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Application of Force Majeure in Covid-19 Pandemic


Siddharth Addy

3rd year, BBA LLB(H),Amity Law School, Kolkata



Introduction:

Loss of numerous life due to the effect of pandemic created an irrecoverable damage to the society as a whole, Not only harming the base of the country, Covid-19 has also created a havoc to the economy throughout the world. In order to restrict and confined the spread of the corona virus various countries have adopted several policies for such preventive measures. In many countries starting from China, America, India and many other developed countries and developing countries has adopted the primary policy of lock down throughout their respective periphery in between the states and also intra country mobility has been put off. Major important flights and also the backbone of various business transport is been called off due to lockdown throughout the country. In order to maintain the lockdown all types of domestic flights, railway services, bus, trucks, are being suspended by giving special exemption to certain commodities so as to ensure the basic livelihood of the society. The countries under effect of the COVID-19 has also undergone the close down of educational sectors, spiritual sectors, commercial sectors and various upcoming sports events are been cancelled leading to a greater damage to the entire society both financially and economically in arrow. Due to this dangerous pandemic which has put most of our life style at stake in all aspect major damage has been done to the tourism sectors which was major part of every economic growth altogether. Industrial sectors are suffering a lot those dealt with regular commodities of an individual’s life style and many industries are been shut down for an innumerable period of time and no payments for the employees are being put forward thus leading the rise of unemployment and so-called developed countries are also facing such problems due to the lack of productivity leading to rise of inflation and excessive expenditure for the treatment to the COVID-19 patient and their families. The pandemic has affected the global trading between countries and across thus lowering the foreign currency in the economy. Lockdown by its term itself implies the shutdown of everything from one’s life. On the other hand lockdown will be directly affecting the GDP of every country’s economy under the curve of corona virus. The research has put up that in each month there will be a loss of 2% in GDP of every economy irrespective of the country which has undergone in such troublesome situation of COVID-19 pandemic. The tourism sector of every country might face a loss of 50%-70% in near months due to the fear of corona virus in the mind of the individual even after it gets curves out. According to the World Trade Organisation they acclaimed that every economy will be facing a major loss of GDP due to this lockdown effect in the global market. This lockdown will have an adverse effect to the world economy as a whole and no such measures can be taken up for preventing such loss. This pandemic is one of the largest pandemics ever mankind has seen and its effect can be much more dangerous than WORLD WAR 2. Some experts are of the views that mankind has not seen such a globally downward economy after the world war 2 and this might put a very bad effect on the day-to-day life style of the individuals and death rate are going to increase day by day due to unemployment and lack of food and money in the hand of poor people of every country which is another big issue beside the pandemic which the government must put forward some well-developed policies for them. Thus this pandemic not only take away human life directly but also killing them by way of increasing the unemployment rate and limiting the income of the under-developed section of the society. Due to the effect of lockdown throughout the country at a stance has not only lowered the income level of the weaker section of the society but also has lowered the employment opportunity to throughout the society as a whole. In many instances and surveys it is clearly portrayed that there are many migrants, daily wage labourer, and many employees from different industrial sectors are walking bare footed towards their respective homes due to the unavailability of trains, bus and any transport medium due to the lockdown and while walking with their families and small children many of them are facing death due to unavailability of food and water with them.

Essentials for invoking force majeure clause

The term force majeure has been defined in BLACK LAW’S dictionary as an event or occurring that cannot be anticipated or controlled or some act which is beyond controlled by human efforts. Force majeure is a term mainly used in contractual agreement where some events are promised to be done in near future but could not anticipated or completed due to some unforeseen situation which is beyond human efforts. Under the clause of force majeure no compensation shall be claimed due to not happening of such contract as agreed upon which is the effect of certain unforeseen or uncontrollable situation that has taken place and resulted into not happening of such contract. while the term force majeure been defined under any such statute but it can be related to Section 32 of Indian Contract Act 1872 which speaks about contingency of contract that if a contract is contingent upon any impossible event the contract renders to be null and void , similarly force majeure clause can be applicable to those contract which are being contingent before the COVID-19 has occurred and made such contract impossible to perform, or there may be some delay in performance of such contract and no compensation can be brought forwarded for such non-performance or delaying in performance due to such unforeseen event that has taken place. Force majeure clause is term which is mainly related with the commercial contract. COVID-19 has not only taken human lives at large it also has put down all the business and commercial sectors at stake by way of lockdown and inferring fear in the mind of people of being attacked by corona virus.

