Contract Law Should Adapt To Covid Effects

Force majeure clauses are contested by counter-parties over the duration and extent. This calls for a separate legal response

- Piyush Joshi/RV Anuradha

COVID-19 has resulted in a spate of uncertainties that both governments and businesses are little prepared for. The Central and State governments have so far announced various relief measures such as financial assistance and subsidies to businesses, enhancement of timelines for statutory compliances, waiver of limitation in court proceedings, assurance of payment of salaries despite being in a state of lockdown, and subsidised food and other such measures.

With respect to contracts entered into by both governments and private parties, a standard legal response has been to seek declaration of the lockdown and disruptions in supply chains created by COVID-19, as a situation of force majeure — a French term that translates to a “superior or irresistible force”.

Most contracts have force majeure clauses, that may range from generic terms covering all events or combination of events outside the control of the affected party, to extremely limited and narrow provisions which allow for only very specific events, that allow for suspension of contractual obligations.

More than a month before the Central government imposed a preventive lockdown across India on March 24, the Finance Ministry allowed for declaration of force majeure when the government was engaged in procurement of goods or services, if the supply chain for the relevant project/contract was affected by COVID-19.