Force majeure will apply to Covid, writes Abhishek Singhvi – analysis
In addition to fear, panic and uncertainty, coronavirus disease (Covid-19) has created a series of legal problems that will take on increasing importance in the coming weeks and months.
Can I, as a tenant, apply for a rental exemption for the inability to use my leased office / manufacturing facility during closing? Am I required to pay full salary even if I am closed and do not generate income? Can you invoke my construction contract? overwhelming force (FM), releasing the party from the legal obligation, and / or change of law, and claiming not only the extension of time but also compensation for an impossibility? Does the blocking of Covid-19 constitute a change of law? These and countless similar questions are dying daily. This article cannot give in-depth answers, but it does suggest some principles, in legal situations, which are not agreed between the parties to the conflict.
First, FM (generally used interchangeably with frustration) is, in law, quite different from what is popularly perceived. Frequent confusion in the context of Covid-19 arises largely due to a lack of understanding of its true essence in the law. Its 400-year-old English jurisprudence and 75-year-old Indian jurisprudence give the following principles:
a) The contract between the parties is supreme; If you specifically anticipate a pandemic with stipulated consequences, it will rule over everything else: 99.99% of cases are loopholes and ambiguity, because the parties are not prophets and the lawyers are not astrologers.
b) Although English law has persuasive value, Indian courts must be guided by the comprehensive codes of sections 32 and 56 of our Contracts Law.
c) Of the three underlying legal principles: that the consequence of a frustrating event be implicated by the courts as something so obvious that the parties excluded it due to their evidence; be imposed by the courts as the fairest and most just result; or be adopted as what the hypothetical reasonable man of the law would do during FM: the latter is most preferable. The first is a farce because the very basis of FM is what the parties could not anticipate; the second involves rewriting the contract by a judge who is supposedly doing justice, hitting the chancellor’s proverbial foot.
d) Critically and crucially, jurisprudence has used strong words and has set the threshold to successfully apply very high FM. It requires showing that all the foundations of the negotiation are upset. The base of the adventure must be destroyed. Mere alteration, even significant change, or highly improved onerousness, or the huge increase in spending, or even the availability of delayed performance alternatives, has negatively affected FM. A radically new contract and a rupture of identity with the original have been legally drafted. Price, cost, and currency changes have specifically received the least judicial importance.
Second, cases held (despite the distinctive features) and brain judges have rejected FM in stronger contexts than Covid-19. Therefore, the request for land on which development was to occur contractually was not excused in 1954, despite the request for land in World War II. A ghee supplier during the same war was not allowed to raise prices, despite the severe shortage and increased acquisition costs. Denial of a license to a jute supplier supplying Pakistani jute after the 1965 war was not entitled to FM, while in 2017 a company was denied FM and the benefits of the law change in the Electricity generation, despite demonstrating a huge increase in the cost of Indonesian coal, which, by Indonesian law, increased exponentially and certainly made the contract commercially impossible.
Third, a little-known Chinese trial (which applies to English law in Hong Kong) in the identical context of the 2003 Severe Acute Respiratory Syndrome (SARS), denied relief to a tenant who attempted to exit his lease initially, but within of the closure period due to the interruption of the occupation for one month due to the blocking of SARS. The judges have emphasized the non-permanence and timing of such interruptions, and the total probability of resumption, albeit within an uncertain time frame, to deny FM. In fact, the Hong Kong judge noted that he was not aware of any English decision for more than 500 years that excused lease obligations based on frustration.
Fourth, applying the above, it would be almost impossible to argue that interruptions of two or three months how Covid-19’s leases radically altered the deal. Although all government communications that force the payment of wages are notices without legal effect, the document of the Ministry of the Interior of March 29, 2020 is found in section 10 (2) (i) of the Disaster Management Law and it constitutes a law. In the absence of a successful challenge to the notification and validity of the section on the grounds that that section does not address the issue of wages at all, the obligation with respect to wages is binding. Experience in litigation tells me that in the current environment of destitution and deprivation, no court is likely to reach that result.
Fifth, the closing rules clearly possess all the attributes of the law and are binding. Therefore, they would qualify as a change of law under the appropriate clauses in construction contracts that lead to a proportional extension of the completion time. Whether they would hold the owner liable for additional compensation to the contractor, arising out of a change in the law, remains an unquestionable and controversial question. Arguably the blockade, while undoubtedly a change in the law, is activity neutral and non-specific how construction, in addition to excusing both the owner and the contractor. The jury could well be out of the latter.
Abhishek Singhvi is a deputy; former president of the standing parliamentary commission on law; former additional attorney general of India and senior national spokesperson, Congress
The opinions expressed are personal.