COVID-19 and Cyclones Amphan and Nisarga: The Effect upon Contractual Obligations
[Samriddha is a student at Amity Law School, Noida, while Bikram is an Advocate.]
The existential instruments and risk structure that range the legitimate stimulus of contractual obligations in issues like employment, advancement, entertainment, education and others had not been expected or witnessed before the conjunction of massive invasions – COVID-19 and cyclones Amphan and Nisarga- as fated acts of the universe.
The Black’s Law Dictionary defines force majeure as a “superior or insuperable force”. It, therefore, means an inevitable event caused by a superior strength. These events prevent parties to the contract from fulfilling their obligations. In this situation, both parties are discharged from fulfilling their obligations for the duration of the force majeure event (FM event).
Business and trade, both domestic and worldwide, have been influenced and consequently neglected to release their contractual obligations inferable from legal limitations. However, the legal percept ‘lex non cogit ad impossibilia’ states that the law does not constrain an individual to accomplish something which is difficult to be performed. The question before the courts will be with respect to the issue of determining the FM event and its veracity.
An FM event, when it happens, pardons execution of the contract regardless of its express arrangements committing the parties to perform. The Supreme Court has held that Section 32 and Section 56 of the Indian Contract Act 1872 (ICA) are applicable provisions which regulate the non-execution of agreements because of events which render the release of contractual obligations as unimaginable. While Section 32 deals with situations where the agreement itself, either impliedly or explicitly, contains a term as per which performance would stand released in specific situations, Section 56 deals with the cases which are not explicitly accommodated in the contract yet at the same time render the release of contract as inconceivable. In this manner, even without a force majeure clause in an agreement, protection of the doctrine of frustration under Section 56 can be resorted to if the performance of the contract gets inconceivable because of unforeseeable occasions.
Although the decision of the courts would largely depend upon the facts and circumstances of the case in question, decision making as to deciding upon a FM event is likely to remain unchanged. Whereas the cyclone may lead to invocation of force majeure and consequent considerable delay of contractual obligations due to unavailability of essential goods and services and resulting 'impossibility', it would be important to see how the courts look into situations wherein performance of contractual obligations has been put to question as a result of the cyclone coupled with pandemic adversities leading to an alleged juxtaposed impossibility of performance.
With the occurrence of natural disasters, disruption to performance of contracts is inevitable. A disaster is usually followed by suspension of travel activities and consequent hindrance in distribution of goods and services. Keeping in mind the invasion of hurricanes like Katrina in the USA and of cyclones Amphan and Nisarga in India, parties may claim force majeure due to unavailability of goods and services. Because of such fortuitous events, it is likely that the parties would invoke force majeure due to loss of electricity, transportation and misfortunes caused to business structures and facilities. It is to be noted that under the realm of force majeure, not all conditions or events are situations that will excuse performance of contractual obligations.
For instance, due to an unforeseen event, if a party is unable to fulfil an obligation as anticipated, it should look for substitute goods or services to fulfil such obligations. In Dallas Cooperage & Woodenware Creston Hoop Co., there existed contractual obligations on the defendant to deliver curled elm loops to the plaintiff. The obligation and its default both were admitted by the defendant. He contended, nonetheless, that he was prevented from satisfying his obligation because of fortuitous events, as it was “impossible” to acquire elm logs and produce hoops due to unfavourable weather conditions. The court disagreed and intervened that the contract was not impossible to satisfy, and if the defendant could not produce the hoops at its own mill, he ought to have secured them from different producers or dealers in a similar line of business.
The primary aspect which the courts are likely to look into would be the circumstances that lead to non-performance of obligations and whether such obligated performance was adversely affected or impossible to its entirety. While addressing this issue of impossibility, courts will look into which of the two events – COVID-19 or Cyclone (or both) - led to such impossibility.
The following illustrations may help us understand the stance that may be taken by the courts.
Company A was supposed to deliver 100 refrigerators from its warehouse in Kolkata to Company B (located in Sunderbans) on 21 May 2020. The Amphan hit Kolkata on 20 May 2020 which led to falling of trees and consequent road blockage. The only way to transport the refrigerators from Kolkata to Sundarbans is by way of road, and with all the roads blocked and inter-district borders sealed as a result of COVID-19, Company A claimed force majeure because it was 'impossible' for them to transport the refrigerators ownig to Amphan and COVID-19.
