How should breach of contract due to coronavirus lockdown be treated?

270 votes

The global economy has clearly been adversely affected due to the Coronavirus pandemic. Due to the current situation, it has become impossible to fulfil many agreements and contracts which were to be fulfilled during this time. 

Breach of contract is when one of the parties to that contract either refuse or fail to fulfil their promises stated in the clauses of the agreement. When a legally binding agreement is breached by a party, the other party has a right to sue in order to claim compensation (among other remedies). 

However, in these times, there could be 2 main reasons for non-performance of the contractual obligations. These could be either genuine incapability of performing the contract due to Covid19, or either party seeking to delay or avoid their responsibility by using the lockdown imposed due to coronavirus as a mere excuse. Thus first of all it is important to understand the kind of contract you have and whether the lockdown is genuinely preventing you and/or the other party from fulfilling the promises of the contract - for eg. in a situation.

If either party is genuinely unable to fulfil the obligations of the contract due to the Coronavirus lockdown, the Force Majeure clause can be evoked. Most contracts have this clause of Force Majeure or Act of God which allows the obligations to be suspended till the time the event (force majeure situation) has been resolved. Some agreements may also allow time-limitations after which the agreement stands resolved (after sending notice to the other party). However, it is best to make a mutual decision at unprecedented times like these. 

A Force Majeure clause and related language may vary widely in different contracts and agreements, hence, it is important to understand and review these clauses carefully. A Force Majeure clause cannot be implied under the Indian law - it must be specifically provided for under the contract and the protection that can be applied or afforded will depend entirely on the language of the said clause. If the contractual definition expressly includes a ‘pandemic’, or if it covers ‘extraordinary events’ or ‘extraordinary circumstances’ - the contract can be said to cover the current Coronavirus situation. Thus it is important to understand each contract individually. 

The party that is claiming Force Majeure is usually under a duty to show that it has taken each and every reasonable endeavour to avoid/mitigate such an event and its effects. The language of this clause will also determine the remedies available to the parties in such situations. Some agreements may even provide for an immediate termination of the said agreements if any Force Majeure event occurs. One should take a legal view by the help of a lawyer regarding their contract and understand the scenario with the particular inclusion or non-inclusion of the Force Majeure clause in their agreement.

62 votes

Breach of contract is subjective to the status of contract. Also depends upon the conditions of a contract. If the conditions of the term are of absolute necessity then it can be held up.
Covid 19 lockdown is a pandemic and affecting the world at high risk therefore invites force majure