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Whether COVID-19 is a force Majeure event or Doctrine of Frustration?

Force Majeure

Force Majeure means the occurrence of any unforeseeable circumstance which prevents the party from performing its obligations under a contract.

Essential Ingredients:

  • Unexpected/unforeseen intervening event.
  • Performance of obligations impossible/impracticable.
  • Parties took all measures to perform the obligations/at least to mitigate the damage.

Events that may act as Force Majeure are:

  • Natural Disaster.
  • Strikes.
  • Riots.
  • War.
  • Epidemic etc.

Doctrine of Frustration:

Frustration refers to when the contract is rendered impossible of its performance by external causes beyond the contemplation of parties.

It basically includes:
  • Impossibility of the performance of the contract.
  • Impossibility of the fulfilment of the ulterior purpose for which the contract was first entered.

Difference between Force Majeure and Doctrine of Frustration

  1. Force Majeure is not defined properly but to some extent it is hinted as contingent contracts in Section 32 of Indian Contract Act,1872.
    Whereas Doctrine of Frustration is defined under Section 56 of Indian Contract Act,1872.
     
  2.  Force Majeure is a Contractual Remedy.
    Whereas Doctrine of Frustration is a Statutory Remedy.
     
  3. Force Majeure include acts of governments, war, act of god, pandemic or any other events as may incorporated by the parties having contract between them prior to its executions.
    Whereas Doctrine of Frustration simply happens after the execution of contract, the act has happened which is an outside event and such act makes the performance of the contract impossible.

Now, Is COVID-19 a Force Majeure event?

Following points must be taken into consideration to analyse the possibility of Force Majeure event:

  • Whether contract contains Force Majeure clause or not?
  • If the contract contains Force Majeure clause then section 32 of ICA,1872 is applied and if not then Doctrine of frustration i.e. section 56 of ICA,1872 is applied.
  • Mere difficulty or inconvenience of a party is not force majeure.
All the above conditions are true and thus there is no doubt that COVID-19 is a Force Majeure event.

As per the recent judgements the court has cleared the view that that a Force Majeure clause is to be interpreted narrowly and not broadly. If an issue of application is made based on Force Majeure event, then the question arises that whether COVID-19 would justify the non-performance or breach of the contract.

Every breach or non-performance cannot be justified or excused merely on the invocation of COVID-19 as Force Majeure condition and it must be examined on the facts and circumstances of each case. Parties ought to be compelled to adhere to contractual terms and conditions and excusing non-performance would be only in an exceptional situation.

At the onset, one of the important premises of contract law is the principle of pacta sunt servanda, which means ‘agreements must be kept'. Accounting for exceptional circumstances that may condense a party unable to honor its part of its obligations, a force majeure clause forms a boilerplate clause in agreements across the domain today and aims at pardoning one or both parties from liability to perform contract obligations when the inability to perform is due to some factor/event/circumstance beyond the parties control.

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