What is Force Majeure?

Force Majeure is actually a French term and the literal meaning of this term is "greater force". It is "an act of God", an event for which no party can be held accountable, such as a hurricane or a tornado or armed conflict. Force majeure clause guards a party against several pecuniary responsibilities for its failure to carry out a contractual commitment.

In English law, force majeure is a creature of contract and not of the universal common law. Hence it diverges from some other legal systems where force majeure is a general legal concept and where courts may declare that a particular event, such as a pandemic like Covid-19, is a force majeure event.

As an outcome, whether a specific clause mitigates a party of contractual responsibility will, under English law, depend on the particular wording used in the clause, the allotment of risk between the parties provided by the contract as a complete, the situations in which the parties come into the contract, and the situation that has occurred. It is for the party looking to depend on a force majeure clause to plea it is non-performance or delayed performance to fulfill in a court or other tribunal that this is the result of the clause.

Event eligible to consider as Force Majeure:

The Test for force majeure typically needs to fulfill three distinctive criteria:

• The event must be beyond the control of the party affected.

• Due to the occurrence of that event, the capability of the affected party must have been obstructed, hindered, or prevented.

• The affected party must be taken all reasonable care to avoid or mitigate the event or its consequences.

These conditions will be taken into consideration in turn. Please note that financial hardship cannot be ground for force majeure.

Legal Provisions related to Force Majeure:

Force majeure doesn't merely indicate anything exterior control of the parties to a contract under Indian law. Its meaning applicability depends on the particular contract and the particular wording used. It is contractual words proposed to foresee unexpected events and supply for what happens on their happening.

Indian Contract Act, 1972:

The 'Indian Contract Act, 1972’ settled on the situations in which agreements in a contract shall be lawfully obligatory, but it's just quiet on the phrase 'force majeure'. However, the Act permits a contract for executing an "impossible act".

According to Section 56 of the Contract Act, three basic criteria are needed to satisfy the doctrine.

1. There should be an existing contract.

2. Some piece of the contract is yet to be executed and

3. The execution of the contract has become not possible after the contract is come into where-

   1. Corporeal impracticality is not a precondition.

   2. A fundamental modification in the basic supposition, on the ground of which contract was entered into, is required to make the performance impractical, unlawful, or unfeasible without the evade of whichever of the parties.

A force majeure clause can't be implicitly included in the Indian Contract Act, it must be expressly provided.

COVID-19 and Force Majeure clause:

Legal option when the performance of contracts becomes impossible due to COVID-19 lockdown:

1. Invocation of Force Majeure clause from the Contract; or

2. Invocation of Section 56 of the Indian Contract Act, 1972; Frustration of contract or

3. Fresh Contract or Addendum to the existing Contract

• The term 'Force Majeure' rarely covers an endemic or a pandemic. It's barely utilized for volcanic activity and quakes.

• Although, Finance Ministry in February clarified that disruption in the supply chain due to the spread of coronavirus qualifies as a force majeure event, and companies and businesses can invoke the force majeure clause.

Benefits of Force Majeure clause:

For a contract that has a Force Majeure clause, resolution probability is high.

When Force Majeure clause uses wrongly:

It is probably that companies may tolerate accusations that it has utilized the COVID-19 condition to flee out of reimbursement or performance.

Drawbacks of not having Force Majeure clause:

• In such a case, Section 56 of the Contract Act appeared in that matter.

• This section handles the 'frustration of contract'-means a circumstance were satisfying a contract becomes not possible or illegal after the asserting of the contract.

• Conventionally, courts have selected a fine analysis of the law in the decision on disagreement where Section 56 booted in.

• As per the analysts, demonstrating frustration is extra harder than attesting to Force Majeure.

• If a contract doesn't comprise this clause, the parties would have to make certain in light factors such as the nature of the contract, the nature of the event, and so on.

The situation in other countries:

• China brought into play "Force Majeure" to save trade from harm.

• China has given 4,811 force majeure certificates on 3rd March 2020 because of the outbreak due to COVID-19 as per the China Council for the Promotion of International Trade.

• Arcelor Mittal also declared force majeure in Europe on raw materials.

• Due to lockdown because of pandemic situation, a port about to half a dozen including Krishnapatnam, Dharma, Mundra, Tuna, Gopalpur, Karaikal, and Gangavaram have declared force majeure. At Mundra and Dhamra ports, Adani Ports announced as force majeure. Because of the huge number of cases, it will freeze the financial development even after they go down the cases of COVID-19. As per the opinion of different experts, this will not only collide the port zone but also the other areas including the real estate, cross-border trade, plain joint-venture agreements, and EPC (engineering, procurement, and construction), as well as merger and acquisition deals in the corporate world.

Conclusion:

Resolution under the force majeure clause may be applicable- a. Neither party shall because of such event be entitled to terminate the contract or have claimed for damages against the other in respect to such non-performance or delay in performance. b. The compulsion in the Contract shall be begun again as soon as workable after the event has come to finish or stopped to subsist. c. If the performance in whole or part of any obligation under the Contract is prevented or delayed because of the event (Force Majeure) beyond a period mutually agreed to if at all, or Ninety days, either is additional, moreover, a party may at its choice end the contract.

A standard solution if the force majeure clause is brought into play is for one or more parties to be exempted from its duty and/or liability under the contract, without any compensation payable. A force majeure clause, for a while, gives the extension or postponement of time, or cessation in case of constant delay or non-performance. Among these, the right of cessation/termination is more important since it may give the liberty of the defaulted party to renegotiate the terms and conditions of the contract.

BY-

Sushama Dilip Mhasurle