event
- The Assumption By Parties That The Event Will Occur;
- Such An Event Shall Make The Performance Impossible/Impractical
- All Measures Are Taken To Mitigate The Circumstances.
- The Burden Of Proof On Party Claiming Relief By Invoking Force Majeure
Tests Determining Force Majeure Clause:
To Involve Force Majeure, The Results Of The Following Tests Have To Be Affirmative:
- Externality- The Defaulting Party Had No Stand-In Creation Of The Cause.
- Unpredictability- Inevitable And Unforeseeable Cause; And
- Irresistibility- The Cause Must Make The Execution Of The Contract Wholly Impossible.
COVID-19 And Principles Of Force Majeure
On The Happening Of Any Event Resulting In Frustration Of The Contract Due To The Act Of Choosing Or Election Of A Party, There Would Be No Protection Under The Doctrine Of Frustration. The Following Factors Would Decide Whether The Outbreak Of Covid-19 And Lockdowns Notifications By The Central And State Government Would Invoke The Force Majeure Clause In The Contract Or Not:
- Establishment Of The Connection Between The Force Majeure Event And Interruption To The Performance Of The Contract;
- Harmonious Construction With The Clauses In The Contract; And
- Compliance With The Condition Precedents Contained In The Force Majeure Clause.
Points To Consider While Invoking The Clause:
- Presence Of Force Majeure Clause
- If The Contract Contains The Force Majeure Clause, Section 32 Of The Indian Contract Act, 1872 Is Attracted. This Implies That The Party Is Relieved From Discharging The Duties Of The Contract By Invoking The Force Majeure Clause.
- In Case Of The Absence Of The Force Majeure Clause, Section 56 Of The Indian Contract Act, 1872 Is Attracted.
Factors Determining Frustration Of Contract Are:
- Has The Contract Allocated The Risk Of The Particular Event Occurring?
- Has There Been A Radical Change In Obligations?
- Was The Radical Change Due To The Fault Of One Party?
- Mere Difficulty Or Inconvenience Of A Party Is Not Forced Majeure.
Analysis Of The Current Situation:
When The Outbreak Of Covid-19 Happened, Back-To-Back Lockdowns, Restriction Of Movement, Trade And Commerce, Import And Export Of Materials, And Other Factors Had Adverse Effects On The Country’s Economy. The Entire Economy Was On Halt. It Was Impossible To Perform Any Activity, Which Is The First Time In The History Of Mankind That Such A Situation Had To Come. Halt To Economic Activities Couldn’t Be Possibly Foreseen, And No Prudent Man Could Have Imagined Of It. It Is Evident That When The Country Is Not Into Normal Functioning, A Wave Of Breach Of Duties And Contracts Are Bound To Happen And May Result In A Catena Of Commercial Contracts Or Any Other Contractual Disputes. To Treat A Particular Event As A Force Majeure Event Or Not Is A Matter Of Fact, And Each Case Has To Be Interpreted In Its Entirety. Hence, Based On The Current Circumstances, The Pandemic Situation Due To Covid-19 Can Be Treated As A Force Majeure Event. However, The Courts’ Interpretation Is A Matter Of Interpretation Whether A Contract Containing A Force Majeure Clause Would Cover Such Restrictions In Movement And Lockdowns Imposed By The Government.
Another Point To Be Looked Into Is The Possible Relaxations And Bailout Packages The Government Announced From Time To Time. If There Were Heavy Consequences Of The Pandemic, The Government Has Also Given Certain Reliefs To The Affected People. However, To Claim That Relief, The People Have To Satisfy The Conditions. In Such Circumstances, The Courts Have To Deal With The Matter So That One Right Is Not Protected At The Cost Of Others’ Rights. Understanding The Sensitivity Of The Situation, The Balance Of Conveniences Of Both Sides Have To Be Ascertained, And Then Reasonable Reliefs And Compensations Have To Be Decided To Ensure One’s Legal And Contractual Rights Are Fully Safeguarded In The Process.
Having Said All Of This, It Is To Be Noted That There Is No Concept Called Implied Force Majeure. This Certainly Means That To Avail The Benefits And Advantages Of Force Majeure, And It Has To Be Expressly Mentioned In The Agreement.
The Bottom Line:
To Invoke The Force Majeure Clause Based On The Current Pandemic Situation, The Clause Must Be Mentioned In The Contract. Be It Commercial Disputes, Tenancy Disputes, Or Any Other Contractual Obligation, And To Seek Relief From The Performance Of One’s Contractual Obligations, The Contract Must Contain A Force Majeure Clause.