Now, it will be interesting to see how the courts entertain this plea of force majeure. The force majeure claim may be based on two factors for non-performance of obligations – Amphan and COVID-19. The courts herein, before allowing the plea of force majeure, will first determine the FM event.
While looking into the plea that the non-performance was caused due to inter-state borders sealed as a result of COVID-19, the courts may not entertain the plea of force majeure, because a transportation e-pass could have been procured by Company A and the transportation could have been completed; thus, the claim of 'impossibility' of performance due to COVID-19 will not hold veracity.
Now, while looking into the plea that the non-performance was caused due to road blockage caused by fallen trees as a result of Amphan, the courts may entertain the plea of force majeure, because the only means of transportation between Kolkata and Sundarbans was the road which was blocked as a result of the cyclone and therefore it was 'impossible' for Company A to deliver the goods to Company B on the agreed date.
Thus, we can say that in this case, although the courts may allow the plea of force majeure, they may determine the FM event to be only Amphan and not COVID-19, because the effects of Amphan led to the 'impossibility' of performance, whereas the effects of COVID-19 could in no manner lead to impossibility of performance.
Company X was scheduled to deliver 50 cartons of books from Durgapur to Company Y in New Delhi on 21 May 2020. The usual mode of transit is road travel from Durgapur to Kolkata and subsequent air-cargo from Kolkata to New Delhi. The Amphan hit Kolkata on 20 May 2020 which led to falling of trees, consequent blockage of roads and waterlogging in the Kolkata airport, thereby making aircraft taking off and landing in-operable. Now with the roads blocked from Durgapur to Kolkata and the Kolkata airport in-operable, Company X claimed force majeure due to impossibility of performance.
Now, it is important to note how courts may view this situation. Going by the view held by courts in similar circumstances, the courts may not entertain a plea of force majeure. This is because, Company X could have moved the cargo from Durgapur to Bagdogra by road (the road from Durgapur to Bagdogra was not blocked) and sent the 50 cartons of books from Bagdogra airport (Bagdogra airport was operable) to New Delhi airport. Therefore, the ground that the performance of obligations was impossible would not hold veracity, and consequently the plea of force majeure would also not be entertained.
Here, one may view that the cost incurred for transporting cargo from Durgapur to Bagdogra (491 km) may not be economically viable in-comparison to the cost incurred for transporting cargo from Durgapur to Kolkata (171 km). Now, it is important to note that, although the transportation of cargo from Durgapur to Bagdogra may not be economically viable, in no way does it imply impossibility of performance. Thus, a force majeure clause can only be invoked in situations of impossibility of performance and not difficulty of performance.
In the case of Tsakiroglou & Company Limited v. Noblee Thorl GmbH, the agreement was to supply Sudanese groundnuts to Hamburg. The customary route for supply of the groundnuts was the Suez Canal, however due to the Suez Crisis during the Second World War, the canal route was shut down. The supplier claimed frustration of contract due to impossibility of performance. The court took an extremely robust and unique view and said that the supply of the groundnuts could not be regarded as an impossible act as such could also have been supplied via the route crossing the Cape of Good Hope. Even though the route involved an extra travel of 10,000 kms, it could not be regarded as impossibility of performance; the court, therefore, rejected the plea of frustration contended by the suppliers.
Even if protection from FM events exist, the clause may not be captioned as force majeure or include this term. In such a situation, it is advisable for the parties to periodically review the clauses in the contract, as it will help them to be mindful of the nature of events that are likely to be considered as force majeure and whether notice be given in order to invoke the clause if the event does fall within the terms of the clause.
Although as of now it would be outlandish to assert the quantum and degree of damage caused by the episodes of COVID-19, Amphan and Nisarga, it would be judicious for any commercial organization to take the following measures to avoid potential disputes:
provide quick notification to counterparty concerning occurrence of a FM event.
in order to provide imperative proof at the time of dispute resolution, adduce all documents concerning the FM event.
corroborate a comprehensive evaluation of the contract and concerning perspectives by a legal adept.
It is advisable that issues pertaining to non-performance of contractual obligations as a result of fortuitious events are resolved by sitting across the table rather than resorting to unnecessary litigation. It is also advisable for parties to include an arbitration clause when resolving issues pertaining to FM events or alleged FM events and the consequent hindrance in performance of obligations.