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Note on the impact on contracts due to Covid-19 pandemic

One of the major areas of concern due to the Covid-19 pandemic situation is in the performance of commercial contracts.

While the impact on each specific contract will differ based on a) fact applicable to the contract, b) contractual terms agreed and will need to be assessed separately, the following may be applicable:-

  1. Pandemic situations can be considered as a Force Majeure event (generally interpreted as beyond the control of the parties), depending on how it is defined in the contract. This can help the parties in extending the time available for the performance of the contract.

  2. In case the contract becomes impossible to perform, it can result in termination of the contract. Some contracts provide that if the Force Majeure event continues for a period beyond 90 days (or similar), parties can consider termination of the contract.

  3. Where the contract is rendered commercially unviable (on account of changes in prices, etc), but not impossible to perform, the parties need to assess whether renegotiation is possible. Also, parties can also explore termination options available in the contract.

  4. In any case, for any commercial contract, the parties need to assess each individual contract and consider giving notice of force majeure (if applicable), as force majeure is not available post-facto. Generally, contracts provide for immediate notice in case of force majeure events.

The Ministry of Finance has in its Office Memorandum dated 19-02-2020 (relating to the procurement of goods) has clarified that Coronavirus will be considered as a Force Majeure event.

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