This article is written by Srishti Sharma, IIMT and School of Law affiliated with GGSIP.
Siboney S Sagar, is a Mediator, Conflict Coach, and Sr. Counsel at Star India and Walt Disney Co. She has worked as a Senior Counsel international as well as Indian companies. She practices as a Mediator and is enrolled with the Mediation and Conciliation Committee of the Supreme Court of India.
Ramanuj Mukherjee is an alumnus of the National University of Judicial Sciences, Kolkata. He is the co-founder and CEO of LawSikho.
What is the need for renegotiation of contracts?
The most elevated guideline in any business contract is of Pacta Sunt Servanda which implies that arrangements must be kept and should be acted in compliance with common decency. Be that as it may, given the COVID-19 situation, the world is in lockdown, the chains are upset, and the interest and flexibility bend has also decreased. Any import or fare is not permitted.
Organizations are now exposed to increased dangers of lawful ramifications that impact these small organizations more than the enormous Multinational Corporations. This is not to say that the MNCs are unaffected.
Wrecked worldwide Exchange and the global economy cast an immediate effect on each person. In these conditions, it is hard to direct business and satisfy any legally binding commitments entered into recently. On these lines, attempts to vindicate, delay or change the conditions of the authoritative commitments to limit any out of line costs and legitimate ramifications to the agreement are on the rise.
What is the frustration of a Contract and Force Majeure?
An agreement or a contract can be renegotiated when the subject of the agreement becomes difficult to perform. This is a custom-based rule, otherwise, called the frustration of a contract. The Doctrine of Frustration is provided under Section 56 of the Indian Contract Act,1872 which expresses that if a demonstration becomes difficult to play out, then the agreement will be regarded as void.
On the subject of Force Majeure, it is one of the basic conditions in an agreement that shields a party from the risk of disappointment in the execution of a legally binding commitment due to unforeseeable situations that are outside the control of the parties.
What do you think is happening in the legal industry since the people are unsure about when the crisis will end? How will it impact the courts and the legal system?
The biggest concern of all is that the current pandemic has brought most of the economies to a halt. When we talk about most of the economies, things play out on a very large scale. One must not take up the entire problem all at once because then the problem cannot be solved.
However, the current situation requires us to focus on the issues involved in contracts that the businesses and lawyers advising such businesses and associations are facing.
The lockdown has fundamentally shut down most industrial production and services. There seems to be a potential slowdown in the future that is going to have adverse effects on contractual obligations. The current scenario has brought with itself collateral damage, devastating consequences on health, social fabric, governance, and economy, and a massive shift to virtual offices and work from home.
For example- there are restrictions on the goods and services, disruption in the supply chain, obstruction in bilateral and multilateral contracts that are contingent upon other contracts, situations of standstill, and commercial disruption and losses. Therefore, we need to understand the background in which we are to function.
We need to ask ourselves fundamental questions on contractual obligations:
- Are we looking at continuity in business?
- Are we looking at discharge or termination of our obligations?
- Are we aware of the valuable options enabling us to bounce back in the business cycle?
How should lawyers deal with their clients in this time of uncertainty?
Understanding that you are facing unprecedented times, you may want to start with reviewing your contracts, obligations immediately and not rely on other things to work in your favour. What options do you have in the times of a global pandemic that will eventually lead to the breakdown of most contracts?
However, COVID-19 is also a game-changer. We are yet to see whether it will upend the entire law and the prevailing principles on Force Majeure and Frustration of Contracts due to current impossibilities. We have a very good interpretation of the Frustration and Force Majeure but are yet to understand its application in the present facts and circumstances.
In a nutshell, we are at a place where renegotiation of contracts has the highest possibility and mediation will be used to address this issue of renegotiation.
According to you, what would be the possible outcome when many people move to courts to enforce the contracts in this pandemic?
When you are in business, you take practical decisions. It is not just about financial capital but also about time and human capital. It is up to you to use these three resources efficiently to gain from a party that is also stuck like you and will help to cater to your win as well. In this time of conflict, it is imperative to create a positive impact. So, when we come out of the pandemic, there should be more of repair resolutions than contentions.
Is there any principle one can apply to understand the kind of contracts likely to land into trouble?
The first thing every business should do is to understand the dependence and co-dependence of its stakeholders. The only rule of thumb is the outlook and approach to term the pandemic as a Force Majeure event or not and this will probably be contested. You will also happen to find yourself on both sides based on facts and circumstances of each case; you will be a supplier at one place and a customer at another. You will be subject to both of them.
What is the status of TPF in India?
The inquiries on legitimacy and enforceability of the TPF plans are regularly taken up for the setting of this novel resource class in India.
It is astonishing that TPF has existed in the customary unregulated business sector for a long time now. This was conceived in India because it was dissimilar to other precedent-based law purviews wherein the enactments were needed to eliminate the embargos of champerty and upkeep the TPF courses of action. However, there is no such express bar under the Indian Contract Act, 1872.
Can parties opt for mediation if there is no dispute resolution clause in the contract?
Yes, Parties can opt for mediation. It is a process recognised under Civil Procedure Code,1908. It can be done through the Order of the court or through private mediation to which the court will gladly agree.
You can opt for the renegotiation of the contract. In case, the contract is big and complicated, then parties might prefer to move to the Court. If the dispute resolution had already taken place, then the conciliation agreement is also recognised by the courts. This option acts as a baseline. The pre-COVID agreement will lose its value.
Is there a need for more creative mediators considering the pandemic?
Innovation is the key to victory. Some counsels are performing incredibly well but it seems that these counsels are winning matters for those who are already standing on the victory line. Interestingly, there are social, commercial, political, and geographical situations in this crisis on which we need to start thinking about in broader terms.
Any parting remarks you would like to add?
Get creative whether you are a litigator or a contracting counsel. Creativity means becoming more focused. This is the need of the hour.
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