All the benefits of the Singapore model, with tailored variations, make it the need of the hour in India.

 

Apart from fear, panic, uncertainty—in equal doses—Covid-19 has generated two other important reactions viz. Corona jokes and legal questions. Having dealt with the former in this column earlier, let me turn to the latter.

Firstly, justification to invoke Force Majeure (FM) on account of Covid and related issues of construction and tenancy contracts plus the supposed obligation to pay wages are being agonised over daily in the Covid context. 500 years of English and 70 years of Indian Judge made Law on the subject is necessarily amorphous and not designed for Covid. The advantage of specific Indian legislation is that it creates certainty, specificity, clarity, is targeted and minimises or avoids confusion, delay and litigation.

Secondly, the Singapore Act is by Covid, for Covid, of Covid! Passed on April 7, 2020 to “provide temporary measures…to deal with Covid-19 pandemic”, it proceeds to govern all contracts entered into or renewed after March 25, 2020, including those to which the government is a party. It applies where a party to such contracts is unable to perform its obligations, where the inability is materially arising from a Covid event and such unable party has notified the other party.

The heart of the Act is Section 5(3) which, with Section 5(2), excuses the invoking party from a series of 14 actions or obligations specifically listed (plus power to add to the list), for a limited and specified period or till an assessor finds that FM is wrongly invoked. The list suspends the commencement or continuation of an action in court; in arbitration; enforcement of security over any immovable property; similarly qua movable property if used for trade, business or profession; convening creditor meetings under Companies Act; applications for receivership, takeover and administration; invoking insolvency; initiation of execution, distress etc.; repossessing assets or chattels; termination of leases or licenses for non-payment of rent; the exercise of re-entry or forfeiture for similar reasons; enforcement of arbitration awards; and so on. Time limits are similarly suspended.

While the Act’s coverage is very wide, it is temporally limited to time periods of Covid inability and spatially limited to assessment of actual disability materially arising from Covid. It expressly provides that a specific contractual clause to the contrary, disallowing such disability, shall trump the Act.

Section 6 onwards deals sequentially with important macro-economic sectors, from construction contracts to tourism. These address issues like bank guarantees, extension of time etc. and provide all-round relief.

The assessors appointed to assess Covid disability are Registrar-level officers, who assess/ensure that the Act’s conditions precedent at all apply; that the applicant’s ability and financial capacity enable performance of the obligation; that the outcome is just and equitable; that partial performance or just adjustment of equities is achieved; and so on. Notably, advocates and solicitors are barred from appearance before assessors.

The Act is long and comprehensive. Part 3 gives very specific & targeted relief in all facets of Bankruptcy law, Companies Act, LLP Act and Business Trusts Act, including time and monetary limits.

Thirdly, all the benefits listed above make this model, with tailored variations, the need of the hour in India. A quick Indian jurisprudential survey of caselaw on FM, though necessarily limited, yields the following principles:

the contract between parties is supreme; if it specifically anticipates a pandemic with consequences stipulated, it will govern above all else. 99.99% cases arise from gaps & ambiguity because parties are not prophets and lawyers not astrologers;

Of the three underlying juristic principles—that the consequence of a frustrating was something so obvious that parties excluded it because of its obviousness; be imposed by courts as the most just and fair result or be adopted as that which law’s hypothetical reasonable man would do during FM—the last is the most preferable. The first is farcical because the very basis of FM is that which parties could not anticipate and the second involves rewriting of contract by a judge supposedly doing justice, smacking of the proverbial Chancellor’s foot.

Critically & crucially, caselaw has used strong words and cast the threshold to successfully apply FM very high. It requires the entire foundation of the bargain to be shown to be upset. The basis of the adventure must be destroyed. Mere alteration, even significant change or highly enhanced onerousness or humongous increase in expenditure or availability even of delayed performance alternatives, have all negatived FM. A radically new contract and a break in identity with the original have been judicially adumbrated. Price, cost and monetary changes have been specifically given the least judicial importance.

Fourthly, celebrated cases have negatived FM in stronger contexts than Covid. Thus, requisition of land on which development was to contractually happen was not excused and a ghee supplier was not allowed enhanced prices despite huge scarcity, though both involved war as FM. The rejection of a license to a jute supplier sourcing Pakistani jute post the 1965 war was held not FM-entitled, while, in 2017, a corporate was denied FM and benefits of change of law in electricity generation, despite proving humongous increase in cost of Indonesian coal which, by law of that country, increased exponentially and admittedly rendered the contract commercially impossible.

Fifthly, a little-known Chinese judgement (applying English law in Hong Kong) in the identical context of SARS 2003, denied relief to a tenant who sought to exit his tenancy within the lock-in period because of a month’s disruption of occupation arising from SARS lockdown. The HK judge emphasised the non-permanence and temporariness of such disruptions to deny FM and noted that he knew of no English decision over 500 years excusing tenancy obligations based on frustration!

Sixthly, absent legislative intervention, it would be well nigh impossible to argue that 2- or 3-month disruptions qua Covid leases radically altered the bargain. While all governmental communications obliging wage payments are advisories with no legal effect, the MHA document of 29 March 2020 is under Section 10(2) (i) of the Disaster Management Act and constitutes law. Absent a successful challenge to the notification and to the validity of the section on the ground that that section does not address the issue of wages at all, the obligation regarding wages binds. In the current ambiance of destitution and deprivation, no court is likely to strike down the section in the near future.

Seventhly, lockdown rules clearly possess all the attributes of law and are binding. They would thus qualify as change of law under appropriate construction contracts leading to proportionate extension of time for completion. Whether they would make the owner liable for additional compensation to the contractor arising from change in law, remains an untested and vexed question. Arguably, lockdown, though undoubtedly a change in law, is activity neutral and not specific qua construction, apart from excusing the owner as much as the contractor.

The jury may well be out on this last one.

Dr Abhishek Singhvi is a senior third term Member of Parliament; eminent jurist; former Chairman, Parliamentary Standing Committee on Law; senior National Spokesperson, Congress; former Additional Solicitor General of India; author, writer and commentator. Views are personal

 

Leave a Reply

Your email address will not be published. Required fields are marked *

*

*

*