Mindyard | The COVID-19 pandemic has taken the entire world hostage in less than four months, and the global economy has been hit the hardest with governments across the globe implementing stringent policies including lockdown to control the coronavirus outbreak. The pandemic today presents unprecedented challenges and impediments to businesses in conducting their normal operations. The lockdown across the world has caused delays in the performance of contracts and transactions. Now, the question that arises is whether the current situation can enable parties to a contract to alter their obligations with non-compliance of terms neither being regarded as a "default committed by any party" nor a "breach of contract"? There are certain well-accepted practices for dealing with such extraordinary situations in commercial transactions by the inclusion of force majeure & material adverse effect (MAE) clauses. Determination of the types of circumstances so covered by the force majeure clause contained in a contract is essential. Provisions of force majeure often cover natural disasters like hurricanes, floods, and earthquakes as "acts of God." Other covered events may include war, terrorism, civil disorder, fire, disease medical epidemics or by reasons of applicable laws or regulations. Broadly, the Courts have interpreted the term "Force Majeure" as an event that can neither be anticipated nor controlled by either of the contracting parties. A force majeure clause applies in the context of ongoing contractual arrangements, whereas, an MAE or material adverse change (MAC) clause applies to the allocation of risk in transactions before their closure or completion. Pandemic and related consequences such as government action is a type of event covered by a force majeure clause, however, its impact on the affected party's ability to perform its contractual obligations may vary depending upon contractual terms. It is common for force majeure clauses to specify the impact that the event or circumstances in question must have, in order for the clause to be triggered. References may be made, for example, to the event or circumstances having "prevented", "hindered" or "delayed" performance. These terms require different levels of impact on performance before a party can claim recourse to these clauses. In other words, the force majeure and MAC clauses act as an exception to what would otherwise be treated as a breach of contract. Certain contracts may state that, if a force majeure clause is applied, the contract may automatically be terminated. On the other hand, some contracts may even state that the duty to fulfil the contractual obligation may be suspended for a certain period of time and if the force majeure event is not curbed or treated even after such time, then eventually the contract may be terminated. Though there cannot be a one-size-fits-all solution to this question, and it depends upon how the force majeure clause is worded in a specific contract; and in the absence of the same, applicable laws related to the same will be required to be taken into consideration. [Excerpt from Business Today, by Ranjana Roy Gawai, April 17, 2020] Imagine, there is a domestic commercial Contract for supply of certain goods for certain price between A and B. However, in pursuance of the same, both A and B forget to negotiate and agree on the terms of a Force Majeure event and the Contractual document does not contain the Force Majeure clause. In such a situation, what would be the fate of the Contract in the event like that of COVID 19? As the parties did not negotiate on the Force Majeure Clause, either of them cannot take an exception to the Breach of Contract., The parties can invoke the Material Adverse Change Clause., In absence of such clauses in the Contract, the Courts may resort to the applicable law, i.e., the Indian Contract Act, 1872 to give relief to the parties., None of the above.

The COVID-19 pandemic has taken the entire world hostage in less than four months, and the global economy has been hit the hardest with governments across the globe implementing stringent policies including lockdown to control the coronavirus outbreak. The pandemic today presents unprecedented challenges and impediments to businesses in conducting their normal operations. The lockdown across the world has caused delays in the performance of contracts and transactions. Now, the question that arises is whether the current situation can enable parties to a contract to alter their obligations with non-compliance of terms neither being regarded as a "default committed by any party" nor a "breach of contract"? There are certain well-accepted practices for dealing with such extraordinary situations in commercial transactions by the inclusion of force majeure & material adverse effect (MAE) clauses. Determination of the types of circumstances so covered by the force majeure clause contained in a contract is essential. Provisions of force majeure often cover natural disasters like hurricanes, floods, and earthquakes as "acts of God." Other covered events may include war, terrorism, civil disorder, fire, disease medical epidemics or by reasons of applicable laws or regulations. Broadly, the Courts have interpreted the term "Force Majeure" as an event that can neither be anticipated nor controlled by either of the contracting parties. A force majeure clause applies in the context of ongoing contractual arrangements, whereas, an MAE or material adverse change (MAC) clause applies to the allocation of risk in transactions before their closure or completion. Pandemic and related consequences such as government action is a type of event covered by a force majeure clause, however, its impact on the affected party's ability to perform its contractual obligations may vary depending upon contractual terms. It is common for force majeure clauses to specify the impact that the event or circumstances in question must have, in order for the clause to be triggered. References may be made, for example, to the event or circumstances having "prevented", "hindered" or "delayed" performance. These terms require different levels of impact on performance before a party can claim recourse to these clauses. In other words, the force majeure and MAC clauses act as an exception to what would otherwise be treated as a breach of contract. Certain contracts may state that, if a force majeure clause is applied, the contract may automatically be terminated. On the other hand, some contracts may even state that the duty to fulfil the contractual obligation may be suspended for a certain period of time and if the force majeure event is not curbed or treated even after such time, then eventually the contract may be terminated. Though there cannot be a one-size-fits-all solution to this question, and it depends upon how the force majeure clause is worded in a specific contract; and in the absence of the same, applicable laws related to the same will be required to be taken into consideration.

[Excerpt from Business Today, by Ranjana Roy Gawai, April 17, 2020]

Imagine, there is a domestic commercial Contract for supply of certain goods for certain price between A and B. However, in pursuance of the same, both A and B forget to negotiate and agree on the terms of a Force Majeure event and the Contractual document does not contain the Force Majeure clause. In such a situation, what would be the fate of the Contract in the event like that of COVID 19?

Options

As the parties did not negotiate on the Force Majeure Clause, either of them cannot take an exception to the Breach of Contract.

The parties can invoke the Material Adverse Change Clause.

In absence of such clauses in the Contract, the Courts may resort to the applicable law, i.e., the Indian Contract Act, 1872 to give relief to the parties.

None of the above.

Correct Answer :

Option C

In absence of such clauses in the Contract, the Courts may resort to the applicable law, i.e., the Indian Contract Act, 1872 to give relief to the parties.

Solution :

Correct Answer: In absence of such clauses in the Contract, the Courts may resort to the applicable law, i.e., the Indian Contract Act, 1872 to give relief to the parties.

Step-by-Step Explanation:

1. Analyzing the Scenario:
The problem describes a commercial contract for the supply of goods between Party A and Party B where both parties omitted a "Force Majeure" clause. During an extraordinary event such as the COVID-19 pandemic, performance of the contract becomes difficult or impossible, raising the question of how the contract will be governed in the absence of an express contractual Force Majeure provision.

2. Reading the Passage Guidance:
The provided passage explicitly states near the end:
"...and in the absence of the same, applicable laws related to the same will be required to be taken into consideration."
This directly points out that if a contract does not contain a specific Force Majeure clause negotiated by the parties, statutory provisions under the applicable law of the jurisdiction govern the situation.

3. Legal Application:
For a domestic contract in India, when there is no written express Force Majeure clause, courts rely on statutory legal doctrines such as the doctrine of frustration of contract, embodied in Section 56 (or Section 32 for contingent contracts) of the Indian Contract Act, 1872. Therefore, the court will resort to the relevant provisions of the Indian Contract Act, 1872 to determine the rights, obligations, and relief available to the parties.

Conclusion:
Thus, the correct option is: "In absence of such clauses in the Contract, the Courts may resort to the applicable law, i.e., the Indian Contract Act, 1872 to give relief to the parties."

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