Latest updates on Force Majeure

The World Health Organization (WHO), on 11th March 2020, declared the COVID-19 virus as a ‘pandemic’. As the global death toll continues to increase, several countries have suspended all the existing visas and prohibited all non-essential travel. Due to the restrictions imposed by the governments across the world, business and industrial sectors have taken a massive hit. Several business and contractual transactions have been impacted and have the potential to give rise to various contractual disputes.

In order to curb the spread of this deadly virus, governments across the globe have imposed lockdowns, resorted to curfews and have restricted local movements. These restrictions have naturally led to an impact on the economic growth and have resulted in concerns being raised regarding the inability or difficulty being faced by businesses in honoring their contractual obligations under the existing agreements.

The inability to perform the contractual obligations due to the outbreak of the pandemic was neither foreseeable nor could it have been prevented by the businesses. Therefore, the question arises whether defense of force majeure can be taken by the businesses to protect their interests.

Force majeure literally means ‘superior force’ and can be defined as an event or effect that can neither be anticipated nor controlled. In the case of Esjay International Ltd. v. Union of India, the Court held that a force majeure condition is something which is unforeseen, and over which the party has no control. Therefore, where a reference to force majeure is made, the intention is to save the performing party from the consequences of anything over which he had no control. Some typical force majeure events include Act of God, strikes and wars. The law related to force majeure was recently well summarized in the 2017 case of Energy Watchdog v. CERC  wherein the Supreme Court held that in order for the force majeure clause to apply, it is imperative that the situation resulting in the breach of contract is mentioned in the clause. 

Amidst the present pandemic, a force majeure clause may be invoked provided that it is mentioned in the contract through certain terms such as Act of God or pandemic. Further, the party should be able to prove the breach of contract was caused due to Covid-19 and not because of some other event. The burden to prove that the breach is directly attributable to COVID-19 rests with the party seeking to invoke the force majeure clause. 

In February, the Secretary to the Government of India, Ministry of Finance, issued an office memorandum stating that in case of disruption of supply chain due to spread of Coronavirus, it will be considered as a case of natural calamity and force majeure may be invoked to shield against any claims for breach of contract. This can act as a guide for the courts and tribunals while deciding whether the outbreak of the current pandemic should be considered to be a force majeure. Further the Ministry of New & Renewable Energy also issued a Memorandum in March stating the occurrence of Covid-19 as a Force Majeure event. The ministry reiterated their position regarding recognizing Covid-19 as a Force Majeure event vide another memorandum in April. Most recently the Finance ministry announced that Force Covid-19 should be treated as a Force Majeure event in RERA.

The above-mentioned memorandums issued by various ministries depicts the clear-cut intention of the government to treat Covid-19 as a Force Majeure event. This will play a critical role in the forthcoming cases revolving around the invocation of the Force Majeure clauses.

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Siddharth Dalmia

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Written By

Devarshi Mohan