Will force majeure apply to Covid, writes Abhishek Singhvi
Principles and case law show that citing the pandemic to avoid obligations will not be easy
Apart from fear, panic and uncertainty, the coronavirus disease (Covid-19) has generated a set of legal issues which will assume increasing salience in the weeks and months ahead.
Can I, as a tenant, seek waiver of rent for inability to use my rented office/manufacturing facility during the lockdown? Am I obliged to pay full wages even if I am closed and not generating income? Can my building contract invoke force majeure (FM), freeing the party from legal obligation, and/or change in law, and claim not only extension of time but also compensation for an impossibility? Does the Covid-19 lockdown constitute change in law at all? These and innumerable similar questions are agonised over daily. This article cannot give in-depth answers but suggests some principles, in legal, non-consensual situations between warring parties.
First, FM (usually used interchangeably with frustration) is, in law, quite different from what it is popularly perceived to be. Prevalent confusion in the Covid-19 context arises largely due to a lack of understanding of its true essence in law. Its 400-year-old English and 75-year-old Indian jurisprudence yields the following principles:
a) The contract between parties is supreme; if it specifically anticipates a pandemic with consequences stipulated, it will govern above all else — 99.99% cases are of gaps and ambiguity, because parties are not prophets and lawyers are not astrologers.
b) While English law is of persuasive value, Indian courts must be guided by the comprehensive codes in sections 32 and 56 of our Contract Act.
c) Of the three underlying juristic principles — that the consequence of a frustrating event be implied by courts as something so obvious that parties excluded it because of its obviousness; be imposed by courts as the most just and fair result; or be adopted as that which law’s hypothetical reasonable man would do during FM — the last is the most preferable. The first is farcical because the very basis of FM is that which parties could not anticipate; the second involves rewriting of contract by a judge supposedly doing justice, smacking of the proverbial Chancellor’s foot.
d) Critically and crucially, case law has used strong words and cast the threshold to successfully apply FM very high. It requires the entire foundation of the bargain to be shown to be upset. The basis of the adventure must be destroyed. Mere alteration, even significant change, or highly enhanced onerousness, or humongous increase in expenditure, or availability even of delayed performance alternatives, have all negatived FM. A radically new contract and a break in identity with the original have been judicially adumbrated. Price, cost and monetary changes have been specifically given the least judicial importance.
Second, celebrated cases (despite distinguishing features) and cerebral judges have rejected FM in stronger contexts than Covid-19. Thus, requisition of land on which development was to contractually happen was not excused in 1954, despite requisition of the land in World War II. A ghee supplier during the same war was not allowed enhanced prices, despite huge scarcity and enhanced expense of procurement. The rejection of a licence to a jute supplier sourcing Pakistani jute post the 1965 war was held not FM-entitled, while, in 2017, a corporate was denied FM and benefits of change of law in electricity generation, despite proving a humongous increase in the cost of Indonesian coal which, by law of that country, increased exponentially and admittedly rendered the contract commercially impossible.
Third, a little known Chinese judgment (applying English law in Hong Kong) in the identical context of Severe Acute Respiratory Syndrome (SARS) 2003, denied relief to a tenant who sought to exit his tenancy at the inception, but within the lock-in period because of a month’s disruption of occupation due to the SARS lockdown. Judges have emphasised the non-permanence and temporariness of such disruptions, and the full probability of resumption, albeit within an uncertain time frame, to deny FM. Indeed, the Hong Kong judge noted that he knew of no English decision over 500 years excusing tenancy obligations based on frustration.
Fourth, applying the above, it would be well nigh impossible to argue that two-or three-month disruptions qua Covid-19 leases radically altered the bargain. While all governmental communications obliging wage payments are advisories with no legal effect, the ministry of home affairs document of March 29, 2020, is under section 10(2)(i) of the Disaster Management Act and constitutes law. Absent a successful challenge to the notification and to the validity of the section on the ground that that section does not address the issue of wages at all, the obligation regarding wages binds. Litigation experience tells me that in the current ambience of destitution and deprivation, no court is likely to arrive at that result.
Fifth, the lockdown rules clearly possess all the attributes of law and are binding. They would, thus, qualify as change of law under appropriate clauses in construction contracts leading to proportionate extension of time for completion. Whether they would make the owner liable for additional compensation to the contractor, arising from change in law, remains an untested and vexed question. Arguably, the lockdown, though undoubtedly a change in law, is activity- neutral and not specific qua construction, apart from excusing the owner as much as the contractor. The jury may well be out on this last one.
Recommended Topics