FORCE MAJEURE: Importance under COVID-19 Era- Detailed report of Webinar

FORCE MAJEURE –

A situation like Pandemic which gave a visit to us in recent past, where more than half of the population was struck with it and while we are at this discussion, it is still not over. Yet, businesses were done, corporate world recovered and astonished us with its remarkable growth. And, so, we all know contracts cease to be binding only after it is performed, otherwise reliefs could be sought, well, until we weren’t aware about this beautiful twelve lettered Latin word. Any natural calamity or war or an “Act of God” triggers the enforcement of Force Majeure.

In our very first webinar on “Force Majeure – importance under COVID Era” we had the eminent speaker 𝗠𝘀. 𝗕𝗵𝗮𝘄𝗮𝗻𝗮 on 8^th of September, 2022 with us. She is a law graduate and have done her advance diploma in business laws and cross border transactions from Webster University, Ghana. She has a significant experience of over 3.5 years in Alternate dispute resolution laws specifically Arbitration & corporate laws and is currently working as Deputy Legal Manager in a MNC based in Accra-Ghana.

The term that has assumed relevance in contractual context today for businesses today and heard most often is “force majeure” and how will this term be construed in a contract in the background of COVID-19.[i]

What is law, well law is something related to codification of punishments related to murder, trespassing, also in other words it could be codified common sense relayed to sanctions. Like it is obvious, trespassing is a punishable offence.

Next question in hand was how law and society relates, well, definitely it works hand in hand, as law in general deals with the society or we’d rather say it deals with the applicability of law in different spheres of society. There’s law for everyone to everything. Like contract deals with drafting and setting a contract in such a way that it is beneficial for both the parties to contract.

Boilerplate Clause under contract, it is more technically like another name for Force Majeure. Now, what does it mean? In a very simple definition, it is added or governed by people for future acts related to this agreement. It is more like the “end clause”, generally it is of no use, but, legitimately, the added clause holds a remarkable position in special circumstances which shall be dealt later.

While force majeure has neither been defined nor specifically dealt with, in Indian statutes, some reference can be found in Section 32 of the Indian Contract Act, 1872 (the “Contract Act”) envisages that if a contract is contingent on the happening of an event which event becomes impossible, then the contract becomes void.[ii]

The situations which are beyond control or thinking, having its mere existence limited just to it, why is it so important to add and why is it in news lately? This French word is as important as any terms and condition used in any form of contract. Imagining Covid days and how bleak the contractual value were when all of the world was at halt, yet, losses and their burden were not bear by the defaulter, how or ever imagined why? Simple, Force Majeure.

It proved its efficiency beyond its strength, let’s understand it with a very realistic/improvised example. We were suppose to get the delivery of four fighter jets in March and April, 2020 (2 each). But, we received only two, because of the lock down imposed by our Government and various other nations. Now, in this case the manufacturer is saved from his liability (though, he still can fulfil his contract by delivering the jets) as the contract had the boilerplate clause which worked in his favor. Though in normal circumstances, it would have been the liability of the manufacturer, because of delay in the performance of the contract.

Narrow or inartful drafting may lead to difficult results. In a recent tuition refund case, a student sued his university, claiming that it breached a contract to provide in-person learning after COVID-19 caused the school to turn to remote learning. The force majeure clause said “[t]here will be no refund of tuition . . . in the event the operation of the University is suspended at any time as a result of [a force majeure event].” The university’s motion to dismiss was denied: the clause did not apply because the school’s alleged breach was not “suspend[ing] its operation” but rather offering an alternative mode of teaching.[iii]

Sample FM clause – Neither Party will be liable for any failure or delay in performing an obligation under this Agreement that is due to any of the following causes (which causes are hereinafter referred to as “Force Majeure”), to the extent beyond its reasonable control: acts of God, accident, riots, war, terrorist act, epidemic, pandemic, quarantine, civil commotion, breakdown of communication facilities, breakdown of web host, breakdown of internet service provider, natural catastrophes, governmental acts or omissions, changes in laws or regulations, national strikes, fire, explosion, or generalized lack of availability of raw materials or energy.

