Introduction
Force majeure is a French term that simply means greater force or act of god. These are the circumstances which cannot be avoided and for which no party can be held accountable, such as a hurricane or a tornado.
The concept of force majeure is fundamental in the law systems of the entire world stating that a contractual performance that effectively becomes impossible can be excused.
As per the Indian context, the Indian Contract Act, 1872 states the existence of condition precedents/contingencies in sections 32. The doctrine of Frustration is enshrined in section 56 of the same act. The force majeure is mixed up with the doctrine of frustration but both are different. While the latter results in a discharge of the contract altogether, the former is only a risk allocation clause, which at best creates a temporary exemption from a performance.
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A party to a contract which contains a force majeure clause would be expected to prove:
(a) that the event which caused non-performance fell within the ambit of such force majeure clause;
(b) the non-performance of the contract was caused due to the said event;
(c) the said event as well as the non-performance of the contract were beyond the party’s control and
(d) that no reasonable steps could have been taken to continue performance or there existed no alternative mode of performance.
Force Majeure with COVID-19
a. Relevant Force Majeure Event
Whether a party can claim a benefit of the clause of force majeure will depend on the wordings of the clause or how it is construed. Simply being an epidemic or pandemic will not suffice the essentials of the force majeure. What needs to be kept in the mind is whether the effect of Covid19 is hindering or prohibiting any of the contractual performances.
b. Beyond the Party’s Reasonable Control
Another factor which is important for the application of force majeure is “beyond the party’s reasonable control”. The COVID-19 outbreak itself is capable of constituting such a cause. But again, is it only the effect of a pandemic or is there any other factor involved. The approach the courts will take to the doctrine of force majeure is yet to be seen. In the meantime, it would be prudent for all organizations to be able to sustainably plead the same in a court of law.
c. The effect on performance
Where a part is unable to complete contractual obligations, it is necessary to show physical or legal impossibility and not merely the fact that the performance has become more difficult or unprofitable. In the context of the COVID-19 outbreak, the issues that will arise for consideration are whether alternative ways of performing the contractual bargain were possible or not; whether the contractual bargain could have been performed with difficulty or at a higher cost; or whether a party’s non-performance is rather and in fact, attributable to some other delay or deficiency.
d. Avoiding/Mitigating Factors
The existence of reasonable steps the non-performing party could have taken to avoid or mitigate the effects of a force majeure event is also a dominant issue. In the present COVID-19 context, the nature of the measures being introduced by governments is likely to narrow the scope for avoidance or mitigation. But it will not foreclose it altogether and expense and inconvenience are not enough. Therefore, the wordings of the clause are significant as mentioned above.
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Nevertheless, the ultimate fate of such claims rests on the terms and purpose of the contract, the contours of the force majeure clause in question, and the steps to mitigate losses taken by parties, on a case-to-case basis.