FORCE MAJEURE FOR BUSINESSES IN TIMES OF COVID 19

Abstract:
Black’s Law Dictionary defines force majeure as an event that can be neither anticipated nor
controlled.1 Therefore, those events that are outside of the ability of contracting parties to
control can fall under this concept. In Indian Contract Law, there must be a specific force
majeure clause listing out events that may qualify as such and hence allow the parties to
dodge their obligations for the time being. With the outbreak of Coronavirus or Covid 19,
businesses all around the world have been put in a situation wherein fulfilling and carrying
out the contracts are either difficult or even impossible. Therefore, in light of such an event,
force majeure has come to the rescue of many. This paper aims to understand the background
of Force Majeure, how businesses are affected by Covid 19 and how the concept can help
them.

Keywords: not controlled, contractual obligations, Coronavirus, impossible.

Understanding Force Majeure:

The term “Force Majeure” means “superior force” in the French language. It is a Civil Law
provision that allows postponing the contractual obligations in unforeseen events which make
fulfilling the contract difficult. Even if there isn’t a specific Force Majeure clause in the
contract, one can take shelter of this provision. However, in Common Law, there is no such
doctrine followed and therefore parties that may want to avail this provision must have a
clause defining the events that they may find to be of a “superior force”. A Force Majeure
clause is included in a contract to help absolve the contracting parties from their obligations
in times of events out of their control.2

Relief under Force Majeure is said to be highly fact-specific and a great example of this is
Standard Retail Pvt. Ltd. v. G.S. Global Corp.3 In the case, the petitioners sought the
Honourable Court’s directions to restrainment of the Respondent Bank’s Letter of Credit.

Analysing the Force Majeure clause of the contract between the two parties, the wordings
explain to us what falls in the scope of the same. "Events beyond the control of the seller" (i.e
the Respondent) widen the ambit to a much larger range of events. Furthermore, the clause
also gives the Respondent ``sole discretion" to terminate or delay performance of the
contract. This goes to show that the power of a Force Majeure clause is very vast. Parties can
make any array of provisions for what falls under the clause and perhaps this may be the
reason why the concept can differ from case to case.

Frustration of Contracts & Force Majeure:

Similar to Force Majeure, there is a concept called Doctrine of Frustration embedded in
Section 56 of the Indian Contract Act, 1872.4 It was birthed by the English case of Davis
Contractors v Fareham Urban DC wherein the court observed that “frustration occurs
whenever the law recognizes that without default of either parties, a contractual obligation

1 Black’s Law Dictionary, Edition 11 (2019)

2 Raina Tadros, Force Majeure: Update in Light of Recent Developments, Ince, (October 3, 2014),
https://www.incegd.com/en/knowledge-bank/force-majeure-update-in-light-of-recent-developments.
3 MANU/MH/0528/2020.
4 'Force Majeure', 'Act Of God' & 'Doctrine Of Frustration' Under Indian Contract Act [Explainer]' (Livelaw.in,
2020) <https://www.livelaw.in/know-the-law/force-majeure-act-of-god-doctrine-of-frustration-under-indian-
contract-act-explainer-154452> accessed 27 April 2020.
has become incapable of being performed.”5 In Satyabrata Ghose v. Mugneeram Bangur &
Co.6 the court introduced Frustration to Indian Contract Law and held that “supervening
impossibility” or “illegality” comes under section 56 of Indian Contract Act 1872.7

One of the differences between Frustration and Force Majeure is how it is invoked. Force
Majeure requires a notice to be sent to the other party while Frustration can automatically
make a contract void once it becomes impossible. For example, a ban of sale of alcohol
would make all contracts dealing with the sale of alcohol illegal and therefore void. Secondly,
Force Majeure, depending upon how it's drafted, can either postpone, suspend or cancel
contractual obligations whereas Frustration renders a contract void. Both concepts differ in
their own way yet are beneficial for parties wanting to invoke them.

Force Majeure in Today’s Context:

With the Covid 19 situation developing rapidly, Force Majeure has been gaining lots of
importance. On 11th March 2020, the WHO declared Covid-19 to be a pandemic 8 and there
has been lots of chaos in the world since then. India detected its first case of coronavirus on
January 30 and crossed the mark of 100 cases on 14th March9 and 1000 cases on 28th
March10. With such a meteoric rise of the cases of Coronavirus, on 24th March, Prime
Minister Modi announced a 21 day nation-wide lockdown and that got the fight against
Covid 19 off the ground.

Clarifying certain things related to the conduct of businesses, the Ministry of HomeAffairs
declared11 select Central and State Government offices were allowed to operate. In addition to
that, Hospitals, Nursing Homes, Chemists and all other medical establishments and even
commercial establishments such as Groceries shops, Banks etc. were allowed to operate as
well. Educational Institutes, Religious gatherings and other such activities were prohibited.

