SARS- Cov-2 as a Force Majeure Event (Part-2)

Read Part-1 of this post here

How to include pandemics as a force majeure event?

In order to definitively include a ‘pandemic’ within force majeure in a contract, contracting parties should ensure that the force majeure clause is drafted broadly to include all unforeseen occurrences (including pandemic). Parties must also remember to consider the jurisdictions in which the contract may be enforced, since different courts may interpret the same clause differently. For instance, while Indian courts have not interpreted force majeure clauses as including pandemics, other jurisdictions have. The force majeure clause must be clear and unambiguous, stating the intention of the parties.

A case of the United States of America, for e.g., saw a laborer at a mill leaving his workplace earlier than contracted. He failed to complete his work amidst the outbreak of a cholera epidemic out of fear of contracting the disease. The mill owners seeking compensation for work not performed by the laborer argued that he had breached his employment contract. The Court held that the contract was not breached, as the cholera epidemic was an ‘Act of God’ which excused him from performing his contract (Lakeman v. Pollard, 43 Me. 463 (1857))

In the UK, a party was unable to deliver an aircraft due to the dearth of pilots amid an epidemic. Here, it was held that the dearth of pilots due to the epidemic fell within the ‘catch-all residuary’ wordings of the force majeure clause (Aviation Holdings Ltd. v. Aero Toy Store LLC, [2010] 2 Lloyd’s Rep 668).

A recent example involves a contract of carriage between a shipowner and a charterer. The ship owner’s vessel was to carry goods from Mumbai to Singapore. The parties agreed to amend the contract and include this clause to cover the Covid-19 pandemic:

“In case any crew found sick and PHO does not clear the vessel at load and disport, then all waiting time to be on Owners account. PHO checking time to be excluded from the laytime. Any rules and regulations imposed at port due to COVID 19 not to be considered as force majeure and all time to count as laytime.”

The exemplified clause excludes the time taken by a public health officer to check a sick crew member from the time allowed in the contract to load or discharge cargo. The clause also states that the ship owner would account for the waiting time of the vessel (implying that he would bear the associated costs) in case any crew-member is found sick at either Mumbai or Singapore. However, any rules and regulations at either port relating to Covid-19 protocols would not be counted as force majeure.

What’s possible in the absence of a force majeure clause?

In cases, where the parties have either (a) omitted including a force majeure clause in a contract; or, (b) the force majeure clause is not broad enough, the parties may consider amending the contract to include and broaden the scope of force majeure. This requires the parties to be on amicable terms and willing to work the contract. However, whether a force majeure clause has been invoked or not and what events it covers are questions that arise usually when there is a dispute between the parties regarding the performance of the contract. In such cases, the non-performing party may resort to the “doctrine of frustration”. The “doctrine of frustration” deals with situations where the contractual obligations are impracticable or impossible to perform for a party due to some unforeseen events.

What next?

Thus, it is seen that Covid-19 may or may not be a force majeure event, depending on the nature and terms of the contract. It all depends on the interpretation supplied to the contract, which is usually very stringent and changes from case to case. The onus of proving that the non-performance of a specific contractual obligation was due to a force majeure event is heavily laid upon the party claiming relief. It can become challenging for the parties. Thus, to avoid such challenges and confusion, it is advisable for contracting parties to draft a broad force majeure clause that is capable of being interpreted to include pandemics.

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