COVID-19 AND ITS RELATIONSHIP WITH FORCE MAJEURE CLAUSES IN CONTRACTS

Tejas Chhura

National Law School of India University


INTRODUCTION

2020 has been a year riddled with challenges, right from escalating tensions between several world superpowers to the COVID-19 virus that has drastically altered every aspect of our lives. While COVID-19 is posing challenges in the medical field, it is posing an equally large challenge in the legal world. With supply chains crumbling and no end in sight for the lockdown, the performance of contracts has become virtually impossible. This begs the question of how the legal world is dealing with this, and this article will focus in particular on the relation between the COVID-19 and the force majeure clause.

Force Majeure Clause

In order to understand this relationship, it is necessary to understand what a force majeure clause is and how it was intended to be used. The force majeure provides an out for the performance of parties in case of unforeseeable circumstances that are outside the control of both parties.[1] Although the term force majeure is not explicitly mentioned in the Indian Contract Act, it can be considered to derive its authority from the doctrine of frustration (Section 32 and Section 56) of the Indian Contract Act.[2]

COVID 19 and Force Majeure

There is no clear universal consensus on whether the COVID-19 circumstance can lead to an invocation of the force majeure clause, which can cause some confusion in the international context. However, countries like China and India have made their position on the issue clear by stating that these circumstances fall under the ambit of force majeure. In India, the Department of Expenditure, Procurement Policy Division, and the Ministry of Finance issued an Office Memorandum on the 20th of February earlier this year[3] which stated that the pandemic can lead to the invocation of the force majeure clause. A similar thing was done in China with the Chinese Council for the Promotion of International Trade issuing several ‘force majeure certificates’ to Chinese countries.[4]


However, this is not a free ticket out of any contract. One cannot simply claim the lockdown happened and escape performance of any contracts and the courts recognized this in the case of Indirajth Power Private Limited v Union of India[5] where the Delhi High Court held that since the Petitioners’ position was unaffected by the imposition of lockdown, he could not seek frustration of a contract through the force majeure clause.

Conclusion

Looking at the jurisprudence of the force majeure clause, we can see that it is to prevent unreasonableness and to look after human morality rather than being a way to escape contracts. It can only be invoked in a few circumstances and given the way that COVID-19 is shaking the world, it has left parties unable to fulfill their obligations regardless of whether they want to or not. Hence, placing this pandemic in the scope of force majeure and giving parties the option to seek frustration is both morally and legally the right thing to do. At the same time, one cannot view this pandemic as a way to break out of any contract and hence, the case by case method which the Indian Courts have adopted seems to be most appropriate.



[1] Bryan A. Garner (ed), Black’s Law Dictionary (8th edn, 2004) 4644.


[2] Energy Watchdog v CERC & ors (2017 (4) SCALE 580).


[3] Office Memorandum No.F. 18/4/2020-PP, Government of India.


[4] Tan Huileng, “China invokes ‘force majeure’ to protect businesses-but the companies may be in for a ‘rude awakening’” (CNBC March 6, 2020) <https://www.cnbc.com/2020/03/06/coronavirus-impact-china-invokes-force-majeure-to- protect-businesses.html> accessed June 27, 2020.


[5] Indirajth Power Private Limited v Union of India (Delhi High Court Crl. M.A.10268-69/2020).




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