Reviewing Force Majeure Clauses And Its Impact During The Outbreak Of Coronavirus

Contracts intend to create professional relationships between different parties in an optimal manner. It determines the rights and duties of parties and ensures the smooth working of the relationship by minimizing the cost for both the parties. For ensuring the working of these smooth relationships, it is necessary to include remedies for breach of contract since adequate contract pictures the present reality as well as provides for circumstances in the future. In 20 century, modern courts enforced the rule of absolute contracts notwithstanding provisions as to the impossibility of performance. However, in today's times, all parties are reasonably expected to fulfill their obligations under a contract unless an unexpected situation prevents performance.

DEFINING “FORCE MAJEURE”

Various unexpected situations make entities think of “force majeure”. A force majeure is an event or effect that can be neither anticipated nor controlled, is unexpected, and which prevents someone from doing or completing something that he or she had agreed or officially planned to do. “Force majeure‟ is the French term that can be translated as“irresistible compulsion or coercion”.[1] Section 1148 of Napoleon Code, The French Civil Code states that there is no ground for damages and interest when by consequence of a superior force or of a fortuitous occurrence, the debtor has been prevented from giving or doing that to which he has bound himself or has done that from which he was interdicted.[2] Conclusively, under French law, force majeure is an event that is unforeseeable, unavoidable, and external that makes execution impossible.

No universally accepted definition of force majeure prevails and thus, the subjective interpretation may vary from project to project and in relation to the country in which the project is to be located. However, certain general features of various definitions include risks beyond the reasonable control of a party, incurred not as a product or result of the negligence of the afflicted party, and such risks have a materially adverse effect on the ability of such party to perform its obligations.

Force majeure clauses are contract provisions, risk management tools or an exception to breach of contract that excuses a party’s nonperformance when “acts of God” or other extraordinary events prevent a party from fulfilling its contractual obligations. Force majeure clauses typically excuse nonperformance of a contract for events such as natural disasters such as floods, tornadoes, earthquakes and hurricanes and acts of people such as acts of terrorism, riots, strikes, wars, and other similar circumstances.

For an event to be considered as falling within the scope of force majeure, it has to cumulatively meet some attributes imposed by the law, such as externality, unpredictability, irresponsibility, and inevitability.[3] Such events usually occur with or without human intervention, cannot be reasonably foreseen by the parties, and are completely beyond the parties' control and they could not have prevented its consequences.

In order to invoke a force majeure clause, there are various other supplementary conditions, not particularly universal. These include a causal link between the force majeure event and the affected party’s failure to perform. Furthermore, a party may be expected to show that it made reasonable efforts to mitigate the effects of the force majeure event.

If a force majeure provision does apply, the affected party may be excused from its obligations temporarily or permanently depending on the nature of the force majeure event. The effects of the implementation of such provisions may also include the exemption of debtors to pay the respective amount with no liability towards the creditor to pay any damages. In addition to this, in some situations such as that of force majeure, the executory part of force majeure becomes unperformable.

APPLICABILITY OF THE CLAUSE DURING THE OUTBREAK

These clauses are currently gaining consideration due to the coronavirus outbreak (COVID-19), which has crucially impacted the global economy and businesses’ ability to manufacture, distribute, and sell their products. And, after The China Council for the Promotion of

International Trade has issued force majeure certificates to help China-based companies support a position that “the epidemic is unforeseeable, unavoidable and insurmountable force majeure.”[4], there has been a rising uproar to determine the true position so as to establish responsibilities.

There is no standard definition of force majeure, so what will constitute such an event will depend on how the particular contract is drafted and what clauses have been included in the contract. Every individual contract and situation will determine whether the force majeure clause can be invoked. If specific situations like diseases or pandemic have been included in the contract, the situation is most likely to relive the parties. References to emergency or lockdown- like situation may also help the parties.

Clauses with a vague and wide phrase like “events outside parties` control” may also include the outbreak by the rule of ejusdem generis. However, the interpretation of courts will finally limit the scope of such a phrase. In many force majeure cases, nonperformance is not excused if it is merely financially or economically more difficult to satisfy contractual obligations. Depending on the relevant contractual language and the applicable law, a party generally will be required to establish that performance is truly impossible rather than merely impracticable.

If the clause's applicability demands fulfillment of certain conditions like prompt notice and mitigation before invoking the clause, they must be complied with. In addition to this, the burden of proof to establish a force majeure event is on the party who is asserting the specific defense. Also, if the contract does not expressly mention the clause, such a clause cannot be implied under Indian law. Relief can also be claimed under the doctrine of frustration as included under Section 56 of the Indian Contract Act, 1872 by proving that the performance became impossible because of an event that could not have been prevented or an event that is not self-induced.

CONCLUSION

In such challenging times, every business or industry or organization, whether small or large has faced immense problems regarding procurement or delivery of goods and services. Relief under force majeure and the doctrine of frustration are some of the ways to ease the trouble.

[Madri Chandak, a student of Hidayatullah National Law University is in her second year and has a keen interest in the economic and commercial aspects of the law.]

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[1] Force Majeure, Oxford Dictionary of Law, (9th ed. 2003).

[2] The Code Napoleon or, The French Civil Code, Section 1148 (1804).

[3] Viorel Terzea, Force Majeure- A contract clause exempting parties from contractual liability, PITESTI Conference (Apr. 13, 2020, 11:10 AM), https://www.researchgate.net/publication/338372241_FORCE_MAJEURE-A_CONTRACT_CLAUSE_EXEMPTING_PARTIES_FROM_CONTRACTUAL_LIABILITY

[4] Huileng Tan, China invokes 'force majeure' to protect businesses, CNBC, (Apr 13, 2020, 7:14 AM), https://www.cnbc.com/2020/03/06/coronavirus-impact-china-invokes-force-majeure-to-protect-businesses.html