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Author - Yashasvita Apte

Globally the world has come to be affected by the Covid-19 (Corona Virus) pandemic resulting in a nationwide lockdown in India. The World Health Organization (WHO) defines a pandemic as “The worldwide spread of a new disease. An influenza pandemic occurs when a new influenza virus emerges and spreads around the world, and most people do not have immunity. Viruses that have caused past pandemics typically originated from animal influenza viruses.”

In view of the growing concerns which has further resulted in disruption of several supply chains and services, the ‘Ministry of Finance, Department of Expenditure Procurement and Policy Division’ had issued an internal Office Memorandum dated 19th February 2020, bearing no. F 18/4/2020-PPD, wherein the Ministry has recognized Corona Virus as a force majeure event by stating “2. A doubt has arisen if the disruption of the supply chains due to spread of corona virus in China or any other country will be covered in the Force Majeure Clause (FMC). In this regard it is clarified that it should be considered as a case of natural calamity and FMC may be invoked, wherever considered appropriate, following the due procedure as above.” The said notification was further confirmed and adopted by the ‘Ministry of New & Renewable Energy’ in its office memorandum bearing no. 283/18/2020- GRID SOLAR, dated 20th March 2020.

The term Force Majeure (French for ‘superior force’) is not defined under law nor is there a presence of a legal doctrine of force majeure, clauses of force majeure are generally included in commercial contracts and are inserted in order to relieve contracting parties from their contractual obligations and liabilities in the event of occurrence of circumstances which are beyond the control of the contracting parties, thereby making the performance of the contract impossible and/or commercially impracticable resulting in the suspension of all parts of the contract and obligations of the contracting parties in the Agreement. Force majeure may be differentiated from the legal doctrine of Frustration, which applies when an event occurs that makes it impossible to fulfil the contract thereby discharging the contract and releasing the contracting parties for its obligations.

I. CONDITIONS TO ESTABLISH FORCE MAJEURE EVENT:

1. Burden of proof- The burden of proof is on the party seeking to rely on the force majeure clause to establish that the event under which force majeure is invoked qualifies.
2. Contractual interpretation- The precise meaning and effect of a force majeure clause will depend on the specific wording of the clause and its interpretation, thereby looking into the following:
   1. the natural meaning; and
   2. information available to the parties when they entered into the contract; and
   3. the context of the clause within the wording of the contract as a whole.
3. Defining the event of force majeure- As noted above, there is no accepted definition of force majeure. Therefore, force majeure clauses in contracts typically definesand identifies a set of events that may or may not constitute as force majeure events.

Commonly listed events of force majeure include acts of God including but not limited to earthquakes, volcanic eruptions, landslides, plague, epidemic etc

II. CAUSE FOR FORCE MAJEURE:

A contract may simply list a set of criteria the event which must meet, or cause, in order to be considered an event of force majeure. Examples of the types of criteria we have seen included and considered by Courts are as follows:

1. The Event prevents the affected party from performing its obligations under the contract: In the case of Tennants (Lancashire) Ltd v. G.S. Wilson & Co. Ltd [1917] UKHL 523, 55 SLR 523, wherein the British Court considered themeaning of the word “prevent” and concluded that if a force majeure clause provides that the relevant triggering event must "prevent" performance, the relevant party must demonstrate that performance is legally or physically impossible, not just difficult or unprofitable.
2. The Event is beyond the reasonable control of the affected party: In the case of Channel Island Ferries Ltd. v. Sealink UK Ltd. [1988] 1 Lloyd's Rep. 323: The Court of Appeal held that any clause which included language referring to events “beyond the control of the relevant party” could only be relied on if that party had taken all reasonable steps to avoid its operation or mitigate its results.

III. ECONOMICSLOWDOWN AND FORCE MAJEURE:

The pandemic COVID-19 (Corona Virus) while is a global challenge faced by citizens across the world affecting wide array of industries and services, the economic slowdown that may have been caused due to pandemic virus may not necessarily be considered as a valid ground of force majeure event, as the contract in itself is a commercial understanding between contracting parties and events such as fluctuation of market trends are well anticipated and considered prior to entering into arrangements, thus rendering ‘economic slowdown’ caused by the pandemic virus an unacceptable reason for suspension of contract and its obligations, the basic purpose of the contract itself has become impossible because of the pandemic virus.

In the case of M/s Alopi Parshad & Sons Ltd. v. Union of India, [1960 (2) SCR 793], wherein the contracting party had to face a sudden surge in market price of ‘ghee’ resulting in non-performance of his obligations under the contract, the Court had stated “ "the Act does not enable a party to a contract to ignore the express covenants thereof and to claim payment of consideration, for performance of the contract at rates different from the stipulated rates, on a vague plea of equity. Parties to an executable contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate, for example, a wholly abnormal rise or fall in prices which is an unexpected obstacle to execution. This does not in itself get rid of the bargain they have made."

