AUTHOR: Ananya Saggar
(Student, Vivek High School)
THESIS: FORCE MAJEURE AND COVID-19
TABLE OF CONTENTS
In December 2020, I sent out a survey, which aimed to analyse the understanding of people on force majeure and a real life situation taking the example of COVID-19. Force Majeure clauses are contractual clauses which alter a parties’ obligations under a contract due to some events or circumstances which are beyond their control, and because of these circumstances they are unable to fulfill their contractual obligations. The COVID-19 pandemic had brought the world economy to an unprecedented standstill. This made it difficult for some parties to fulfill their contractual obligations while the others were unable to do so. To analyse the understanding of people on force majeure and COVID-19, I sent out an online questionnaire. The respondents, 214 in number, were between 17-70 years of age.
Force Majeure clauses are contractual clauses which allow parties to suspend or terminate their obligations when a situation beyond their control arises, which makes it impossible for them to fulfill these obligations. The list of events to be included under a force majeure clause can be negotiated between the two parties. A basic list of force majeure events may include earthquake, hurricane, flood, war, riots, strikes, explosions, lockouts, prolonged shortage of energy supply and acts of state or government which prohibits any party from fulfilling its contractual obligations. The COVID-19 pandemic has been spreading like wildfire playing havoc with the global supply chains bringing the world economy to an unprecedented standstill. Restriction on movement of people and goods, have raised doubts on the parties to fulfill their contractual obligations. Uncertainty in the performance of contracts has led to parties envisaging breach of contracts and assessing their rights and remedies regarding the same.
According to the definition given in Black Law’s Dictionary, force majeure is an event or effect that can neither be anticipated nor controlled. It includes both, act of nature and act of people. A force majeure clause specifies what all events and circumstances are entailed in a force majeure event and what will happen on the occurrence of this event. For a force majeure clause to be applicable, the occurrence of the force majeure event should be beyond the control of the parties and they should show that they tried to extenuate the impact of the said force majeure event. If the force majeure clause is applicable, then the parties are relieved from fulfilling their contractual obligations till the time the force majeure event continues.
A force majeure clause in a contract would include a comprehensive list of events such as act of God, war, earthquake, terrorism, fire, plagues, acts of Government or a non- comprehensive list, wherein the parties describe are force majeure events generally comprised of.
As mentioned above force majeure events include acts of God. Although Indian Courts have not directly ruled on whether an epidemic/ pandemic like Covid-19 is an ‘Act of God’, an argument to that effect can derive support from the decision of the Supreme Court in The Divisional Controller, KSRTC v. Mahadava Shetty, which holds that the expression ‘Act of God’ signifies the operation of natural forces free from human intervention with the caveat that every unexpected natural event does not operate as an excuse from liability if there is a reasonable possibility of anticipating their happening. Similar judgments have also been passed by the Madras High Court and the Kerala High Court.
The Indian Contract Act,1872 entails two provisions which are relevant to Force Majeure and acts of God. Section 32 of the Act covers contingent contracts and inter alia provides that if a contract is based on the occurrence of a future event, and such event becomes impossible, then the contract becomes void. Section 56 of the Act deals with frustration of a contract and states that a contract becomes void inter alia if it becomes impossible, due to an event which a promisor could not prevent after the contract is made. According to the Supreme Court of India,when a force majeure event is relatable to a clause mentioned in the contract, it is governed by section 32 of the Act but if a force majeure event, which is not mentioned in the contract, occurs then Section 56 of the Act is applicable.
The responses from the respondents have been collated and the following has been analysed:
- 51.9% of the respondents belonged to the age group 17-30, 28% of the respondents aged between 30-50 and the remaining 20.1% were over the age of 50.
- 55.1% of the respondents are female 44.4% of the respondents are male and the remaining 0.5% would not like to disclose their gender.
- The respondents were asked if they think that COVID-19 could be considered as a force majeure situation and out of the 214 respondents, 158 thought that COVID-19 could be considered as a force majeure situation, 39 are unsure about it and the remaining 17 think that it should not be considered as a force majeure situation.
- Then they were asked if a resolution could be reached on a dispute caused by a force majeure situation. According to 144 respondents a resolution can be reached on a dispute caused by a force majeure situation, 55 were unsure and the remaining 15 felt that a resolution could not be reached on a dispute caused by a force majeure situation
- The next question asked to the respondents was if they they thought risks should be covered even during force majeure situations and out of the 214 respondents, 91 thought that risks should be covered even during force majeure situations,38 were unsure and 85 felt that risks should not be covered during force majeure situations.
- Then the respondents were asked if war and conflict should also be a part of force majeure and 91 respondents felt that it should be a part of force majeure, 38 respondents are unsure and the remaining 85 feel that it should not be a part of force majeure.
- The next question asked to the respondents was,if insurance companies should charge a higher premium and cover the force majeure situation. 89 respondents felt that they should charge a higher premium and cover the force majeure situation,37 are unsure and the remaining 88 think that they should not charge a higher premium and cover the force majeure situation.
- The last question asked to the respondents was if they had ever faced a force majeure situation. Out of the 214 respondents 58 had faced a force majeure situation, 15 were unsure and 141 had never faced a force majeure situation.
- I believe that pandemics like COVID-19 should be considered as a force majeure situation because firstly it is an act of God and secondly the nationwide lockdown which was imposed was an act of the Government and a force majeure clause generally includes act of God or act of government.
- A dispute caused by a force majeure situation can be resolved by terminating the contract between the two parties in case of a prolonged force majeure event like COVID-19.
- The loss incurred by both the parties can be equally divided between them
The COVID-19 pandemic has created a lot of challenges for many parties under their contracts. Considering the issues faced by parties during the pandemic, the parties which are negotiating new contracts will create force majeure clauses and alternative provisions which will not only address the consequences of the current pandemic and governmental responses but also other force majeure events.