“Covid-19 has had a significant impact on economies all over the world impacting their trade and financial markets, in addition to being a global pandemic and public health disaster.”
“The disease mitigation measures imposed by many nations have also resulted in significant income reductions, increased unemployment, and disruption in the demand and supply chain of the world which in turn has impacted world trade negatively.”
A report from UNCTAD (2020), indicates the list of most impacted world economies due to covid-19. European Union (EU), the United States of America, and Japan are the most impacted economies by the covid-19 according to that report.
UNITED NATIONS CONVENTION ON CONTRACTS FOR INTERNATIONAL SALES OF GOODS(UNCISG)
Vienna Conventions is also known as UNCISG. It came into force in year 1988 after 9 countries ratified the treaty. By 2020, 94 countries had ratified the treaty and were following the standards set by it.
“International Institute for the Unification of Private Law (UNIDROIT) and United Nations Commission on International Trade Law (UNCITRAL)” became the basis for UNCISG. While drafting the UNCISG, drafters took inspiration from both the treaties to make a comprehensive document which beneficial for the entire world and represented the needs of the world without any kind of discrimination or biases.
UNCISG aims to have uniform rules and regulations regarding international trade all over the world. It aims to promote free trade between countries by trying to remove any legal barriers.
Countries have various benefits of joining UNCISG. Since all the member countries are being regulated by the same rules and regulations it becomes easy for the contracting parties to interact and even if one party to the contract is at the position of domination, it cannot dominate because similar rules apply to both the parties.
Also, it saves a lot of time for parties as they have to follow already made rules and regulations and don’t have to sit and frame new rules and regulations. Hence, saving a lot of time and effort.
Also, countries having distinct economies and economies at a distinct stage of development (developed, developing, and underdeveloped) are a part of UNCISG, all opinions and issues get highlighted.
CLAUSE OF FORCE MAJEURE
“Force Majeure” is a French word that means “greater force”. It can be defined as a contractual term that exempts the party from performing the contractual obligations, they owe to each other if an event beyond their control occurs, and that event makes it impossible for the parties to perform their duties.
FORCE MAJEURE CLAUSE IN INDIA
Although the clause of force majeure is not expressly mentioned in the Indian Contracts Act,1872.
But according to the Hon’ble Supreme Court of India, it comes under the ambit of “Section 32 of the Indian Contracts Act,1872. Section 32 of the Indian contract Act talks about Contingent contracts. This was held by Supreme Court in the case of Energy Watchdog vs Central Electricity Regulatory Commission.”
Force Majeure can be broadly used in two contexts:
- Natural Events
- Political Events
NATURAL EVENTS: These kinds of events may include ‘Act of God’ like Tsunami, floods, drought. In these circumstances, it becomes difficult for the parties to complete their contract hence Force Majeure clause applies here.
POLITICAL EVENT: Political Events include, events like Civil unrest, genocide, wars, etc. Also, in all these circumstances it becomes difficult for the parties to contract to fulfil their mutual obligations towards each other.
Therefore, this clause of ‘force Majeure is very important and useful for the businessman as it allows them to breach the contract without entering into any kind of liabilities or facing any kind of loss or damages provided the situation arisen is out of their control.
ARTICLE 79 OF UNCISG
Article 79 of UNCISG though does not mention the term ‘force Majeure explicitly but according to Article 79: “a party is not liable for a breach of any of his obligations if he can show that the breach was caused by an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the contract’s conclusion, or to have avoided or overcome it, or its consequences.”
Therefore, four necessary conditions are to be fulfilled to be termed as an ‘impediment’:
- A particular event beyond his control
- The event was not reasonably expected/ foreseeable
- The particular event could not be avoided
- A certain kind of reasonable relationship exists between the party’s non-performance and that particular event.
COVID-19 AND FORCE MAJEURE CLAUSE OF UNCISG
Covid-19 is going to fulfil the first two of the criteria i.e., covid-19 was beyond anyone’s control and was not reasonably expected. But the non-fulfilment of the contract due to covid will depend upon case to case and a universal policy cannot be implemented.
Although, it might be true that because of travel barriers and travel restrictions imposed by various countries in the form of lockdowns and shutting down of borders, the contracts may have been hampered. But these four mentioned conditions are not objective and are subjective to different interpretations. Therefore, all the contracts may not completely be absolved from the liability but certain contracts may be depending upon the facts of that particular contract.
In summary, those involved in International Trade activities should be aware that “Article 79 of the CISG may not be sufficient to protect them from trouble and hardship.” In these difficult times, general contract terms written by reputable international organizations can be used to protect their interest. Stakeholders “should not, however, consider these common contract clauses as a complete solution to their problems.” “The parties are advised to seek legal advice and to write down their clauses of force majeure.”
- International Sales of Goods and related transaction, https://uncitral.un.org/en/texts/salegoods
- Section 32, Indian Contracts Act,1872
- Article 79, UNCISG
- COVID-19 Force Majeure under UNCISG, https://www.jurist.org/commentary/2020/05/gizem-alper-force-majeure/
This article is written by Dalima Pushkarna student at Dr Ram Manohar Lohiya National Law University, Lucknow.