This article has been written to understand how the present situation of outspread of Corona Virus Disease(COVID-19) is Force Majeure and its impact on performance/ non-performance of certain contracts and situations like;
- The train/ flight/ bus tickets cancelled due to out-spread of COVID-19. If you are entitled to claim the refund amount?
- The hotel or resort booking got cancelled and if you can claim the refund of advance amount paid?
- The cancelled delivery of the consignment/ purchase order. If you are liable to make the payment.
- Any event got cancelled, and if you are liable to pay back the advance amount paid?
What is Force Majeure?
Force Majeure is a French term for greater force which also means an act of God. Force Majeure covers a case of war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature. If expressly provided, it may cover extraordinary events or circumstances beyond the reasonable control.
Sections 32 and 56 of the Indian Contract Act, 1872 embodies the law relating to Force Majeure. It is a contractual provision agreed upon between parties under a contract. During this, parties to a contract can be excused from further contractual obligations if an act of God prevents its performance of those obligations.
What is Force Majeure Clause under a Contract?
Some contracts list specific examples of Force Majeure events that automatically meet the standard upon the happening of such event, while others rely on general language usually included in such Force Majeure clauses. A Force Majeure clause cannot be implied under Indian law. It should be an expressed clause under the contract and protection will depend on the language of the clause. In the event of a dispute, the courts are likely to apply the usual principles of contractual interpretation.
Is COVID 19 a Force Majeure?
COVID-19 has been declared as a “pandemic” on March 11, 2020 by the World Health Organisation (WHO). A “pandemic” is defined by WHO as “an epidemic occurring worldwide, or over a very wide area, crossing international boundaries and usually affecting a large number of people.” Undisputedly, COVID-19 is “pandemic” as it has widespread, over several countries or continents, affecting a large number of people worldwide.
So, under a contract, if a Force Majeure clause expressly includes a pandemic, then, yes, the said clause can successfully be invoked due to COVID-19. If the Force Majeure clause does not specifically provides for the term pandemic, but extends to cover extraordinary events or circumstances beyond the reasonable control of the parties, then circumstances aroused due to COVID-19 can be covered under Force Majeure clause.
Thus, whether or not COVID-19 is a Force Majeure has to be interpreted and determined as per the specific terms of a contract and party’s obligations.
Performance/ Non-Performance of certain Contracts due to Force Majeure.
Certain contracts may provide for immediate termination of the contract upon the happening of the Force Majeure event, while others may provide to put the contract on hold until the Force Majeure event is resolved. Some contracts may provide for limitations in time after which either party may terminate the agreement with written notice to the other because of non-performance caused by the event that is prolonged or permanent. Few may require the contract to remain in effect until the Force Majeure event is resolved and some contracts will only allow for certain obligations to be suspended.
In such events, the language of the Force Majeure clause will determine the remedies available to the parties.
A party seeking to rely on a Force Majeure clause must also show that:
- the Force Majeure event was the cause of non-performance or delayed performance of the contractual terms;
- the non-performance was due to circumstances beyond control; and
- there were no reasonable steps that they could have been taken to avoid or mitigate the event or its consequences.
What if the there is no Force Majeure clause?
Relief can be claimed under the ‘doctrine of frustration’ under Section 56 of the Indian Contract Act, 1872 if the contract does not contain a Force Majeure clause. In order to claim that the contract is frustrated, it must be established that the performance of the contractual obligations has become impossible by reason of some event which the claiming party could not prevent and that the impossibility is not self-induced by the claiming party or due to his negligence.
Who has the burden of proof to establish a Force Majeure event?
The burden of proof is upon the party asserting Force Majeure defence to demonstrate the existence of Force Majeure.
Hence, whether you have lost money or unable to recover or demand money paid towards a contractual obligation which you are unable to fulfill or take delivery due to the government order of lock down in view of Corona Virus spread, it is important to review the fine prints of your agreement and determine appropriate actions to be taken to ensure recovery or reduction of losses.
Please feel free to reach out to us if you need any clarification or answer to any query in this regard.
Author: This Article is authored by Mr. Vinay Kumar Jain and Ms. Amita Bais of VKJ Law Offices of Vinay K. Jain, Advocates & Solicitors, Raipur.