By Simran Kaur, Flywork.io Team, Flywork.io.
Force Majeure is a term used in contracts that essentially frees both parties from certain obligations and duties when an event that is not under the control of both parties occurs unexpectedly. We never know what may happen tomorrow and to provide parties to a contract with remedy/relief for events that were not in their control, the Force Majeure clause is used.
An example could be the present COVID-19 crisis, which has resulted in lockdowns or restricted movements in countries. Parties who suffered losses or any other grievances due to the pandemic can use the Force Majeure for remedy or relief.
Even though the term ‘Force Majeure’ has neither been defined nor specifically dealt with in Indian statutes, its references are to be found in Section 32 of the Indian Contract Act which contemplates if a contract is contingent on the happening of an event and if the event becomes impossible, the contract becomes void. In simple terms, this clause provides reprieve to a party from performing its obligations under a contract upon the occurrence of a Force Majeure event.
The essential ingredients of Force Majeure clauses are as follows:
- Occurrence of an unexpected event
- Parties to the agreement assumed that such an event will not occur
- Such an event has made the performance of the obligations under the contract impossible.
- The parties have taken all such measures to perform the obligations under the agreement.
- The affected party by force majeure asking for relief will have the burden of proof that the force majeure event has affected such party's performance in the contract.
This Force Majeure clause is also widely found in certain business agreements such as purchase, supply, and manufacturing contracts as it relieves the parties from performing their respective obligations which are to be undertaken under the contract and consequential liabilities, during the period that force majeure events continue.
Force Majeure has been brought to light way more than before, due to the present pandemic of COVID-19 that has been incurred upon us. Companies who are unable to provide services or products promised to other parties due to the pandemic are using this clause to get relief from these obligations. They can use the clause to protect their business interests and the contract. With legal help, they can also retain the contract and obtain temporary relief from performing their obligations. If one has entered into long-term contracts, one can consider the terms of the contract for the impacted period of maybe, 6 months. This can help protect one’s contract and business. And, in contracts/agreements where supply or distribution is involved, one can increase the supply of goods (or services) later on, as demand picks up and makes up for any non-performance.
Thus, in cases such as the COVID-19 crisis, war, etc, FORCE MAJEURE has been a lifesaver for the people, and for the common good – providing protection from obligations that couldn’t be fulfilled due to unforeseen and unexpected consequences.