For the avoidance of doubt, Force Majeure shall not include (a) financial distress nor the inability of either party to make a profit or avoid a financial loss, (b) changes in market prices or conditions, or (c) a party’s financial inability to perform its obligations hereunder.

In some jurisdictions, there are three tests to determine whether a force majeure defense is applicable: The event must be unforeseeable, external, and irresistible. Though under unpredictability, Emergency situations are not included.

Let us take another, very convenient and simple example of you and your appointment with a Dentist or maybe with a salon/parlour. The very next day, lock down is announced and you cannot leave your homes. Does it makes you liable for not showing up? There’s an express contract, but, you’re not liable because of these approach and various other conditions taken in regard –

3-step interpretation approach:

     1. Looking specific language of FM clauses and how clause events constituting FM

     2. Whether the defined event actually caused the delay or nonperformance of the contract

     3. Finally, courts will look at what relief your force majeure clause provides. 

    Court adopted Strict and Fashion Relief Approach.

In a line of decisions starting from Satyabrata Ghosh v. Mugneeram Bangur[iv] to Energy Watchdog v. CERC[v], the Supreme Court has held that when a force majeure event is relatable to a clause (express or implied) in a contract, it is governed by Section 32 of the Act whereas if a force majeure event occurs dehors the contract, Section 56 of the Act applies.[vi]

This Boilerplate clause is a part of every kind of contract, whenever questioned its applicability is not restricted to General clauses of contract, but to various special and specific kinds of contracts too. It is too often than intended used in a very sloppy way, well, at least before Covid era, but now, as the contractual liability increases and burdened the people with its demand, and as simple as it looks, it takes a toll on the person who in general situation would have been a victim. So, it is very important to see the contract which includes such clauses dealing with the situations which though are unforeseeable, but can be predicted, and what reliefs are ought to be given to the damages done.

While various types of events should be included, there are several types which can be secluded and reasons are to be provided with it.

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[i] “What is force majeure? The legal term everyone should know during Covid-19 crisis”, Economic Times, https://m-economictimes-com.cdn.ampproject.org/v/s/m.economictimes.com/small-biz/legal/what-is-force-majeure-the-legal-term-everyone-should-know-during-covid-19-crisis/amp_articleshow/75152196.cms?amp_gsa=1&amp_js_v=a9&usqp=mq331AQKKAFQArABIIACAw%3D%3D#amp_tf=From%20%251%24s&aoh=16627331780068&referrer=https%3A%2F%2Fwww.google.com&ampshare=https%3A%2F%2Fm.economictimes.com%2Fsmall-biz%2Flegal%2Fwhat-is-force-majeure-the-legal-term-everyone-should-know-during-covid-19-crisis%2Farticleshow%2F75152196.cms

[ii] https://m-economictimes-com.cdn.ampproject.org/v/s/m.economictimes.com/small-biz/legal/what-is-force-majeure-the-legal-term-everyone-should-know-during-covid-19-crisis/amp_articleshow/75152196.cms?amp_gsa=1&amp_js_v=a9&usqp=mq331AQKKAFQArABIIACAw%3D%3D#amp_tf=From%20%251%24s&aoh=16627331780068&referrer=https%3A%2F%2Fwww.google.com&ampshare=https%3A%2F%2Fm.economictimes.com%2Fsmall-biz%2Flegal%2Fwhat-is-force-majeure-the-legal-term-everyone-should-know-during-covid-19-crisis%2Farticleshow%2F75152196.cms

[iii] Gibson v. Lynn University, No. 20-cv-81173 (S.D. Fla. Nov. 29, 2020), https://www.americanbar.org/groups/litigation/committees/commercial-business/boilerplate-contracts/force-majeure-clauses-contracts-covid-19/

[iv] [1954] SCR 310; See also Alopi Parshad & Sons Ltd. V. Union of India, [1960] 2 SCR 793.

[v] (2017) 14 SCC 80

[vi] https://corporate.cyrilamarchandblogs.com/2020/04/force-majeure-in-the-times-of-covid-19/