A note on the impact of COVID 19 and FORCE MAJEURE on Contracts and Contract law.
Author: Parth Singh Jadon
Designation: Law Student
Email ID: email@example.com
The world is going through a tough time. Where the covid – 19 pandemics captured the whole world. In light of the pandemic, many organizations are facing difficulties in fulfilling contractual obligations. If we talk about Indian and British law the party in a contract has a strict liability to perform the contract he cannot escape it but there are 2 exceptions in which a person will escape from his duty to perform his contract.
1. FORCE MAJEURE
2. DOCTRINE OF FRUSTRATION
“RECUSO LOCASIO” is a Latin term which means the exception to the contracts during the time of pandemic and a person will not be bound to perform his contractual obligations he can simply seek help from the above two exceptions”.
If we talk about the FORCE MAJEURE under Section 56 of the Indian Contract Act. An agreement to do an act impossible in itself is void." Contract to do act afterward becoming impossible or unlawful.—A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. FORCE MAJEURE basically means ACT OF GOD and it includes activities like fire, flood, terrorist activity, etc. Covid–19 will come under FORCE MAJEURE because it will come under natural calamity.
The doctrine of the frustration of Section 56 of the Indian Contract Act basically talks about the impossibility of the contract. This means if the act is nearly impossible to perform then the person will not be bound to perform the contract. Section 32 and Section 56 of the Indian Contract Act talks about the FORCE MAJEURE and DOCTRINE OF FRUSTRATION.
DOCTRINE OF FRUSTRATION is applicable in 3 cases -
1. Death or incapacity of a party,
2.Frustration by virtue of legislation, and
3. Frustration due to change of circumstances but the third point is most suitable if we are talking about the ongoing covid – 19 because there is a change in the circumstances. But also WHO has declared that the ongoing virus is not man-made so it will be included in the ACT OF GOD. A party can claim defence under the FORCE MAJEURE and doctrine of frustration. In a famous landmark case, Satyabrata Ghose v. Mugneeram Bangur War conditions was known to the parties while entering into the contract such that they were privy to the possible issue in the overall performance of the agreement, in such circumstances, the requisition of belongings did no longer affect the root of the agreement. Secondly, no stipulation as to time was provided inside the agreement such that the work was to be finished within an affordable time. Still, having regard to the nature of the improvement agreement and the expertise of the battle situations prevailing at some point of the agreement, this sort of affordable time became to be relaxed. Therefore, the settlement had not ended up impossible to perform below section 56 of the Indian Contract Act. “
An agreement isn't frustrated merely due to the fact the circumstances which are made are altered. The Courts have no general strength to absolve a celebration from the performance of its part of the agreement merely due to the fact its overall performance has turned out to be onerous because of an unexpected flip of events.”. Hence, in this case, there would be no contract between Bangur and Ghose due to the war situation because Bangur sought help from Section 56 of the Indian Contract Act which tells about the Doctrine of Frustration.
In the leading case law of England Taylor vs. Caldwell, the law in England was extremely rigid. A contract had to be performed, notwithstanding the fact that it had become impossible to perform, owing to some unforeseen event, after it was made, which was not the fault of either of the parties to the contract. This rigidity of the common law in which the absolute sanctity of contract was upheld was loosened somewhat by the decision in Taylor vs. Caldwell in which it was held that if some unforeseen event occurs during the performance of a contract which makes it impossible to perform, in the sense that the fundamental basis of the contract goes, it need not be further performed, as insisting upon such performance would be unjust.
'Impossibility' under S.56 doesn't mean literal impossibility to perform (owing to strikes, commercial hardships, etc.) but refers to those cases where a supervening event beyond the contemplation and control of the parties (like the change of circumstances) destroys the very foundation upon which the contract rests, thereby rendering the contract 'impracticable' to perform, and substantially 'useless' in view of the object and purpose which the parties intended to achieve through the contract.
Can a Force Majeure clause be interpreted to cover a pandemic or situation like Covid -19?
The term Act of God is often used in Force Majeure provisions in the Contract Act. If there are any extraordinary circumstances which could not be avoided or foreseen from naturally or unnaturally( riots, terror activities) occurrence then it will be constituted as an Act of God. The effect of Lockdown nearly in every country will trigger the clauses given in the force majeure.
It is a case where the contract is seen as difficult but not impossible. Sometimes the situation may be commercially difficult to perform but it may not be impossible. In this scenario, the party has 2 conditions to perform. Parties could use this opportunity to renegotiate the contract or can simply suspend or put an end to the contract.
Many suppliers might no longer be capable of carrying out their contractual obligations and, to mention the least, they could be delayed. The suppliers are looking to put off and/ or keep away from contractual obligations/ performance. They wish not to be held responsible for their contractual non-performance. The organizations might not be able to honor their purchaser agreements. The equal is genuine for the consideration, which either of the celebrations to a contract won't be capable of fulfilling under the terms of the contract. Under such scenarios, the force majeure clause could be a determining factor to understand the implications of these events.
If we conclude the above points we can say that DOCTRINE OF FRUSTRATION and FORCE MAJEURE is the important aspect of Indian Contract Law during the time of covid – 19. On a legal note Section 52 is also important of Indian Contract Act. Indian scenario in case of force majeure varies from case to case depending upon information and instances and the language of the pressure majeure clause in the settlement. A force majeure clause is regularly brought to a contract of commodities without careful consideration of its implications. Force Majeure clause is quite essential in commodity contracts and therefore must be carefully drafted. An occasion have to meet several situations to be viewed formally as a force majeure.
In the end I would like to conclude with a legal maxim on the doctrine of frustration is based upon ‘les non cogit ad impossibilia’ - A man cannot be forced to perform a duty or contract which he cannot possibly perform or the contract is impossible. In the time of covid – 19 where everything is locked. A person can claim the defence of the 2 clauses mentioned above if the person’s duty is impossible to perform due to any circumstances. Whether it is ACT OF GOD OR THE DOCTRINE OF FRUSTRATION.