Force Majeure, as defined by Black's Law Dictionary, is an event which cannot be anticipated or controlled. It is a contractual provision which nullifies any loss in case the performance of an act becomes impossible, due to an event, which either party couldn't foresee.
The concept of Force Majeure is not defined in the Indian Contract Act, 1872; however, there is some resemblance with section 32 dealing with contingent contracts.
Section 32- "Enforcement of contracts contingent on an event happening –Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void."
The provision mentioned above envisages that if a contract is contingent on the happening of an event, whose occurrence becomes impossible, then the contract becomes void.
A force majeure clause provides reprieve to a party from performing its obligation in case of a force majeure event. A force majeure clause usually involves specific circumstances or events, conditions which would have been fulfilled for such force majeure clause to apply to the contract and the outcome from the occurrence of such an unforeseeable event. For a force majeure clause to be valid, the occurrence of such events shall be out of control of the parties and the parties will have to show that they have made an effort to mitigate the impact of the event. If an event or circumstance comes within the ambit of a force majeure event and the conditions are fulfilled for the applicability of the clause, then the parties will be free of their contractual obligations till the time it stays impossible to perform their obligation. Depending on the clause, a party may be liable to inform the other party about the occurrence of such an event and invocation of the force majeure clause. In case the event stretches over a long period, then the parties can also be permitted to terminate the contract.
Essential ingredients of a force majeure clause;
To invoke force majeure clause in the present situation of the outbreak of the coronavirus and nationwide lockdown would depend on the following factors;
The Deputy Secretary of Ministry of Finance stated in a memo that, "A doubt has arisen if the disruption of the supply chains due to spread of coronavirus in China or any other country will be covered in force majeure clause. In this regard, it is clarified that it should be considered as a case of natural calamity and force majeure clause may be invoked whenever considered appropriate, following due procedure."
This memo gives rise to protection in the form of force majeure in respect of contracts dependent only on supply chains; however, the courts may not apply the same principles in all commercial contracts. Therefore, the test which the judiciary shall conduct should involve the following questions;
The memo only covers a limited purview of contracts. It does protect all commercial contracts. If the answer to point 1 above is in affirmative, force majeure clause may be invoked. If the answer to Point 1 above is in negative, it will amount to the frustration of contract under Section 56 of the Indian Contract Act, 1872.
COVID-19 has caused some fatal blows to the world economy, and the fashion industry has suffered something similar. It is expected that the loss incurred by the fashion industry will be significant, some reports evaluating a figure of around $43 billion in 2020. Garment and accessories manufacturers who are heavily dependent on contracts are mostly based in China and Italy, two countries which were hit hardest by the pandemic at the start of the year. The Chinese government has issued around 1600 force majeure certificates to excuse businesses from performing their contractual obligations.
There has been a sharp drop in consumer demand and delay in manufacturing and delivery of garments and accessories, among other goods, due to the horror continuous spread of COVID-19. Such consequences of the pandemic allow companies to look at force majeure clauses in their contracts to be excused from performing existing obligations to accept and pay for orders that were placed long before coronavirus had drastically shifted the state of retail across the planet.
There is no doubt towards the applicability of a force majeure clause; however; the boundaries of the obligation to fulfil payment agreements in light of a force majeure event need to be considered. It is well-established that invoking the provision is rarely an easy transaction for a couple of reasons. The applicability of a force majeure provision is contract-specific, and the recent government regulations to control the spread of the virus may make it easier to invoke a force majeure clause not previously triggered by the virus. The firm notes, there is, nonetheless, "a high bar for invocation of such a clause.
Force majeure will only come into effect when it is objectively impossible, not just difficult, burdensome or economically onerous, for a party to an agreement to fulfil their obligations. For a party to successfully prove that a force majeure provision applies, it will need to establish a direct link to the pandemic and explain why it is or was impossible to fulfil their obligations.
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