COVID19 in the Ambit of Force Majeure and Doctrine of Frustration
COVID19 in the Ambit of Force Majeure and Doctrine of Frustration
Author : Alika Jain of The ICFAI University, Dehradun
Introduction
‘Force Majeure’ means an “event which may be neither anticipated nor controlled . . . [and] includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars).”[i]
The Supreme Court, in Dhanrajmal Govindram v. Kalidas Samji& Co.[ii] emphasized to differentiate between “Vis Major” and “Force Majeure,” in this case the court held that the Force Majeure is a term wider than an act of god and includes all the acts of God, war, insurrection, riot, civil commotion, strike, earthquake, tide, storm, flood, explosion, fire break down of machinery, etc. Whenever the reference is made to “Force Majeure”, the intention is to save lots of the performing party from the consequences of anything over which he has no control.
Force Majeure clauses in Contract
Force Majeure is present in Indian Common Law and is predicated on the Doctrine of Frustration of Contract. The doctrine fills the void in the contract regarding succeeding events, based on principles of good faith and equity. Section 56 of the Indian Contract Act 1872 explicate that an agreement to do an act that becomes impossible or unlawful is void.
A thorough explanation of the section can be sought from the celebrated decision of Satyabrata Ghose v Mugneeram Bangur and Co.[iii] ‘Unfeasibility’ under section 56 doesn’t mean literal impossibility to perform but refers to those cases where a supervening event beyond the control of the parties (like the change of circumstances) destroys the base upon which the contract rests, thereby contributing the contract ‘non-viable’, and substantially ‘futile’ given purpose which the parties intended to attain through the contract.
Meanwhile, in Energy Watchdog v CERC[iv], 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 out of contract, Section 56 of the Act applies. Further, the contract itself provided that liquidated damages will not be applicable in case of delay caused due to force majeure conditions. Therefore, the court held that in ascertaining the meaning of the contract and its application to the actual occurrences, the court has to decide, not what the parties actually intended but what as reasonable men they should have intended.
Doctrine of Frustration
The COVID 19 is one such force majeure situation where contracts have become impossible to perform.
The doctrine of frustration of contract law is initially defined by two points, namely:
- The doctrine was to be permitted where it was raised as a defense to the non-performing party due to impossibility to perform as per the agreement(section 56); and
- The parties were entitled to insert provisions as a contingency measure to provide for the occurrence of the same (Section 32).
To invoke the aid of frustration, the party who wants to establish that the contract has become frustrated, has to establish the following conditions: a) the performance of the Contract has become impossible; b) the impossibility is not on account of some event which the party could not anticipate; c) and, that the impossibility is not self induced by the party or due to his negligence.
Pandemic/ Epidemic=Act of God
The COVID 19 is one such force majeure situation where contracts have become impossible to perform. On 19-2-2020, the Ministry of Finance, Government of India issued a notification clarifying that the disruption of supply chains due to the spread of corona virus should be considered as a case of natural calamity and force majeure clause may be cited, wherever considered suitable, following due procedures. Hence, the terms and conditions used in different clauses of the contract undertake rule in order to find out as to whether or not parties to the contracts can allege for being justified from performing their part of the contract quoting force majeure given the situation during the COVID-19 pandemic.
Consequences to be faced if COVID 19 declared as Act of God-
- Insurance policies that include special and defined supervening events can plead and may be exempted from their contractual obligations which will be an onus on the insurers.
- Law of torts specially defines Act of God as a Defense, in the light of this statement this law will remain suspended during the ongoing pandemic.
- Covid 19 might results in professional negligence lawsuits due to project hindrances and rescission.
- COVID 19 is an asymptomatic and communicable disease that can stand in recession to your life insurance policy.
Conclusion
There are some specific situations in which the doctrine of frustration applies:
- Alter in circumstances.
- Demise or incapacity of Party
- Authoritative, Administrative or Legislative Intervention
The continued COVID 19 pandemic meets the primary situation, making the doctrine of frustration a defense against the obligations to satisfy a contract. Hence, the World Health Organization declared Corona virus an Act of God, and parties to a contract can use Corona virus as a defense or protection from legal consequences.
For any act to be considered an Act of God, it must be unusual, extraordinary, grave, and sudden such that it is very hard to foresee such a turn of events. Conclusively, COVID-19 cannot be considered an Act of God by the court.
A legal maxim quoted in Hughey v JMS Development[v] which is based on the doctrine of frustration: “Les non-cogit ad impossibilia” which means “a man cannot be compelled by law to try and do what he can’t possibly perform. The “doctrine of frustration” and “force majeure” have become crucial facets of law in the time of the global pandemic, COVID-19, and have become crucial facets of contracts and accountability.
[i] BLACK’S LAW DICTIONARY, Edition 2019.
[ii] AIR 1961 SC 1285.
[iii] 1954 AIR 44, 1954 SCR 310.
[iv] (2017) 14 SCC 80.
[v] 78 F. 3d 1523 (1996).
