India has been under a national lockdown except for essential services. We are entering the 42nd day of the lockdown as we draft this blog. Globally, most of the nations have declared lockdown which has resulted in jeopardizing the supply chain and logistics affecting domestic,international, multi- party contracts and cross border contracts. This effect could result in an unprecedented and an unforeseen potential surge in contractual disputes due to temporary suspension of performance under “Force Majeure”. This event explicitly provides what is beyond the reasonable control of the affected party or was not reasonably foreseen.
It is essential to determine if Covid19 will qualify as a Force Majeure event. This will depend on the language of definitions adopted in the contract under the Force Majeure clause. The definitions, in the said clause, should be inclusive of an outbreak of diseases/pandemic to make Covid 19 qualify as a Force Majeure event. If Force Majeure events are specific with narrow definition to qualify limited events, it would only result in qualifying such expressly defined events in the contract. Invocation of the Force Majeure clause cannot be in isolation; thereforethe whole contract needs to be examined holistically.Factors like commencement and delay, limitations of liability, insurance, plants and material, statutory order / circular, impossibility for performance and suspension with contractor’s obligation needs to be studied together. Further, if the provision stipulates any specific procedure for invocation of Force Majeure, such prompt notification with sufficient causes should be strictly followed without any deviation. It is the contractor’s responsibility to demonstrate any attempt of mitigation to overcome such circumstances and if such attempt was unsuccessful it might result in temporary suspension. Force Majeure shall not compensate for delay incompletion of milestone or underperformance prior to notification of the pandemic or lockdown.
It is pertinent to understand that the interpretation contract clauses is based on the governing laws specifically agreed by the parties. Therefore, remedy due to Force Majeure shall be available only where the contract specifically and explicitly provides for the same.Also, note that the performance must be affected, despite the mitigation measures of the party affected by the pandemic.
Because this pandemic has affected many parties throughout geographical constraints, and is here to stay for a long time, the number of disputes arising out of the inability to perform has seen a sudden surge, As discussed in earlier articles, it is expected that both the parties shall be able to invoke and seek refuge under Force Majeure due to Covid 19, therefore the determination of the engineer shall be vital.
The first and foremost option to resolve disputes is through negotiation and mediation process to understand the complexity and thereof agree on the revised terms. If the above option fails, second option is to resolve by adopting arbitration mechanism.Recent amendment and inclusion of certain clauses coupled with an absolute pro approach for arbitration by courts have resulted in efficient mechanism.The last option is to approach the court of law.However, courts are functioning under restricted available resources,therefore, to obtain immediate relief due to invocation of Force Majeuremight take longer than expected due to surge of court workload caused by Covid 19.
Out of all the available options, arbitration shall be the most preferred mechanism.This is because that shall be cost -effective, involve less litigation, less confrontational and ensure quick interim relief and protection to resolve the dispute. It is important to take note of the contracts that are interpreted based on specifically accepted laws governing the contract coupled with test to qualify essentials of clauses invoked. It is important to constitute a dispute board for contracts under execution as an effective tool for resolution.