Force majeure is similar like ACT OF GOD/ VIS MAJOR which has the similar impact in the business world that any event occurred due to the natural effect can be termed as vis major or act of god but the force majeure is a broader term in sense. This can be clearly viewed by taking into account the man-made disaster like corona virus having its effect throughout the world. Force majeure is a broader in sense as it covers both the natural and man-made disaster. In the business sectors it has large implications as a whole since it protects every due contract that was to be fulfilled in the meantime. Thus force majeure being a legal term can be appropriated and taken into account and the party is not liable in following circumstances:-

  1. When the delay is beyond the reasonable control of the party to a contract: It implies that the party to a contract has no control over such circumstances where he/she can put to into effect the contract entered into. When the situation is beyond any reasonable control that a reasonable man can do or perform such contract entered into between them.

  2. Situation which materially effects the performance of such agreement: - It implies that a situation is of such a nature that it has direct impact on the material performance of the contract entered or agreement done for such performance. Delaying or non-performance of such an agreement is due to the effect of certain unforeseen situation which has led to the impossibility of such an agreement to the contract.

  3. Delay is due to situation which could not reasonably have been foreseen :- In broader term force majeure can be applicable on to such a situation which a normal man could not have possible foreseen or provided with the contractual terms in an agreement so as to the fulfilment of the contract.


JUDICIAL TREND OF FORCE MAJEURE IN COVID 19 PANDEMIC: -

Force Majeure is a wider term and has broader aspect as compared to Vis Majeure/Act of God as the former contains a wider aspect which includes both natural event as well as artificial event while the latter only consider only natural unforeseen events, the latter i.e. Vis Majeure/Act of God is an onset of Force Majeure as decided in the case of Dhanraj Amal Gobi dram v. Shamsi Kalidas & Co. However, both the doctrines are saving clauses of a commercial contract and are used as an excuse for non-performance of an work in case of an arise of unforeseen event.

The Indian courts have not directly stated that an epidemic/pandemic like Covid 19 fits under the definition of “Force Majeure” however the courts have tried to establish a decidendi in a Supreme Court case Controller, KSRTC v. Mahadava Shetty it stated that the definition of Force Majeure includes any natural act void of human intervention is a reasonable excuse for non-performance of the work, if there was a possibility of anticipating their happening. Similar judgments were also passed by P.K. Kalasami Nadar v. Ponnuswami Mudaliar and Kerala Transport Co. v. Kunnath Textile.

In the case of Stranded Retail Pvt Ltd & ors v. G.s. Global Corp & Ors, The Bombay High Court while refusing the order for injunction on letter of credit as prayed for laid down the decidendi, that the Force Majeure Clause was expressly mentioned in contract for sale of steel however it was not mentioned in case of letter of credit, this case highlighted that even though the main contract contain the saving the clause the ancillary contract not containing the clause of Force Majeure can pose problem in such unforeseen event.

In the case of Greenock Corporation v. Caledonian Railway co the House of Lords laid down “…An accident may be an act of God if it has resulted directly from natural causes without human intervention. It is true that in most cases human and natural agency co-operate to produce the result, but the immediate and direct cause is alone to be looked at in determining whether the act is that of God or man. When a ship is cast away in a tempest, this would not have happened but for the act of the owner in sending her to sea but the loss is the act of God for all that.”

In case of an epidemic/pandemic two clauses apply “Force Majeure or Vis Majeure” this clauses are guided under Indian Contract Act 1872, which contain two provisions one which dealt with the contingency of a contract it inter alia states that if an act is based on a future event and that event becomes impossible the contract becomes void and another one which dealt with frustration of contract inter alia when if an performance of act becomes impossible to perform due to unforeseen event the contract becomes void. The guided Latin principle guarding the provisions mentioned therein under the Indian contract act is “lex non cogit ad impossibilia” which meant “Law does not compel one to impossible things”

In line of two cases we see the application of Force Majeure; Satyabrata Ghosh v. Mugneeram Bangur and Energy Watchdog v. CERC, Supreme Court held that Force Majeure event is related to a saving clause (express/implied) in a contract it is governed under the Section 32 whereas is a Force Majeure event happens dehors the contract section 56 of the act applies.

In the case of Halliburton Offshore Services Inc v. Vedanta ltd & Anr the matter was decided before the Delhi High Court, the parties were involved in intergraded development of certain blocks in Rajasthan. The petitioner sought to stay in invocation of bank guarantee from one week from lifting the lockdown, it was commented by Vedanta Ltd that an injunction order against bank guarantee may only be grunted in case of a serious fraud. The court after due consideration took a liberal view and granted an ad interim injunction in favour of Halliburton Offshore Service Inc; Nothing that Covid 19 Pandemic and lockdown were in fact Prima facie and is therein a Force Majeure event, and is beyond compensation of any party.

