IMPACT OF COVID-19 ON CONTRACTUAL OBLIGATIONS AND FORCEMajeure

INTRODUCTION

COVID - 19 has been declared as an epidemic by the World Health Organization (WHO), which has forced many Governments to declare lock-down in their respective Nations. Due to this, many Contractual obligations would not be able to get fulfilled under the legal term "Force Majeure." 

MEANING

"Force majeure" is a French term that generally means "superior strength." It is a civil concept which has no settled meaning under the common law. It is a clause in the Contracts or Agreements, which means that either party to a Contract who was not able to complete the obligations of the Contract due to the unforeseen circumstances which should be beyond all human possibilities. In other words, it could be said that the occurrence of the change of things, which was unforeseeable at the time of execution of the Contract and which would make the performance of the Contract impossible for either of the party. For example, that event could be war, change in legislation, natural calamity, and in the current situation, the outbreak of the Corona epidemic.

Defense OF THE PARTY

Due to COVID - 19, many Governments have imposed lock-down in their respective Nations due to which fulfillment of many Contracts would not be possible as there will be useful in production and supply chain. Due to this, the party to the Contract would demand compensation from the other party as the Contract has not been executed. But the other party would have the legitimate defense that the Contract was unable to be fulfilled due to COVID - 19 situation and subsequent lock-down, which was unforeseen at the time of execution of Contract.

DIFFERENT LAWS

Now the question arises that what should a party to the Contract due to show its genuineness that they are willing to perform. Still, to a sudden outbreak of epidemic and subsequent Government Orders, the fulfillment of the contract is impossible. So, as per Article 79(4) of the United Nations Convention on Contracts for the International Sale of Goods, the party who fails to perform must give notice to the other party impediment and its effect on his ability to function. If the party does not receive Notice within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt.

Article 7.1.7 of the UNIDROIT Principles lay down almost the same principles. As per the said Clause, it does not restrict the rights of the party who has not received the performance to terminate if the non-performance is fundamental. What it does do, where it applies, is to excuse the non-performing party from liability in damages. In some cases, the impediment will prevent any performance at all. Still, in many others, it will merely delay production, and the effect of the Article will be to give some extra time for the return.

PROCEDURE CLAUSE

But the above situation could get change if "Procedure of Invocation of Force Majeure Clause" is provided in the respective Contractor Agreement. In addition to this, if there is no Force Majeure clause mentioned in the  Contract, then the said Contract would be governed through the laws about the Contract in that particular Nation. 

THE COURSE FURTHER

Therefore, the parties to the Contract due to these unforeseeable disruptions resulting from COVID-19 could approach contractual negotiation and try to minimize the risk to curb their losses in the future.