Economy

COVID-19-A FORCE MAJEURE

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The COVID-19 outbreak has widespread effect on almost all spheres of the society in some way or the other. It has further caused widespread disruptions in terms of domestic as well as cross-border business and commercial operations. The article delves into the impact caused by the Pandemic to such operations and if it can be understood as a force majeure in order escape from contractual obligations.

Understanding Force Majeure and its application with respect to the Pandemic:

Force Majeure’s entire definition as well as its application depends on its characterization in the concerned contract or project although much of a general consensus could define it as a certain events, beyond the control of the parties, may inhibit the parties from fulfilling their duties and obligations under the project agreements

When a clause relating to Force majeure is invoked for an agreement, it is directly related to the contract and has loss of some form associated with it which may affect either of the party depending on the nature of the contract. The burden of proving that a certain event is Force Majeure is incumbent on the party invoking such a clause wherein the nature of the evidence upon which it is claimed to fall under the said doctrine is of paramount importance.

The Indian Contracts Act, 1872 does not explicitly recognize Force Majeure, however, sections 32 and 56 of the act take cognizance of “impossible acts”, deeming any contract involving such an act void.

In a recent case of Rural Fairprice Wholesale Ltd. v. IDBI Trusteeship Services Ltd.[1], the Bombay High Court granted ad interim relief to Rural Fairprice Wholesale Ltd. from selling the pledged equity shares as the share market has collapsed due to COVID-19, preventing a huge loss to the plantiff.

An unfruitful paradox:

The implementation of Force Majeure in the context of International Law has a more complex thicket of technical and structural questions. The People’s Republic of China has issued a number of Force Majeure certificate to apply to numerous business contracts marked by its organizations, probably to protect them from claims by foreign organizations for non-conveyance of items or the non-acquisition of items that had been contracted[2]. This would tempt the companies to claim Force Majeure against the hindrance of their operations due to COVID-19 making it a challenge for the Governments around the world. The crux of this situation being that the doctrine can be invoked by the Government as well as private entities against each other. The governments and organizations will be depending on Force Majeure to legitimize measures regarding the potential health effects of Coronavirus and corresponding to the monetary impacts identified with spreading of the infection.

Agreements not acknowledging Force Majeure:

In a contract where the clause which hints towards the Doctrine of Force Majeure is absent, and neither any provision relevant for the impossibility of performance of the contract, the contracting parties can turn towards the United Nations Convention on Contracts for the International Sale of Goods (CISG) whose Article 79 addresses Force Majeure as an impediment beyond a party’s control is considered a ground for force majeure. Furthermore, the Article 79(1) of the CISG has a fourfold test clearing which, an event could be deemed as a Force Majeure. An important case law related to a Pandemic(SARS Outbreak) has already set a precedent under the CISG where the SARS Pandemic was not considered as a Force Majeure event owing the signing of the contract happening prior to the outbreak, for which reason even under the Article 79 of the CISG the determination of COVID-19 being a Force Majeure event depends upon case-by-case basis and does not have a straightforward answer[3].

The economic factor, relying on how COVID-19 crippled the financial stability would be unlikely to qualify as the sole reason for proving Force Majeure as the threshold to hold some event as the same is high and fact-specific.

– Osho Dubey,

Writer, Bharat Bhagya Vidhata

References -:


[1]Commercial Suit (L( 307 of 2020))

[2]Chinese force majeure certificates presage complexity of resolving post-crisis disputes, Reuters, March 17, 2020. https://www.reuters.com/article/us-otc-covid19-idUSKBN2133MQ

[3]Gizem Alper, COVID-19: Force Majeure Under CISG, JURIST – Professional Commentary, May 26, 2020, https://www.jurist.org/commentary/2020/05/gizem-alper-force-majeure/.

Categories: Economy

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