It is interesting to note that several proactive steps have been taken by the government around the world such as issuance of Force Majeure clause by China and Russia also Inter – advisory circular to mention Covid 19 under the ambit of “Natural Calamite”,

It is beyond doubt that contract will be largely impacted by the Covid 19 outbreak and the current lockdown situation, numerous parties to contract will try to resolve their issue of non-performance of the contract due to this unfortunate unforeseen event either through applying the principle of Force Majeure or by applying section 56 of the contract act. The onus to prove the non-performance of the contract due to pandemic is on the party seeking excuse for the non-performance of the contract.

The common connotation which could be ascertained from the outbreak and consequential thereto attached to the outbreak is that large number of commercial contracts will be piled up eventually in the courts, however we see that exemption of Force Majeure depends from case to case, while it is expected that courts will provide equitable relief to the aggrieved parties such as temporary injunction, the threshold amount for meeting Force Majeure and Frustration of Contract is generally higher.


Conclusion

While the effect of COVID-19 outbreak is still not clear to the whole world as we have seen its devastating nature on mankind and on the economy of a country it would like to show more devastation in near future as per the study concluded by the researchers dealing with it. Till date no such vaccine has been procured by any of the countries in a row as of now and no specific deadline of curving out of such pandemic can be inferred by any of the countries throughout the world. Most are of the views that we the civilian of the earth has to deal with COVID-19 and has to continue our lifestyle throughout. In the devastating effect of such pandemic in the economy and many commercial sectors are at the verge of shutting down force majeure is a clause which gives a relief to the business sectors as non-compliance of any commercial contract between such parties cannot claim damages or compensation due to its non-performance as this clause act as a shield to situation or events which are uncontrollable or unforeseeable by normal man in normal circumstances. But the force majeure clause cannot be taken into account to those circumstances where the events are normally carried out though there is such a non-performance of a contract. Force majeure clause is such a clause which has large implication in the contractual world as well as various other legal aspects as it gives protection to such individual to a contract where the non-performance may lead to a large amount of compensation claim against them but force majeure gives a legal alibi to them by taking into account both the man-made and natural disaster which has led to such non-performance of the contract or the agreement taken up by those parties to such contract. Such a legal clause of protection is of immense importance in the commercial world where such agreement to a contract if renders void would have been a done a greater damage to the economy of every country. Though this force majeure clause is not defined in any of such statute but has a legal impact through in connection with the Section 32 of Indian Contract ACT 1872 which speaks about contingency to performance a contract may be related to this clause to a greater advantage. Thus after taking up an intense study of such case laws and commercial contract it can be well concluded that force majeure is an effective clause for all such contract has become impossible to perform due to the pandemic situation an unforeseeable event , beyond human control that has a downward effect to a major part of our economic growth throughout the world.


Reference: -

1. Indranil Chakraborty, Prasenjit Maity, COVID-19 and economy, COVID-19 outbreak: Migration, effects on society, global environment and prevention, https://www.sciencedirect.com/science/article/pii/S0048969720323998#bb0070 ,(15 May 2021).

2. Indranil Chakraborty, Prasenjit Maity, COVID-19 and economy, COVID-19 outbreak: Migration, effects on society, global environment and prevention, https://www.sciencedirect.com/science/article/pii/S0048969720323998#bb0070 , (18 May 2021)

3. By Poorvi Sanjanwala and Kashmira Bakliwal, What do you mean by “force majeure”, What is force majeure? The legal term everyone should know during Covid-19 crisis, https://economictimes.indiatimes.com/small-biz/legal/what-is-force-majeure-the-legal-term-everyone-should-know-during-covid-19-crisis/articleshow/75152196.cms, (18th May 2021).

4. Force Majeure, https://www.contractstandards.com/public/clauses/force-majeure, (20th May 2021)

5. AIR1961 SC 1285

6. AIR 1962 Mad 44

7. 1983 KLT 480

8. Bombay HC2020 on Commercial Arbitration petition (Lodge) no 404 of 2020

9.1917 AC 556

10. Indian Contract Act, Section 32 (1872)

11. Indian Contract Act, Section 56 (1872)

12. (1954)SCR 310

13. (2017) 14 SCC 80






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