Since then, there has been lots of uncertainty regarding what is the course of action in
different situations. For example, what happens to a leasee who has has rented out a hospital
and the government takes control of it for the fight against coronavirus which is a situation
similar to what has happened in Chhattisgarh, Rajasthan and Madhya Pradesh? 12 Will the
leasee be forced to pay rent to the leasor or does force majeure allow a way out? What
happens to construction contracts since constructors may not be able to complete them on
time due to various reasons. Such contracts which have been affected by Covid 19 can be
looked at with the lens of Force Majeure.

The Government, may have had the foresight of the possibility of such an issue, and in
February itself, declared that the spread of coronavirus, either from China or any other
country, would be covered under “natural calamity” under the Force Majeure clause. 13 Since
5 [1956] UKHL 3 (19 April 1956).
6 AIR 1954 SC 44.
7 Supra note 3.
8 Philippa Roxby, Coronavirus confirmed as pandemic by World Health Organization, BBC, March 11, 2020.
9 Jyoti Shelar, Number of cases in India cross 100, The Hindu, March 14, 2020.
10 India has 909 active corona cases, total tally crosses 1,000, Outlook India, March 28, 2020.
11 Govt Of India, Ministry of Home Affairs, No 40-3/2020-DM-I(A) (Dated 24th March 2020)
12 Ispita Chakravarty, Coronavirus: Three states take over private hospitals. What does the fine print say?,
Scroll March 30, 2020.
13 Govt Of India, Ministry of Home Affairs, No F. 18/4/2020-PPD (Dated 19th February 2020).
then, many parties have relied on force majeure as a way to escape or delay obligations, some
successful in doing so and some not so much. This is because force majeure can only be
considered on a case-to-case base therefore, there is no fixed relief.

There is no argument surrounding the fact that these times have made it difficult for all to
conduct business. Labour is not readily available, there’s lots of difficulty with transport and
with a possible economic catastrophe in the near future, 14 there is not much economic stress
the nation can take. In fact, during the course of this pandemic in India, 53% of businesses
have had some impact from Covid-19.15 Therefore, what can we do to prevent a snowball
effect on the economy?

Force Majeure as a Solution

Covid 19 has completely disrupted the market in ways that will affect the world as a whole.
Every sector of the economy will face the brunt of the lockdown, the coronavirus and the
disturbed supply and demand that will follow it. People will face difficulty to fulfill
contractual obligations which may be the effect of various reasons. With everyone locked up
at their homes, there is no production, no transportation, no consumption, no travel and no
movement. Goods cannot be produced, cannot be transported, cannot be delivered and cannot
be consumed. This, in turn, has led to breach of contracts. However, this is by no fault of the
contracting parties since the Coronavirus is considered to be a natural calamity.

Force Majeure can be the lifesaver for the contracts that are drowning in the deep ocean of
Covid 19. The contracts that have a force majeure clause must exercise it and try and suspend
the contractual duties and prevent breach of duty. However, suspending these duties is not the
only solution. There is a duty to mitigate the damages on behalf of the party claiming force
majeure as well. Businesses must try to fulfill obligations to the best of their abilities.
Unprecedented times also call for unusal solutions. Businesses must try to create win-win
situations in order to stay afloat and deal with the immense losses that these times entail.

For example, the company OYO Hotels has recently been unable to make the monthly
payments to its partner hotels. Since the hospitality sector has come to a standstill the
company instead of continuing to default on its payments can try to tie up with the
government to turn their empty rooms into quarantine zones for coronavirus patients. This
will help the government with it's problems with shortage of beds which is evident by the
2011 World Bank Data which estimates that for every 1000 Indians, there are 0.7 beds. The
Government in turn can provide compensation for the use of the facilities. This will help
OYO make payments to the hotel partners as well.

Conclusion
To conclude, the Force Majeure provision can turn out to be a boon to the businesses who
cannot fulfill their contractual obligations. However, another perspective must be taken in
order to keep the economy intact. If every contract is suspended or terminated, trade will
come to a standstill. Force Majeure must be used, but used in the circumstances in which
there is no other option. Instead, to come out of the Covid situation at the top of the pack, we
must look at new ways to solve the problem at hand and while simultaneously, tap into the
power of Force Majeure that can be used to save dying businesses.

14 Jayati Ghosh, Indian economy was rolling down a hill. With Covid-19, it’s falling off a cliff, QZ, April 2,
2020.
15 Biman Muukherji, Coronavirus impact: Indian industry seeks relief measures to aid economy, Mint, March,
23 2020.