Apart from the devastating impact that COVID-19 continues to unleash on human beings and countries worldwide, its outreach has also reached commerce and business. COVID-19 has resulted in lockdowns or restricted movements in countries.
Consequently, businesses have been impacted and so have operations and consequently contracts and obligations under contracts are being revisited to assess these impacts. The term that has assumed relevance in contractual context today for businesses today.
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 and Doctrine of Frustration is dealt in Section 56 which discusses contracts where performance of obligation cannot take place due to impossibility.
Through this brief, the following 4 points are to be considered while analysing whether your contract could be saved by invoking FMC or whether your remedy shall lie under Frustration:
1) If your contract does not ideally have a clause whereby the parties have mutually contemplated on consequences of an event that may render the performance of a contract invalid, your remedy shall lie under Section 56 of Contract Act, 1872.
2) Force Majeure clauses are usually interpreted in a very narrow sense. Therefore, it is for the parties to determine whether the FMC part of their contract covers the wider ambit of a pandemic like COVID-19 and the subsequent shutdown that it triggers. FMC cannot come to the party’s rescue merely because it was a part of their contract, recognition of COVID-19 is equally important.
3) The one who asserts that his/her non-performance is due to COVID-19 generally invokes the FMC. Hence, the initial burden of proof to establish such prevailing conditions is upon the party so invoking.
4) Lastly, Duty to mitigate also plays a major role but this is very much subject to facts surrounding a particular contract.
Once a contract has a special clause for ‘Force Majeure’ events, it shall override Section 56 – as observed by Hon’ble SC in Energy Watchdog vs CERC, (2017) 14 SCC 80 (India).
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