IV. COVID-19 AND FORCE MAJEURE LINK:

As discussed above, the essence and purpose of providing a force majeure clause is to recognize an extra ordinary circumstance and/or situation that may prevent a contracting party to perform its obligation resulting in the suspension of the Contract entirely. In view of the said office memorandum issue by the Ministry of Finance, Department of Expenditure Procurement and Policy Division’ had issued an internal Office Memorandum dated 19th February 2020, bearing no. F18/4/2020-PPD, government personnel, department and ministries were advised that invocation of force majeure on supply chains attributable directly due to COVID-19 (Corona Virus) may be considered as a valid force majeure event. However, it is also imperative to note that the said government circular is a internal direction/communication, and which may have no direct impact whatsoever upon private commercial understandings and terms of the contracts or may be incorrectly interpreted by separate private bodies and persons.

As ‘economic slowdown’ or the pandemic virus in itself may not considered as a valid force majeure event and/or cause entirely, the steps initiated by the State Government of Maharashtra by invoking Section 2 of the Epidemics Act 1897, and all subsequent actions thereafter regarding directions for shutting down private offices etc., may be considered as valid force majeure event, as neither contracting party may have any control over governmental policies, which may impact the contractual obligations of the contracting parties.

V. FORCE MAJEURE AND ITS IMPACT ON REAL ESTATE

Due to the nationwide lockdown induced by Covid-19 pandemic virus, all industries, commercial hubs, companies including the common man have been tremendously affected. One of the main questions which have arisen in the minds of the people at large is the payment of high rentals during the lockdown period. The said payment of rentals has been an issue as there is no usage of the premises, no revenue as estimated is earned/ generated from work carried out from the said premises. In addition to the rents, in the said situation, the parties also have to adhere to the overhead expenses and other liabilities. Representations and requests are made by the tenants/ licencees to the respective landlords to waive the rent for a lockdown period. In order to come up with a workable model for payment of rentals over a period of time, without causing the agreement to be suspended and/or terminated due to force majeure events.

There is an apprehension that the Government will be coming up with various guidelines and regulatory measures for dealing with the crisis triggered by the COVID – 19 outbreak in the property sector. The question that now begs to be considered is whether this pandemic will trigger the force majeure provision in the event of non-performance under the contract in the Real Estate sector. Many are looking for this calamity to renegotiate the terms of the existing contracts or are using it as an easy tool to suspend and/or terminate the agreement by interpreting it as a force majeure event. Given the unprecedented scenario being faced by multiple industries simultaneously due to the global pandemic and the resultant nationwide lockdown, it would be interesting to observe the new trends and/or commercial understandings that may be developed to tackle the current situation with innovative solutions.

VI. AD-INTERIM RELIEFS GRANTED BY THE COURTS IN VIEW OF COVID-19

On 20th April 2020, the Delhi High Court in OMP (I) (COMM) & I.A. 3697 of 2020 in Halliburton Offshore Service INC vs Vedanta Ltd, held that the COVID-19 lockdown is in the nature of force majeure, has restrained Vedanta Ltd. from invoking eight bank guarantees extended by Halliburton Offshore Services in connection with a development contract for certain blocks in Rajasthan.

VII. TERMINATION/WAGE CUT OF EMPLOYEES AMID COVID 19 SCENARIO

In workplaces situated within Maharashtra, it is pertinent to take into consideration the applicability of Resolution dated March 31, 2020 issued by Government of Maharashtra requesting not to remove from work or deduct the wage of the homeless/displaces and migrant workers from the other states during the lockdown period due to COVID-19 outbreak. Further, it states that ‘All the workers (Either on contract basis or outsources workers/ employees, temporary workers/ employee or daily wage workers) working in private organisations industries, companies, shops (except essential services organisations) etc. who have to stay at their houses due to spread of COVID-19 virus shall be assumed to be on work and these workers shall be given complete salaries and allowances to which they are entitled to.’

In order to promote effective implementation of the said resolution, the Government has directed that “For the purpose of the strict compliance of this order the concern authority shall take all necessary measures.” Such measure are punitive measure by way of penalty or imprisonment under Section 51 to 60 of the Disaster Management Act, 2005.

The Central Ministry of Labour & Employment had also issued an advisory to all private employers on March 20, 2020 (“MLE Advisory”). As per the MLE Advisory employers should not terminate employment during lockdown. It further states that if any establishment is non-operational, it must deem its employees on-duty.

The Ministry of Home Affairs had issued the order dated 29.03.2020, whereunder, the Central Government constituted the National Executive Committee under Section 10(2)(l) of the Disaster Management Act, 2005 and issued an order, which inter-alia, included payment of wages by the employers to the employees of any industry, enterprise, commercial enterprise.

“Whereas, to deal with the situation and for effective implementation of the lockdown measures, and to mitigate the economic hardship of the migrant workers…………………………………………...iv) All the employers, be it in the Industry or in the shops and commercial establishments, shall make payment of wages of their workers”

Significantly, since the said order dated 29.03.2020, was issued by the National Executive Committee, in view of the powers under Section 10(2)(l) of the Disaster Management Act, the effect of the same will be binding on the employers as the said section empowers the National Executive Committee to give directions to the concerned Ministries or Departments of the Government of India, State Governments and the State Authorities regarding measures to be taken by them in response to any threatening disaster situation or disaster.

Thus, while termination, lay off, retrenchment or wage cut can be carried out as per employment terms and/or applicable law (such as Industrial Disputes Act for workman termination), it is this authors opinion that employers at this stage and point of time do not consider terminating employments and/or cutting wages during lockdown.