Force Majeure & Covid-19
Force majeure in Roman law means a “superior force” and also known as acts of God. The force majeure is a defence in law to relieve the liability of the party to a person of his commitments. This Force majeure is usually an unforeseen event that could not be stopped and was beyond the party’s control which is a “greater force”. Force Majeure cannot also be from human actions eg. War etc.
COVID-19 AS FORCE MAJEURE AND ITS IMPACT
Since the onset of the pandemic the world has faced the worst crisis, and India this year has been one of the most affected countries in the world. Covid-19 has not only affected the health care system but various sectors of the economy. Indian has fore sure faced the worst humanitarian crisis. Restriction on goods and services and human movement has severely affected a lot. Several sectors are affected and are discussed below in detail;
- The Indian Contract Act 1872:- though this does not talk about force majeure but Section 32 of the Indian Contract Act talks about contingent contracts. If the situation is such that the obligation cannot be completed then the contract becomes void. In Energy Watchdog v. CERC (2017) the court held that if a contract is having a clause in which it is express or implied force majeure the dissolution of the contract would take place and such cases are dealt with under Section 32 of the Act.
ESSENTIALS:- The defence of force majeure depends on the following factors;
- Occurrence of an unforeseen event
- performance of the promise was impossible
- all reasonable measures were taken care of
NOTE:- Since the purpose of this concept is to protect the party from any consequence which is not under his/her control and he has done all reasonable efforts. It is also mandatory for the non-performing party to inform the other party about the event related to force majeure.
Several contractual obligations are stuck mid-air, the economy being hit badly has several businesses closed. Though many companies have decided to change and analyze the clause related to force majeure.
- TRADE: Trade in India is severely affected as private consumption, external trade and investment support the GDP and all three of them are affected by lockdown due to Covid-19. Further natural phenomena like ‘La Nina’ are affecting the cost of edible oils and are another hit on the Indian economy as around 53% of edible oil is imported in India.
- Aviation: The airlines are suspending the contractual obligations on the ground of force majeure, several airlines have put their crews and planes on hold as there is a ban on foreign travel globally and this is affecting the airline companies as well.
- Hospitality:- As mentioned above there is a travel ban and hence there are no tourists which have left hotels and other hospitality indebted. OYO is one example of hospitality which have invoked the defense of force majeure with their contracted hotels.
- Banking: Since last year there are several news of loan moratoriums and relieving the stress on the debtors to pay the loan.
- Real Estate: Due to the migration of labor back to their villages the scarcity has surely affected real estate a lot. In the contracts where there is a lessor lessee relation and the tenure is coming to an end the concern arises. Hon’ble Supreme Court in Raja Dhruv v. Raja Harmohinder Singh (1968) has cleared that the doctrine of frustration of contract under section 56 of the Indian Contract Act is different from the force majeure and it is not applicable to lease deed as the lease is governed under the Transfer of Property Act.
IS COVID A FORCE MAJEURE OR NOT?
The Ministry of Finance and Government of India on 19-02-2020 through a notification declaring the coronavirus as a natural disaster and as force majeure. It is partly applicable as the peak period relaxes the obligation shall be completed. The notification also indicated that the parties should have a specific clause to mention this event and the consequences thereof. If due for some reason the clause is not mentioned then one can rely on the legal maxim Impossibilium nulla obligatio est means ‘there is no obligation to do impossible things. This doctrine was used in the English case, Taylor vs. Caldwell, it was held that where there is an unforeseen event which occurred during the performance of contract and makes it impossible to perform, the fundamental basis of the contract stated that it need not be further performed and insisting upon such performance of contract would be unjust.
It is to be noted that the concept of “pacta sunt servanda” which means “agreements must be kept” contradicts the above maxim. According to this concept, the contractual liability shall not be an escape and the liability should be performed in any circumstances. This concept has evolved as various natural threats in the form of war, nuclear weapons, earthquakes, etc are affecting the lives of humans. And hence the need to understand the external and unforeseen threat was a must.
CASE LAW:- In Satyabrata Ghose v. Mugneeram Bangur & Co., (1954) Hon’ble Supreme Court stated scope of Section 56 Indian Contract Act as mere impracticality of performance is sufficient enough to decide whether the event is force majeure event and it is not important for an act to be impossible. It was further held that the word “impossible” mentioned in Section 56 Indian Contract act specifically does not mean ‘physical’ or ‘literal’ impossibility.
An act that is force majeure is surely going to be an inevitable act and its intensity can be understood with that. Important to mention a legal doctrine, “Clausula rebus sic stantibus” which means that contractual obligations are binding only when the issues persist the same as they were at the time of initiating the contract and not otherwise. The obligation can be fulfilled later if the party wishes so with the formation of a new contract but the inevitable situation shall not affect the non-performing party if it is justified. The ongoing pandemic has left several contracting parties on the hospital bed and even some have died. In these circumstances, it is mandatory and more humane to understand the situation.