FREQUENTLY ASKED QUESTIONS
Impact of Covid-19 (coronavirus) on Contractual Obligations and invocation of “Force Majeure”
Frequently Asked Questions
The global financial breakdown due to the outbreak of coronavirus (COVID 19) is unprecedented, to say the least. Most countries have by now adopted strict lockdown measures to prevent the spread of this virus. This deliberate government shutdown has interfered with businesses and is threatening the global economy.
Factories, shops, gyms, bars, schools, colleges and restaurants are all closed, resulting in severe economic and financial crisis the world over. The Chinese exchange rate is in fact one of the least affected which has led to many countries scapegoating and blaming China.
Given the extraordinary nature of the pandemic-induced crisis, we at Peritia Law Chambers, along with Court Kutchehry, have put together this FAQ on force majeure to help you navigate through these troubled waters. It is likely that performances under many contracts will be delayed, interrupted, or even cancelled. We have explained in this FAQ when force majeure may be invoked, whether doctrine frustration can be invoked and what are the consequences thereof.
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Q.1 What is “Force Majeure”?
A.1 "Force Majeure" clause is a contractual provision that discharges the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance impossible, inadvisable, commercially impracticable or illegal. Following events may constitute “Force Majeure”:
Q.2 When can “Force Majeure” be invoked?
A.2. The following conditions precedent allow the “affected party” to invoke the force majeure clause:
a. The event should be unforeseeable, beyond the control of parties and should not
have arisen due to the act of the contracting parties;
b. should have arisen either during the performance of the obligation or prior to the
committed date of performance;
c. Affected party should have taken all possible steps to mitigate the loss or to avoid
the force majeure event;
d. The party invoking the force majeure clause should be ready and willing to
perform its obligation; and
e. the force majeure event should be the sole factor restricting the party’s performance
Q.3 Which party can / should invoke the “Force Majeure” clause?
A.3 A party which is otherwise ready and willing to perform its obligation under the contract but owing to the “Force Majeure” event is prevented from performing its obligation under the contract (“affected party”).
Q.4 Can financial difficulty in performance of an obligation owing to unforeseeable events entitle the party to invoke “Force Majeure”?
A.4 No. The financial inability to perform the contract shall not excuse the party from performing its obligation and be not covered under force majeure clauses. Changes in the cost or availability of materials, components, resources/services, or changes in market conditions will be specifically excluded from the definition of ‘force majeure event’.
Q.5 What steps should the affected party take to invoke the “Force Majeure” clause?
A.5 The affected party must notify the other party at the earliest possible opportunity of the force majeure event and how it is preventing the performance or follow the procedure stipulated in the Contract.
Q.6 What are the consequences of invoking the “Force Majeure” clause?
A.6 Invocation of “Force Majeure” clause may result in either of the following:
a. neither party is liable for a failure to perform its contractual obligations where
that failure is caused by the force majeure event i.e. the parties shall be
discharged from performing their mutual obligations.
b. The performance of the obligation by the affected party maybe delayed until
the force majeure event is over.
c. Parties may be required to take steps to mitigate losses arising out of the force
The consequences listed above will depend on the wording and drafting of the contract in each case. Therefore, the affected party or party invoking force majeure clause must understand the consequences of invoking the force majeure clause prior to invoking it.
Q.7 Does the “Force Majeure” event specifically need to be mentioned in the Contract?
A.7 Yes. Specific force majeure events have to be explicitly mentioned in the contract for the clause to be invoked.
Q.8 What if there is no “Force Majeure” clause in the Agreement or the “Force Majeure” clause in the Contract does not specifically mention the event?
A.8 The absence of a “force majeure” clause in a contract leaves the parties to other legal doctrines such as the “doctrine of frustration” which is far restricted in application in contrast to “force majeure”. The “doctrine of frustration” is governed by Section 56 of the Indian Contract Act.
Q.9 What is the affected party expected to prove in case the other party initiates litigation even after the affected party invokes the “Force Majeure” clause?
A.9 The affected party would be required to prove the following:
a. the “Force Majeure” event is covered by the “Force Majeure” clause in the
b. there should be a causal link between the “Force Majeure” event and the non
performance i.e. the affected party was otherwise ready and willing to perform
c. affected party took all necessary steps to mitigate the losses and to avoid “Force
d. the performance of the obligation was not only financially onerous but
Q.10 What is “Frustration” of Contract?
A.10 A contract is frustrated when, subsequent to its formation, and without fault of either party, the performance of the party becomes impossible or the performance of the contract itself is incapable of being performed due to an unforeseen event (or events), resulting in the obligations under the contract being radically different from those contemplated by the parties to the contract. Frustration of contract results in involuntary extinction of the contractual obligations of both parties and consequently, the parties are relieved from their rights and liabilities.
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Lawyers are paid under various fee arrangements.
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