An important aspect that parties need to take care of while entering into a contract is with regards to its performance. The definition of the term ‘contract’ makes no mention of the time when the contractual obligations have to be discharged. However, the drafters of the Indian Contract Act 1872, have made a provision for the same in § 46, which stipulates that in the absence of an express provision with regards to the time and place, the contract is ought to be performed within a “reasonable time”, which clearly depends on the facts of each case. In the contemporary scenario, § 46 is sought to have a greater relevance when the globe is facing the torment of one of the most severe infections i.e. COVID-19, which has till date claimed thousands of lives, leaving behind several infected. The virus which emerged from China’s Hubei province has impacted all the major sectors be it, economic, legal, political or social.
With no particular legislation in place to deal with Force Majeure events, Indian authorities have been compelled to invoke The Epidemic Diseases Act, 1872 and The Disaster Management Act, 2005. Force Majeure has been defined by Black Law’s dictionary as “an event that could neither be anticipated nor controlled”. Force Majeure is not explicitly mentioned in the Indian Contract Act 1872. However, a reference could be drawn from § 32 of the act. Section 32 stipulates the non-performance of the parties and declares the contract to be void, in case the contingent event on which the contract rests has become impossible. However, parties face impediment in invoking the said clause in two scenarios: firstly, when they have agreed that time is of essence to the contract ,and secondly, when the contract doesn’t contain a force majeure clause. The latter one has evolved from prominent case laws of Tailor v. Caldwell and Krell v. Henry , wherein the courts held that in the absence of a force majeure clause, the contract could be frustrated when the subject matter upon which the parties agreed to enter into a legally binding relationship, stands impossible to comply with.
The courts are now faced with the challenge of deciding whether parties can invoke force majeure clause, when time is of essence to the contract. In the current scenario the courts have to firstly examine whether the language of the terms of the contract could be interpreted to include situations of “epidemics” or “pandemics”. Secondly, the courts have to examine whether “restrictions imposed by the government” in tackling the situation could be considered to fall within the ambit of the force majeure clause, thereby discharging the obligations of the parties under the contract. The happening of any force majeure event results in the frustration of the contract, provided that the parties had a reasonable apprehension that such an event might occur. Hence, frustration comes into picture when such an unexpected event occurs that it becomes “impossible” or “unlawful” to perform the terms of the contract and the very foundation upon which the parties have agreed to enter into a legally binding relationship is destroyed by such “impossibility” or “unlawfulness.” Thus, “Doctrine of Frustration” can only be invoked when after the formation of the contract there is a change in the circumstances, which render it physically or commercially impossible for the parties to perform their obligations.
COVID-19 has made it difficult for the parties to render their contractual obligations. This may be either because of the restrictive measures taken by the government or because of the economic and commercial hardships that have arisen due to the pandemic. However, the “Doctrine of Frustration”, which is an implication of the force majeure event, doesn’t take into account commercial hardships as a factor which would frustrate the contract. Thus, parties facing commercial hardship are directed to adhere to the terms and conditions unless there is an express provision in the contract itself.
This stance was interpreted and disputed by the various jurisdictions across the globe, while tackling contract related disputes in the midst of the 1918 Spanish Flu outbreak. The Illinois Supreme Court upheld that the epidemic was not an “Act of God”. A contrary view was proposed by the north Dakota Supreme Court wherein the respondent was given the benefit to invoke the force majeure clause by making the pandemic to fall within the ambit of “Act of God.” Hence, what events will qualify as a force majeure and whether the contract stands frustrated, will depend on the potential impact that the pandemic has on international commercial contracts and whether the parties find it absolutely impossible to fulfil their duties.
Time being the essence, is considered to be an essential element in contracts providing for sale of goods. In Contracts where time is of essence, parties invoking the force majeure clause may seek temporary suspension of their obligations or termination of the contract. However, the contract will only be terminated in those cases where the circumstances were exceptional.
Digvijay Sahni, 1st Year, Maharashtra National Law University, Mumbai