Kartik
ROLE OF FORCE MAJEURE CLAUSE IN PRESENT SCENARIO
Kartik Bhardwaj 25 Mar 2020

ROLE OF FORCE MAJEURE CLAUSE IN PRESENT SCENARIO

As scenes of chaos, misery and rapidly mounting death tolls emerged from China in December 2019 the world watched in concern. Covid- 19 was first detected in China's Hubai province, but by January 2020, the World Health Organization had declared the Novel Corona Virus outbreak as a public health emergency. This was the viral spread of this potent virus, which was detected in at least 29 countries as of February 2020. Covid-19 has rapidly evolved from a local threat to a global one with tragic human losses which take precedence over its economic impact. Nevertheless, severe economic losses were triggered by the extraordinary steps taken to contain the virus outbreak such as workplace shutdown, disruption of production, closures of ports and suspension of air travel. The pandemic creates a profound impact on industrial sector and underlying contractual relations. It has often been highlighted that historically in the current socio-economic scenario that the world is witnessing. The concept of force majeure has significant role to play. Economic considerations become secondary when it comes to human health and security. Organizations also use their contracts and insurance plans to assign the responsibility for unanticipated business interruptions. There are few important principles to remember when you are exploring recovery options or are defending against breach of contract claims. As far back as 1592, Thomas Nashe proclaimed "Dear lord save us from winter, plague and pestilence." If he added earthquakes, war, government interference, and a couple of others to that list, he would have had the development of a clause of modern day force majeure. OBEJECTIVE OF A FORCE MAJEURE CLAUSE IN A CONTRACT The object of a force majeure clause in a contract is usually to exempt all parties from liability if an unusual occurrence or situation outside their control prevents one or both of them from meeting their obligations under that contract. On 17 February 2020, more than 200 representatives from sectors such as pharmaceuticals, textiles, electronics, solar power, automobiles, surgical equipment, paints, fertilizers, telecommunications, metals, mobile manufacturing, edible oils, hygiene, tourism and shipping met with the Ministry of Finance to discuss the effect of Covid-19 outbreak on government contractors. A report by the Confederation of Indian Industry (CII) said "45 % of total electronics imports in India come from China." "One-third of the machinery and nearly two-fifths of the organic chemicals that India purchases from the world come from China," the report added. It further added that China's share of imports is more than 25% for automotive parts and fertilizers, while 60-percent for automotive parts and fertilizers, respectively. Many Indian companies are dealing with an unexpected pandemic event and are examining old contracts to see whether force majeure clause can be exercised and whether it will allow them to walk away from deals that they feel is unfair and one-sided, said legal experts. Although many of the cases that are being checked are legitimate in nature, lawyers and consultants said a few businesses are finding refuge in the current situation to avoid bad contracts that are now seen as one-sided and weighted against them in view of the overall downturn in the economy. For non-governmental and other agreements where there is a force majeure clause in a contract, the yardstick is that theCovid-19 outbreak will fall under the meaning of that provision. If the contract does not contain a force majeure provision, or whether the occurrence of the Covid-19 falls beyond the scope of that agreement, the parties will have to determine whether the doctrine of frustration applies to release them from their contractual obligations Covid-19 has caused a raw material shortage, impacted consumption and affected pre-agreed deadlines, resulting in a situation where businesses are now finding a route to cancel contracts. In a report on March 9th, multinational consulting company McKinsey & Co said the situation is close to the global slowdown. "This scenario results in a recession, with global growth dropping from –1.5 per cent to 0.5 per cent in 2020," the study said. In the past, some courts have interpreted force majeure clauses narrowly; that is, excusing misconduct within the meaning of the clause in specific circumstances and/or incidents, but courts must also consider the factors concerning the incidents mentioned. For instance, while "disease" may be a defined force majeure event in a contract, adverse parties may claim that the performance of a party is not excused because of the possible impact of the coronavirus, especially if your company is in the United States only. However, if your company is in China alone, or areas that are most affected by global health issues, excused performance might be more likely at this point. The Ministry of Finance and Government of India, informed on 19 February 2020 that corona virus will be protected by the above force majeure clause (FMC) and should be considered a natural disaster. Furthermore, the ministry has clarified that this provision can be used where appropriate, subject to due process being followed. It should be noted that the provision does not completely justify the non-performance of a party but only suspends it for a period of time. One of the requirements for this clause is that the agency must inform force majeure for any such exceptional occurrence as soon as it occurs. The China Council for the Promotion of International Trade on March 3 said the country had issued 4,811 force majeure certificates because of the pandemic. The total value of those contracts that invoked this provision was around $53.79 billion, and the number is expected to increase as days pass. According to the ministry of commerce and industry, China is India's second-largest trade partner after the United States.

