Coronavirus Pandemic: Force Majeure to the Rescue?

The current ‘pandemic’ is posing a huge challenge for the businesses, not merely with respect to the corporations carrying out their day to day functions but also, them not being able to fulfill their obligations under the commercial agreements they are a party to. With a third of the global population under a complete lockdown or mandatory geographic quarantines (a term used by public-health officials), can the parties to the contracts, who are struggling to meet their contractual obligations declare the situation as Force Majeure and claim relief? 

The safeguards undertaken by various governments to minimize the impact of coronavirus have made a substantial impact on supply-chains, production and transport on the companies globally. However, the primary question which arises is whether the declarations of Force Majeure be effective for companies that are struggling to meet their contractual obligations?

The execution of Force Majeure does require us to place and carefully examine various considerations. Firstly and most importantly, the contract should contain the clause of Force Majeure in an explicit way, to excuse non-performance of the contract. Secondly, even if the contract contains a Force Majeure clause, it may still not be certain whether that party could rely on it in order to protect against the claims for non-performance. In this case, the party will need to show that:

  • The Force Majeure event that has occurred was beyond their control;
  • The event has hindered, prevented or delayed the party’s performance of the contract and,
  • The party took all the reasonable steps to avoid or mitigate the event or its consequences.

Moving on, the parties need to decide whether the outbreak of coronavirus is a Force Majeure event. Now, if the term ‘disease’ or ‘epidemic’ is not expressly stated in the clause, even terms such as ‘act of God’ may suffice for the time being, but will require careful consideration in the facts and circumstances depending on case to case. Another important aspect to assess is whether the coronavirus actually hindered or prevented or delayed the party’s performance to the contract? If it has, then there should be a logical explanation given and proven by the obligated party.

In the case of Municipal Corporation of Bombay v. Vasudeo Ramchandra[1], it was held that before an act of God is admitted as an excuse, the defendant must himself have done all that he is bound to do. The property by the act of God should be rendered useless, for the time being, that is to say, it was rendered incapable of any enjoyment.[2]

At present, we are not in a position to predict the effect of this pandemic in different countries and various sectors of businesses. However, the fact of an outbreak could hardly be said to be unforeseen. So, will it trigger the Force Majeure clause in a contract that is yet to be entered into?

The concept of foreseeability is a fundamental part of the definition of Force Majeure under French law. An event will not be considered Force Majeure if it could reasonably be foreseen when the contract was entered into (nor if it could have been avoided by appropriate measures). However, English courts have not taken the same approach, and if the contract is silent on whether the event needs to be unforeseen, a court will be reluctant to impose that qualification. If the damage, if any, have resulted from two or three causes, as from an act of God as well as a negligent act of a party, then the award of damages should be apportioned to compensate only the injury caused by the negligent act. [3]

Keeping all of these things aside, with coronavirus at the center of the world’s attention, if the performance of any contract is at risk because of the virus, the most straightforward option would be to expressly name it in the Force Majeure clause. If the clause is explicitly worded then it may go on to override the jurisdictional conflicts that may arise. This step will also force the parties to think about what the remedy should be if the clause is triggered. Would the party who were unable to perform their obligation want the contract only to be suspended, or would both sides prefer to be able to walk away and consider alternative options? 

But, what if the contract is not rendered impossible to perform, but merely uneconomic or different in scope? The German Civil Code [For eg: Section 484(2)] throws some light on this situation and it allows the parties to either make reasonable adjustments or to terminate or rescind the agreement. 

It is also an obligation to mitigate the consequences of the Force Majeure event and parties should try to resume their performance as soon as the effects of this pandemic have passed. The situation is surely an eye-opener for the businesses and lawyer’s alike, and brings out the necessity for well-crafted contracts.  God forbid, but there could be more such situations coming our way!

[1] (1904) 6 Bom LR 899.

[2] Apcharaddin Abdul Gani v. Gurudayal Kapali, (1947) 83 CLJ 108.

[3] Nitro-Phosphate etc., Co. v. London and St. Khatharine Docks Co. (1878) 9 ChD 503. ChD= Chancery Division


Nikhil Naren

An ardent lover of Intellectual Property and Information Technology Laws.

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