This article is written by Farhan Khan from Aligarh Muslim University, a Campus Ambassador at LawSikho. This article has been edited by Priyanka Mangaraj (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).
Table of Contents
Introduction
The emergence of the COVID-19 pandemic across the world has proven not only a humanitarian crisis but on a large scale economic crisis too. At this critical time, the government of India has exercised its power under Epidemic Disease Act, 1987 to ameliorate the preparedness and prevent the spread of Covid-19. And eventually while invoking the ruling of the Disaster Management Act, 2005 the government has declared it as a notified disaster which has consequently led to the imposition of Lockdown throughout the territory. On 12 March 2020, The World Health Organization declared the COVID-19 as a pandemic. Like the word, “Lockdown” has been very much prevalent since February 2020 across the globe. The governments of various countries have announced the lockdown in their respective countries to prevent the citizens from being a further link of this contagious disease.
During this tenure of Lockdown people weren’t able to leave the place where they were. Particularly, restrictions on mass movement and on transportation of essential services have raised serious suspicions on the ability of parties to perform their obligations under contracts. Uncertainty as to the performance of contracts has led to parties confronting breaches of contracts and assessing their rights and remedies in relation to the same. Undoubtedly, COVID-19 has tremendously marked an adverse effect on the national as well as international markets.
The single fact that a business wants to be able to confide in, is the legitimacy of their signed agreements. This pandemic COVID-19 as well as government’s orders to contain it has prevented numerous people including ordinary persons, professionals, businessmen, sportspersons etc. from performing their contracts. Are all these parties legally liable for the breach of contracts? Or they can make excuses for these extraordinary events?
So, in this article we will discuss, does the pandemic COVID-19 come under the umbrella of “Act of God” as an excuse for the performance of a contract? Does it fulfil the essentials of the Force Majeure clause? On a critical juncture when the contractual parties are seeking exemption from obligations by taking the defence of Act of God or an element of Force Majeure in India, the English law there is no stand-alone concept of Force Majeure that increases the chances of this pandemic being presumed as an Act Of God in per se.
Difference between Act of God and Force Majeure
The essence of a contract is based on a conventional maxim Pacta Sunt Sarvanda which signifies that the agreement must be kept. So if either of the involved parties in that contract, fails to perform the contract, they are held liable as defaulting parties and are supposed to pay reasonable liquidated damages to another party. However, the above-mentioned maxim is not absolute as in certain circumstances it becomes quite impossible for the parties to perform their contracts due to some external interventions which are neither predictable nor controllable. These external forces may be termed as Force Majeure or Vis Major (Act of God). The Indian Contract Act, 1872 has the provisions of certain excuses for the parties on being unsuccessful towards the performance of obligations.
Force Majeure
In India, there is no particular legislation for Force Majeure or Act of God, however, Section 32 and 56 of the Act contains certain provisions regarding the disability in the performance of the contract due to some unavoidable and unforeseen circumstances. According to Section 56 ‘An obligation arising out of a contract is impossible to perform by reason of some events which the Promisor could not prevent, then the contract becomes void also referred to as ‘frustration of contract’. There is no boilerplate Force Majeure clause as it varies from part to part as per their negotiation. That said, it can follow a common pattern of Force Majeure clauses illustrated in a famous case of New York Kel kim v. Central Markets. In this case, the court held that if the parties are unable to perform any obligations through no fault of their own but by reason of labour dispute, restrictive governmental laws, insurrection, war, Act of God or similar circumstances beyond the control of such parties, the performance of such parties can be excused for a period of delay.
Force Majeure is a French word that refers to the extraordinary events, situations or circumstances beyond human control and foresight which comprise the Act of God and the Act of people as well such as war, riots, strikes, emergency etc. The events that obstruct the continuation or legitimate existence of a contract between two parties.
A Force Majeure clause in a contract implies identifying those circumstances in which the performance of obligations by either one or both the parties is impossible to be accomplished. The three judges bench of the Supreme Court of India in Dhnarajamal Gobindram v. Shamjikalidas & Co. stated it as a term of broad implication. Force Majeure is a wider concept where the incident is not obligatory to be connected with natural interventions rather can be attributed to human actions such as ups and downs in the government policies, strikes, machinery breakdown etc.
Act of God
The phrase “Act of God” has been listed down on the Force Majeure clause for centuries. Most dictionaries define the phrase “Act of God” as “A natural event that is not caused by human actions and can not be anticipated.” For instance, Black’s dictionary defines “Act of God” as: “An overwhelming, unpreventable event caused exclusively and directly by forces of nature, such as an earthquake, flood, or tornado”. Similarly, Merriam-Webster Dictionary defines an “Act of God” as “An extraordinary intervention by a natural cause (such as a flood or earthquake) of the usual course of events that experience, prescience, or care cannot reasonably foresee or prevent.” So the Act of God is a defence.
