IS COVID AN 'ACT OF GOD?'

about 2 months ago
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Force Majeure.

This is something you will be hearing a lot in the coming days.

Right now, renewable energy developers and associations have asked the Indian government to invoke Force Majeur clauses that could buy them time extensions on projects.

PVR Cinemas has decided to inform malls and landlords that they would be invoking force majeure in its rental contract to not pay rent for the entire period of shutdown across the country. Reliance Retail also plans to go down the same route.

Force Majeure or Act of God is a legal terminology which in simple terms means that due to unforeseen circumstances, which is also interpreted as “superior forces,” a person/company is unable to fulfill the signed contract. This is actually a clause, which allows either party to limit their liability in face of some unforeseeable, extraordinary event.

The ‘unforseen circumstance’ includes natural calamities and also manmade extenuating emergencies like labor strikes or even wars. But where does this pandemic fall? We are calling it a war but does this virus itself qualify for ‘Act of God?’

But can anyone use it to protect one’s liability? What about a contractor who could not dispatch his trucks to the infected areas or a wholesaler who could not send fruits and vegetables to the retailer due to the pandemic uprising in his home town?

What the lawyers explain is that Force Majeure event is something which is beyond the control of the affected party. If the event was unforeseen, there is no argument but the clause says that even if the event for very much visible on the horizon but one could not do anything to avoid it, that also comes under the gambit of this clause.

Maybe after this, all contracts and clauses will include pandemic, epidemic and even quarantines as part of the force majeure events but currently, not many would have this specifically listed.

In that case, where a pandemic or quarantine is not spelled out, lawyers say companies use indirect consequences; Covid itself need not be the force majeure but lockdown, shut down of transport, ports closing – all these demonstrative effects can be construed as force majeure as they impact the party’s ability to fulfill the contractual obligations. Fear alone will not cut ice but the impossibility of doing the task is what will bring this clause into effect. Companies will have to prove that risks could not be mitigated, and that performance was truly impossible rather than merely financially difficult.

In the aftermath of the 2008 crisis, many companies used this clause of Force Majeure. But it did not fly because financial difficulty did not fall under force majeure.

At this point of time, one does not know how this clause will be played in contracts where threat from pandemics, epidemics and quarantine is not mentioned. But just as we ourselves are learning some life changing lessons, the legal fraternity could see this clause having major implications on the way in which contract law is penned. This event could shape law in ways we presently do not know.

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