The recent COVID-19 Pandemic has brought the global supply chains to a great chaos. Businesses are having a tough time in performing their contractual obligations. The opposite parties are seeking to delay, avoid or terminate the contracts due to the presence of this pandemic.
Every commercial contract contains a Force Majeure clause. It aims to excuse a party from liability for failing to perform contractual obligations due to reasons beyond his control. The Force Majeure clauses are not standardised and it depends on how each party drafts the contract. The ‘Principles of International Commercial Contracts’ lays down the four elements to establish the Force Majeure clause: The Impediment must be beyond the control of the party, the Impediment must have a continuing effect on the performance of the party, the party failing to perform must provide notice, the invocation of Force Majeure in no way restricts a party from exercising termination rights under the contract or withholding the performance.
In India, the law pertaining to Force Majeure has been embodied under Section 56 of the Indian Contract Act, 1872. It states that, “A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent becomes void when the act becomes impossible”.
The Guiding Opinion of the Shanghai Higher People’s Court addressing the Covid 19 pandemic states as follows: “If the parties are unable to perform due to the impact of the epidemic or their performance has a significant impact on the rights and interests of the other parties, they shall follow the principles of fairness, good faith, etc. and aggregately consider factors such as the agreement between the parties, the development stage of the epidemic, the causal relationship between the epidemic and the inability to perform or difficulty in performing the contract and the level of impact of the epidemic”.
The nationwide lockdown in India and other countries has had a grave impact on the social life of the people and the economy as a whole. In cases where the list of Force Majeure events in the contract contains words like ‘pandemic’ or ‘epidemic’ or ‘quarantine’ it will clearly include the Covid 19 pandemic as well due to the reason that the Wold Health Organisation has announced it as a ‘Global Health Epidemic’. The consequences of the outbreak of Coronavirus and the measures taken by the states to prevent it have been more severe compared to other epidemics and thus cannot be considered as foreseeable. Thus, no mitigating steps could have been taken by the parties due to the fact that the virus was non-foreseeable.
Tags : epidmic. pandemic, force majeure