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Can Covid – trigger a Force Majeure Clause? Everything you need to know about it

2020 has witnessed the worst pandemic in the history of humanity as far as the economic fall down is concerned. More than 76% of companies in the world are not able to deliver their services due to forced lock downs and strict authority orders.

In India, over 1000+ people have been infected with the disease so far as we speak and the numbers are uncertain because of the limited testing capacity in the country.

At a time like this, businesses are not being able to:

· Oblige the contracts

· Complete the deliveries

· Maintain the production

There is a Shortage of important supplies, Supply chains have been disrupted and Transport businesses are worst effected

The question is, will Covid-19 trigger a major degree of force majeure in the business contracts?

*Force majeure — French for ‘Superior force’*

What is Force majeure?

Force majeure is a clause negotiated in the business contracts which essentially excuses the business not to deliver the obligation due to any unfathomable natural calamity (an act of god). The clause generally includes earthquakes, floods, tsunami, hurricane and other disasters known to people. The foreseen and unavoidable calamities make it ‘impractical’ to work under the circumstances and that’s what the clause represents.

Is Covid-19 a Force Majeure Event?

Depending on the nuanced specifications of the contract, governing law, factual circumstances of the state, and several unforeseen factors, Covid-19 is very much a force majeure event.

So what else must be shown for the legal pardon of force majeure?

The party which is unable to oblige the terms of their contract must also show:

· The inability to perform their part of the deal due to event

· The reason for their breach of contract was beyond their control in the circumstances

· The possibility of mitigating to the terms of the contract did not exist and the consequences were unavoidable

It is necessary to state that the alternate methods of labor, supply material or forms of transport could not be availed due to the shortage of staff , resources etc.

What is the procedure to file the clause?

To file the force majeure clause, the party not being able to service the contract must issue notice to the counterparty within the particular timescale, as soon as the occurrence of disruption, its best advised to seek legal advice to file the notice.

If a business is seeking to file then these are the necessary legalities that must be implemented beforehand:

In the contract, the precise wording must be chosen carefully so that the non-performance of the service can be justified legally. This exercise is highly fact-sensitive and would require proper documentation of the reasons that were involved in the delay of the service.

· Alternative methods to require the tasks must be in the contingency so that the alternative terms can also be agreed upon in the contract.

· Serve the required notification period well in time and allow the other party to renegotiate the terms.

In the case of force majeure being filed, here are the effects that it has on the terms of the agreement:

If the claim is accepted then the contractually bound time required to implement the service is increased to a new deadline agreed by both the parties without any damages being payable.

Again, Note that the Prospects of successful claim is determined by the the language of the provision and the facts and circumstances of the affected party .

About Us: CFO Bridge is the largest partner model service provider in India with 200+ clients, 4000 Cr. + turnover managed & 100 Cr. + funds raised.

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