The rule of strict liability I.e. The rule in Rylands v. Fletcher also recognized this to be a valid defence for the purpose of liability under that rule. Act of God is an inevitable accident with the difference that in the case of the Act of God, the resulting loss must arise out of the interruption of natural events like storms, heavy rainfall, tempests, tides and volcanic eruptions”. In the case of Ramalinga Nadar v. Narayan Reddiar the court held that “Only those acts which can be traced to natural forces and which have nothing to do with the intervention of human agency that could be said to be an Act of God”. In fact “Act of God” forms a subset of Force Majeure.
Force Majeure is wider than the Act of God
Thus the Force Majeure clause in the contract exempts the parties from contractual liability or obligations when the contract is impossible to carry out because of some extraordinary events. Force Majeure is wider than the Act of God as it comprises both natural as well as artificial unforeseen events whereas the Act of God covers only natural events. For example, if a person had a contract to import certain goods from a foreign country, suddenly the respective country declares a war for which transportation got stopped. So here the promisor has the option of Force Majeure clause to escape from the liability arising out of breach of contract because of restrictions on transportation.
Act of God under the Indian Law of Contract
The Act of God is not a single concept under the Indian Contract Act, 1872 rather it is enshrined under the Force Majeure clause of the Act. Act of God is the literal meaning of the maxim Vis Major. An Act of God is a natural calamity like heavy rainfall, earthquake etc. which gives an exemption from contractual obligations to the parties under contract or insurance laws. In the law of contracts an Act of God refers to the impracticability or impossibility; where it is impossible for the parties to accomplish the obligation or the performance would require a long time due to some extraordinary results of natural interventions which are beyond the human capacity to prevent or control such events.
Section 32 and Section 56 of the Indian Contract Act deals with such situations. The concept of the Act of God is covered under the Force Majeure clause of a contract which signifies all the unforeseen events which are not controllable by human power like hurricanes, volcanoes, earthquakes etc. For example, A made a contract with B to sell his home for a cost of 2 lakh rupees, but before the contract materialized an earthquake occurred and the house was devastated. So here the agreement is impossible to perform because of some unforeseen and unpreventable circumstances which lead to the parties being free from all contractual obligations for the same.
Pandemics and disruptions in performance of contract : can the defence of ‘Act of God’ be invoked?
The pandemic COVID-19 has caused unprecedented disruptions in business as well as day to day activities across the globe. As the effect of the pandemic is still continuing, and economic effects are soaring, this has led to a significant impact on more and more industries. Considerably, parties whose contractual performance has been affected by the pandemic Covid-19 will invoke the defence of an Act of God based on the reasoning of unpreventable and unforeseen naturally occurring disease. Most of the business insurance policies specifically exclude the term of communicable disease like COVID-19 and don’t assume them as an Act of God.
The party seeking to assert the force majeure clause typically has the burden of proving its applicability, including that the event was beyond its control and without its fault or negligence. While this burden will likely not be difficult where the contract lists specific events like viruses, epidemics or pandemics, the analysis may become more perplexed when the force majeure clause is not explicit and simply contains the term “Act of God,” which is boilerplate language in many force majeure clauses.
Nearly all attempts to define the phrase “Act of God” use the words such as “unusual,” “extraordinary,” “sudden,” “unexpected,” “unanticipated” or “grave.” The appearance of one or more of these adjectives in almost every definition or description of the phrase resembles the general requirement that, in order for a casualty or phenomenon to qualify as an Act of God, it must have been so unusual or abnormal a force that it could not have been anticipated or expected under normal circumstances. Though the Indian Courts still are not very clear about this many other countries have declared it as an Act of God. Based on the origin and emergence of COVID-19 we can say it is an Act of God hence the parties can invoke the defence of the same.
Coronavirus pandemic : Act of God or Force Majeure?
The Coronavirus pandemic has shaken the entire world. Economic status, along with day to day activities and businesses have been paused for a long period; contractual obligations remain unperformed and thus resulting in breach of contracts. Thus the pandemic has frustrated many valid agreements due to the reason of impossibility arising out of the imposition of lockdown by the government for containing the spread of COVID-19 further. As the parties are not deliberately breaching these contracts are seeking excuses to escape from the contractual liabilities. For this purpose parties have only Force Majeure clauses in their contracts which contain the Act of God too. India’s Finance Minister Mrs Nirmala Sitaraman has declared it as an Act of God, parties can avail it as a defence in case of breach of contract, but not in all cases.
Although the Act of God does not include pandemics or epidemics in particular. Comparatively some contracts contain standard circumstances, while some would have specific clauses. For example, a shipping contract may have a natural disaster like a tsunami in their Force Majeure clause. War, riots, natural disasters or Acts of God, strikes, the introduction of new government policy imposing an embargo, boycotts, outbreak of epidemics and such situations are generally listed. If an event is not described specifically then it is interpreted in the same way accordingly. These Force Majeure clauses also vary from party to party. But based on the reasoning of judicial decisions, since the origin of the pandemic COVID-19 traced back to nature. So it can be stated as an Act of God. However, if any contract has a Force Majeure clause and it contains the provision of epidemics/pandemics, such events would fall under the same clause.