As scenes of chaos, misery and rapidly mounting death tolls emerged from China in December 2019 the world watched in concern. Covid- 19 was first detected in China's Hubai province, but by January 2020, the World Health Organization had declared the Novel Corona Virus outbreak as a public health emergency. This was the viral spread of this potent virus, which was detected in at least 29 countries as of February 2020.

Covid-19 has rapidly evolved from a local threat to a global one with tragic human losses which take precedence over its economic impact. Nevertheless, severe economic losses were triggered by the extraordinary steps taken to contain the virus outbreak such as workplace shutdown, disruption of production, closures of ports and suspension of air travel. The pandemic creates a profound impact on industrial sector and underlying contractual relations. It has often been highlighted that historically in the current socio-economic scenario that the world is witnessing. The concept of force majeure has significant role to play.

Economic considerations become secondary when it comes to human health and security. Organizations also use their contracts and insurance plans to assign the responsibility for unanticipated business interruptions. There are few important principles to remember when you are exploring recovery options or are defending against breach of contract claims.

As far back as 1592, Thomas Nashe proclaimed "Dear lord save us from winter, plague and pestilence." If he added earthquakes, war, government interference, and a couple of others to that list, he would have had the development of a clause of modern day force majeure.

OBEJECTIVE OF A FORCE MAJEURE CLAUSE IN A CONTRACT

The object of a force majeure clause in a contract is usually to exempt all parties from liability if an unusual occurrence or situation outside their control prevents one or both of them from meeting their obligations under that contract.

On 17 February 2020, more than 200 representatives from sectors such as pharmaceuticals, textiles, electronics, solar power, automobiles, surgical equipment, paints, fertilizers, telecommunications, metals, mobile manufacturing, edible oils, hygiene, tourism and shipping met with the Ministry of Finance to discuss the effect of Covid-19 outbreak on government contractors. A report by the Confederation of Indian Industry (CII) said "45 % of total electronics imports in India come from China." "One-third of the machinery and nearly two-fifths of the organic chemicals that India purchases from the world come from China," the report added. It further added that China's share of imports is more than 25% for automotive parts and fertilizers, while 60-percent for automotive parts and fertilizers, respectively.

Many Indian companies are dealing with an unexpected pandemic event and are examining old contracts to see whether force majeure clause can be exercised and whether it will allow them to walk away from deals that they feel is unfair and one-sided, said legal experts. Although many of the cases that are being checked are legitimate in nature, lawyers and consultants said a few businesses are finding refuge in the current situation to avoid bad contracts that are now seen as one-sided and weighted against them in view of the overall downturn in the economy.

For non-governmental and other agreements where there is a force majeure clause in a contract, the yardstick is that theCovid-19 outbreak will fall under the meaning of that provision. If the contract does not contain a force majeure provision, or whether the occurrence of the Covid-19 falls beyond the scope of that agreement, the parties will have to determine whether the doctrine of frustration applies to release them from their contractual obligations

Covid-19 has caused a raw material shortage, impacted consumption and affected pre-agreed deadlines, resulting in a situation where businesses are now finding a route to cancel contracts.

In a report on March 9th, multinational consulting company McKinsey & Co said the situation is close to the global slowdown. "This scenario results in a recession, with global growth dropping from –1.5 per cent to 0.5 per cent in 2020," the study said.

In the past, some courts have interpreted force majeure clauses narrowly; that is, excusing misconduct within the meaning of the clause in specific circumstances and/or incidents, but courts must also consider the factors concerning the incidents mentioned. For instance, while "disease" may be a defined force majeure event in a contract, adverse parties may claim that the performance of a party is not excused because of the possible impact of the coronavirus, especially if your company is in the United States only. However, if your company is in China alone, or areas that are most affected by global health issues, excused performance might be more likely at this point.

The Ministry of Finance and Government of India, informed on 19 February 2020 that corona virus will be protected by the above force majeure clause (FMC) and should be considered a natural disaster. Furthermore, the ministry has clarified that this provision can be used where appropriate, subject to due process being followed. It should be noted that the provision does not completely justify the non-performance of a party but only suspends it for a period of time. One of the requirements for this clause is that the agency must inform force majeure for any such exceptional occurrence as soon as it occurs.

The China Council for the Promotion of International Trade on March 3 said the country had issued 4,811 force majeure certificates because of the pandemic. The total value of those contracts that invoked this provision was around $53.79 billion, and the number is expected to increase as days pass. According to the ministry of commerce and industry, China is India's second-largest trade partner after the United States.


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