Force Majeure could be the way out from coronavirus fallout

The whole world is currently in a war against the novel coronavirus, a potential threat to a stable and growing economy. The havoc wreaked by the virus has pushed people to go into quarantine and contact by and large with the outside world is at standstill.  

Many people are without work and the country has experienced a closure of offices, businesses and development work for nearly two months.

This article on Force Majeure (FM) is intended to identify the ways in how to get out of this crisis by quickly cleaning up the stains and repairing damages to our economy and life. Before we deal with it, it is better to determine the primary domain of this article.

Here we will address questions like what is FM and why this provision is necessary in an agreement? Can FM be applied even if it isn't mentioned in an agreement? Can we provide immunity to parties to the causes arising out of an ongoing pandemic? Can the parties, irrespective of their origin, be treated on the basis of equality? Can we attempt to find an acceptable solution for quick resumption of stalled work or supply of goods and services creating win-win situation for parties concerned?

We will try to understand the difference between FM and the theory of frustration including supervening impossibilities and which one is better applicable to produce positive result? Will the provisions of the Contract Act, 1872 help resolve FM? And how can we amicably recoup the economic progress by repairing damages caused by the pandemic?

We will attempt to answer these questions and more in the following paras. The roles, responsibilities and obligations of the parties which are clearly mentioned in a contract are determined through numerous discussions and negotiations. But force majeure takes its place in an agreement in general terms as a separate provision because it broadly means an 'Act of God' such as flood, hurricane, tornado, earthquake or any other events or incidents not limited but including natural calamities which are beyond the control of human beings. These are uncertain, not foreseeable and irresistible within the might of human capacity. Therefore, FM makes its room in an agreement to provide relief and recourse to parties to the agreement.

In order to avoid the uncertainties involved in finding a resolution, parties to agreements often prefer to provide a specific reason for FM along with a definition of which events shall qualify for special treatment within its purview. As the provision excuses a party from carrying out its obligations, it needs to be thought through and customised for the project in question. Care should be taken to ensure that FM events only relieve obligations to the extent that they prevent the party from performing them.

FM as outlined above may assist the parties who are aware of it, they may take initiatives to resolve the stalemate by invoking the provision of FM, enjoying immunities for non-performance.

Parties to the agreement may resolve it by their conscience as the resolution of any unforeseen situation which stands on the way of fulfilment of the responsibilities of the parties, because reaching to the finality following lawful means is the first option as it can provide benefits to the parties minimizing the damages. It provides the scope of application of the principle of FM even if it is not mentioned in an agreement.

The situation which has arisen out of this pandemic was never thought of by any human being; therefore, the parties to an agreement have no role in its aggressive presence or to its unknown disappearance if it happens by miracle. In this context, the parties for their failure of performance during the presence of current pandemic, without cavil be treated as immune and keeping this in mind, the parties, mediators if appointed by the parties must not spend time as to the causes but to look forward as to resolution providing relief to the parties irrespective of their origin i.e. foreign or national, contractor or subcontractor etc.

Because a party to an agreement cannot enjoy an edge unless the other party knowingly agrees to it. Therefore, the standard is set to govern the provisions of an agreement reflecting equity and reciprocity, providing opportunities proportionate to the role and responsibilities of parties. The principle of equity shall be adhered to and damages caused will be shared between parties.

The pandemic has caused disruption and suspension of almost all work putting parties to the side lines and they have no other choice but to play the role of onlookers.

A committee at the national level with proper people and terms of reference can be formed so that it can find out generally acceptable terms and conditions for quick resumption of stalled performances irrespective of nature and volume of the work. The committee may work out recommendations sharing the issues with different stakeholders. Once the committee finishes its task, the government may act on it and finalise the recommendations into decisions. This shall help to set out a common feature and standard as to quick amicable resolution and following it resumption of works.

The Contract Act, 1872 provides how the parties may reach to an agreement and contract, finalising a deal on any subject but it does not contain any provision on FM. Particular attention may be given at section 56 of the Contract Act. 

It is interesting to read some of the articles on FM being published in esteemed newspapers these days where the theory of supervening impossibility as enumerated in section 56 of the Contract Act is mixed up. Perhaps, appreciation of both the ideas are not done applying legal mind. If we read section 56 of the Act carefully, it transpires that if parties agree to do something which is impossible, it is void. Secondly, performance becomes uncertain in future also falls within the sphere of this section.

The differences between FM and theory of frustration or supervening impossibility are simple.  Frustration or supervening impossibility discharges all parties from any further performance of their obligations under an agreement but FM provides recourse and relief as soon as the grounds of disruption of works are over and FM is flexible but frustration or supervening impossibilities are not. The flexibility of FM needs to be further explained by example so that parties to the agreements may find some way out of the situation created by the pandemic Covid-19. For example, suspension of Metro Rail project work at present may resume anytime as soon as either the restrictions are relaxed or normalcy of life returns. Therefore, FM remains outside the purview of section-56 of the Contract Act, 1872. The stalemate that has been created by the pandemic is all pervasive and it has shaken life and livelihood, both. As of today, in absence of any vaccine to prevent the spread of the virus, precautions to reduce the threat to life and ensuring livelihoods especially of the marginalised segments of society are of paramount importance. In this backdrop, we should be careful to find out amicable settlement in between parties applying common formula to be worked out by the aforesaid committee or otherwise. With the easing of lockdown, relaxing of restrictions to movement within Bangladesh and beyond, both public and private entrepreneurs should start the process of negotiation finding amicable settlement to ensure resumption of work without further delay to mitigate the losses caused by the pandemic.

The achievable targets are to minimise job cuts, create further opportunities for employment, revamping the economic indexes, plugging the sliding down of people to the next tier, elevating Bangladesh to middle-income country status. The destination of our post pandemic journey should be capable of maintaining pace of repairing likely immense losses due to Covid-19 within a short time so that Bangladesh can fulfil the challenges of protecting lives and livelihoods of its citizens. We have no time to waste and that is why we should follow the principle of, 'the sooner, the better'.

M Shahidul Haque is former senior secretary of legislative and parliamentary affairs division, Ministry of Law, Justice and Parliamentary Affairs; and Md Abul Kalam Azad, former principal coordinator (SDGs) and former principal secretary to the prime minister.