Relevant case laws
Although Indian Courts have not exhaustively ruled on whether an epidemic or pandemic like Covid-19 is an “At of God ” or not but the argument regarding the judicial opinion upon the legal implications of an Act of God can seek some clues from the Supreme Court ruling in the Divisional Controller, KSRTC v. Mahadava Shetty. In this case, the Apex Court held that the expression of an Act of God implies the involvement of natural interventions free from human activities with the warning that every unexpected natural incident does not act as an excuse if there is a reasonable possibility of the anticipation of its occurrence. Thereafter The Kerala High Court and Madras High Court followed the same judgement passed by the Supreme Court.
Apart from Indian Court the courts of the United State and the United Kingdom have specifically ruled that the expression Act of God contains an epidemic/pandemic too.
For example, in the case of Lakeman v. During, during the outbreak of the Cholera epidemic in the US a labourer at a mill left his job due to fear of contracting the disease and, consequently, failed to perform his contract. In an action brought by the mill owners to seek compensation for the work done by the labourer, it was contended that the work contract had been breached. The Supreme Court of Maine held that the outbreak of the Cholera epidemic was an Act of God and, the labourer thus was unable to perform the contract due to concerns of contracting the disease. Therefore, the court discharged the duty under the contract.
Similarly, in Coombs v. Nolan, due to a then prevailing horse flu pandemic in New York, the defendant was not capable of unloading the ship on time due to the unavailability of sufficient horses. The District Court for Southern District of New York excused a delay in unloading the ship on time for stating the pandemic as an Act of God.
Conclusion
At a juncture when global pandemic COVID-19, as well as authoritative restriction, has compelled people to stay at home and led to the massive hindrance in the performance of contractual obligations. People have no way to perform their contracts, they are seeking some excuses. While some take excuse by proving the COVID-19 as an Act of God some are saying it is an element of the Force Majeure clause. So turning to the “Act of God ” provision, the question will arise whether the COVID-19 is an Act of God or not? Whether it is assumed to be similar to other types of Acts of God like hurricanes, tornadoes, heavy snowfall, landslides, etc? To a certain extent, it seems philosophical but it is also a legal question too. Some commentators have tentatively suggested that the COVID-19 pandemic would likely not fall under an Act of God because its severity lies totally on human actions or inaction. Contrary to it other commentators likewise tentatively have taken an opposite swing of prior suggestion.
As a present author, keeping in mind the various definitions and Judicial decisions, it is expected that the COVID-19 Pandemic will likely fall under the Act of God. Because the definition of an Act of God itself suggests that any act which is caused due to a natural intervention directly and exclusively, without any sort of human interference, and which could not have been avoided by any amount of foresight or reasonable anticipation and should result in extraordinary events. Moreover, an earthquake is still an Act of God, whether the building is earthquake-proof, likewise a hurricane is still an Act of God whether it is partially caused by human intervention in climate change. Similarly, the pandemic COVID-19 is still an Act of God whether it was spread by a mass movement in airplanes or by exacerbated by human actions /inactions (e.g. attending any congregational rites or functions etc).
So the two important essentials are needed for the defence of the Act of God are as follows:
• There must be involvement of natural forces;
• The incident must be extraordinary and not one which could be anticipated or reasonably guarded against.
So keeping these essentials in mind it’s very clear that COVID-19 will likely qualify these both essentials. Thus we can say that being a contagious disease, its extension and danger-totally depends upon human actions and inaction, but still, the origin of the disease goes to natural intervention. Moreover, if a contract contains a Force Majeure clause, that term and the term endemic or pandemic is mentioned in that very clause, it will cover such events. Looking forward, we should expect that the future Force Majeure clause will include a specific reference towards pandemics or epidemics.
References
- https://www.legaleraonline.com/articles/does-the-coronavirus-pandemic-count-as-an-act-of-god-or-as-force-majeure .
- https://corporate.cyrilamarchandblogs.com/2020/04/force-majeure-in-the-times-of-covid-19/.
- https://books.google.com/books?hl=en&lr=&id=hpTaDwAAQBAJ&oi=fnd&pg=PT58&dq=Does+a+global+pandemic+like+Corona+fall+under+the+Act+of+God%3F&ots=9YTjbuf0-m&sig=bjPB4n2EuKV3Tzj5m7r2bsNuW6Y
- https://media.agg.com/wp-content/uploads/2020/03/17192957/FINAL-INTERNAL-Client-Alert-Marmins-Is-the-Coronavirus-a-Force-Majeure-that-Excuses-Performance-of-a-Contract.pdf
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