The Impact of Force Majeure Contracts in Light of COVID

 

The pandemic COVID- 19 (Coronavirus) has jammed the working wheel of the world. The extraordinary lockdowns and shutdowns to hold the spread of COVID 19 have significantly impacted the business across the globe and have directly restricted the parties from their performances of contractual rights and duties, enlisted under the commercial contracts. In the occurrence of such uncontrolled events, the law can give an excuse for the parties from their contractual obligations, under the force majeure clause. In Pakistan, the term force majeure is not defined in any of the Pakistani statutes; however, the precedents set by the courts of Pakistan and certain doctrines in the Contract Act has given relief to the contracting parties from their obligations in frenzied situations like COVID-19. ¹

4         FORCE OF MAJEURE ON COMMERCIAL CONTRACTS

 

The Black’s law dictionary defines force majeure as “an act of God that overwhelming, that is exclusively by force of nature such as caused by floods, earthquake etc.” The force majeure clause is a contract provision that gives relieves the parties from their performance to the contractual obligations when the performance of the obligations becomes impossible due to certain circumstances. A standard force majeure clause specific to the force majeure events include two provisions;²

i.             Natural force majeure: it includes acts of Gods that often comprise epidemics of plague.

ii.            
Political force majeure: It is subdivided into events that occurred inside the country and foreign political events. The former may include any change in the law of the country and the instances of the latter are war, the act of terrorism, or else.

In a commercial contract where parties, legally binding under the agreement are obliged to do or abstain from doing particular acts fail to perform their obligations because of the unpreventable events, seek under the force of majeure ways and means to avoid contract contractual liability for non-performance. The force majeure clause essentially frees both parties from liability but the party’s non-performance is not excused entirely, it is only suspended for the duration of the force majeure.³

5         COVID-19, ITS IMPACTS AND FORCE MAJEURE CLAUSE

The outbreak of COVID-19 has led to significant economic disruption. Commercial contracts made internationally or at the individual level have become difficult to perform due to the lockdowns and restricted movements in the countries. Due to the prompt spread of the pandemic, most of the countries have imposed complete lockdown and have quarantined the people. Under such a situation it has become difficult for the parties to carry their oblige duties under the commercial contracts. Now, failure to performing the obligations can result in liabilities for the parties. At the moment, the only legal way for the parties to get free from the liabilities is the force majeure clause and doctrine of frustration. ⁴However, it has become a hot discussion in the legal squares, whether or not to regard the pandemic as a force majeure because, in the recent past, the outbreaks of such flu were not defined as such. Additionally, the question of whether to categorize COVID-19 among natural force majeure events or in political force majeure event is another

query. The declaration of COVID-19 by the World Health Organization as a pandemic may help the courts to likely judge this event as unforeseeable; yet, the latter query waits for the legal interpretation.⁵

6        UNDER PAKISTANI LAW COVID-19 STATUS AS FORCE MAJEURE Pakistan likely the rest of the world is going through a lockdown situation due to the pandemic. Having no control over such situations, the companies are wondering about the impact of such pandemic and its consequent aftermath on the business of the contracts. For such uncontrolled events, section 32 and 56 of the Contract Act 1872 gives relief to the parties from the liabilities arising from non-performance. Section 32 gives relief under contingent contracts stating that “contingent contracts to do or not to do anything if an uncertain future event happens unless that event is not happened it can’t be enforced by the law. If the event becomes impossible, such contracts become void.” The other relevant section (56) that deals with the doctrine of frustration states that “an impossible in an agreement is void. An agreement or a contract to do an act if the act becomes impossible to do because of an event becomes void when the act is made impossible to carry by the event. However, the most relatable clause, force majeure to legal inscribe COVID-19 with, is not existing in any of Pakistani statutes. Yet, it has been defined and given a shape through case laws. In case Atlas Cable (PTV) limited v. Islamabad Electric Supply Company the court held that;

“Event that are not in the control of the parties to perform the contractual obligations will excuse a party to perform that task”

Besides the force majeure clause, the Pakistani law provides relief from contractual liability under the doctrine of frustration and contingent contracts. Waiver of rights can also play an essential role in excusing the non-performance. Yet, waiver of right can only be used as a shield when interacting with counterparties.⁶

7         RECOMMENDATION

 

The COVID-19 pandemic has left a multitude of contracting parties in a lacuna. They would have suffered inescapable consequences of the breach of contract due to events that are beyond their reasonable control of parties. Thus, the courts should take a step in to interpret the force majeure clauses in favor of the parties seeking relief from liabilities under these difficult circumstances.

8         CONCLUSION

 

The pandemic COVID-19 has significantly influenced every working sector of the world. The lockdown and restriction in the movement have made the performance of commercial contracts impossible. The non-performance arise liabilities and to get relief from these contractual liabilities, parties are seeking the application of force majeure clause. In Pakistan, the statute's force majeure clause is not present but the case laws have defined and shaped it. To give relief to the parties the courts must regard the COVID-19 as force majeure.

 Fazila Nawaz