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Covid 19 Pandemic: A Force Majeure Event or not?

The coronavirus pandemic has led to the termination of performance of contracts and thus the issue arises whether it comes within the ambit of the doctrine of Force Majeure, which prevents a person from performance of contracts in situations which are unforeseeable and beyond control.

By: Divya Vishal, National University of Study and Research in Law (N.L.U.,Ranchi)

The Covid-19 pandemic has demonstrated not only an exclusively philanthropic emergency but also toppled the economy. It has caused insecurity to the economy, with the factories and industries having been shut until further requests. This basically implies that organizations face the trepidation of failing their commitments emerging out of the commercial contracts that they have entered into. The question that arises is whether the current circumstance due to COVID-19 can fall within the ambit of the doctrine of Force Majeure. Force-Majeure can be defined as “an event or an act that can be neither anticipated nor controlled; especially, an unexpected event that prevents someone from doing or completing something that he or she had agreed or officially planned to do.”[1] It incorporates the acts of god (earthquakes, floods) and acts of individuals (strikes, and wars). 

Albeit Indian Courts have not straightforwardly administered on whether Covid-19 pandemic is an ‘Act of God’ but a contention can be drawn from various decisions of court. Supreme Court in The Divisional Controller v. Mahadeva Shetty[2] held that “the articulation ‘Act of God’ signifies the operation of natural forces free from human intervention. An act of God provides no excuse unless it is so unexpected that no reasonable human foresight could be presumed to anticipate the occurrence, having regard to the conditions of time and place known to be prevailing at.”

The Courts in the USA have explicitly held that the Act of God incorporates a pandemic. For example, in Lakeman v. Pollard,[3] the court held that the cholera epidemic was an act of God. Similarly, in Coombs v. Nolan,[4] the court pardoned a postponement in the release of freight where the litigant couldn’t get enough horses to empty a boat on time on the ground that the horse influenza pandemic fell inside the ambit of the act of god.

The Indian Contract Act, 1872 (hereinafter, the “Act”) lays down the provisions which are applicable to the concept of force majeure. Section 32 of the Act manages contingent contracts i.e. enforcement of contracts contingent on an event happening and gives that if an agreement depends on the future event and such event gets inconceivable, the agreement becomes void. Section 56 of the Act deals with ‘frustration of contracts’ and provides that an agreement becomes void if it gets incomprehensible, by reason of an event which the promisor couldn’t foresee, after entering into the agreement. 

In various decisions including Satyabrata Ghosh v. Mugneeram Bangur,[5] the apex court held that Section 32 of the Act represents when a force majeure event is linked to a statement (express or implied) in a contract though if a force majeure occasion happens out of the contract, the provisions of section 56 will be applicable.

Where a contracting party invokes the force majeure clause in the contract, the burden of proof lies on the party which invokes the clause and it has to justify the event. What might be a force majeure in relation to one contractual obligation might not be the same for any other contract. The courts will evaluate the application of force majeure considering the facts and circumstances of each case, by either relying upon the principle of equality or by receiving a progressively specialized methodology. It would be basic for the contracting parties to be intensive with the terms of the contract as well as their legally binding rights and obligations arising thereunder. 

The impact of COVID-19 is certainly an “unforeseeable circumstance” assuming that the contract was entered into before the vast scope and potential impact of the virus was foreseen (or understood as best we do so far). If it then ‘prevents someone from fulfilling a contract’, then it would fall within the ambit of force majeure in relation to that contract.

References

  1. Black’s Law Dictionary (9th ed. 2009), available at Westlaw.
  2. Divisional Controller v. Mahadeva Shetty, (2003) 7 SCC 197
  3. Lakeman v. Pollard, 43 Me 463 (1857)
  4. Coombs v. Nolan, 6 F Cas. 468.
  5. Satyabrata Ghosh v. Mugneeram Bangur, [1954] SCR 310

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