Courting Controversy: Potential effects of the Coronavirus on courts and contractual obligations

Courting Controversy: Potential effects of the Coronavirus on courts and contractual obligations

Contrary to why this column had been conceived a few years ago, this is perhaps the first non-controversial piece which will be published.

The Coronavirus, or Covid-19 as named by the World Health Organisation, has negative health, social and economic effects. While the world and India brace themselves for Covid-19’s immediate, medium and long term impact, there are two aspects which have a bearing on litigation.

The Immediate Consequences of Covid-19

In the immediate term, Covid-19 is unlikely to draw out any substantive legal concern that would impact litigation. It does, however, have potentially significant administrative concerns, if a single person in the Court premises is detected with Covid-19.

Going by what we presently know medically and the immediate world-wide policy of containment, a single detection would possibly have to lead to a shut-down of the Court for at least 14 days from the first detection. Such an unplanned shut-down would have catastrophic consequences and would completely throw the litigation juggernaut out of gear.

The immediate answer to that may well be in following the Business Continuity Plan (BCP) followed in Singapore. The BCP provides for segregated working, where half of a working group comes into the workplace for 14 days, while the other half works from home. The advancement of tele and video communication is used to continue the work with minimal disruption. The theory behind the BCP is that even if one member of a team contacts Covid-19, another member who has been isolated is always around.

This is currently being followed by the Singapore Supreme Court, which has divided its judges into two groups, with no physical contact taking place between the two groups of judges.

In a recent Court of Appeal hearing held in Singapore last week, where I had appeared, where one of the judges was part of the second group, the Court hearing had two judges sitting in the presence of counsel whereas one of the judges video-conferenced herself into the hearing. In that way, a part-heard case which had been fixed prior to Covid-19 was not derailed by the segregation of the judges.

While this may not be entirely adaptable in India, as a contingency plan, what the Court can consider is having a staggered system where half the Courts function during a particular period of the day and the other half during another period.

We do need to bear in mind that Covid-19 can strike through any person and given the number of people who are in a Court premises on a daily basis, the chances of someone carrying the infection may not be that remote. While this may also not be fool-proof, it is certainly based on the theory of containment, which requires steps to be taken to reduce the chances of spreading the infection.

The Medium and Long Term Impact of Covid-19: Force-Majeure or Frustration

In the globalised world that we live in, one medium and long term impact of Covid-19 is on the sustainability of contractual obligations. Naturally with segregated working, the manufacturing activity is certainly bound to take a hit. If governmental directives lead to the shutting down of manufacturing units because of the threat of Covid-19 on the workforce, it would have a consequential impact on the entire supply chain.

While the Procurement Policy Division of the Ministry of Finance in its office memorandum of 19 February 2020 has defined corona virus as a natural calamity, it is neither an all pervasive definition applying across all contracts governed by Indian Law nor a statement that has the force of law.

Apart from economic consequences and matters related to workforce compensation, the legal question which would arise is whether such impact would allow a defence in force-majeure or frustration for a failure to meet with contractual obligations.

As set out in a recent decision of the Supreme Court in Energy Watchdog v. Central Electricity Regulatory Commission and Ors, and placing reliance on the seminal decision of Alopi Prashad & Sons Ltd vs Union of India, in relation to force-majeure events, the Court held that,

“[p]arties to an executable contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate…This does not in itself get rid of the bargain they have made. It is only when a consideration of the terms of the contract, in the light of the circumstances existing when it was made, showed that they never agreed to be bound in a fundamentally different situation which had unexpectedly emerged, that the contract ceases to bind. It was further held that the performance of a contract is never discharged merely because it may become onerous to one of the parties.”

On frustration, the Court used the same basis to hold that the fundamental basis of the contract had to undergo a change.

It would be interesting to see how Indian courts would consider submissions of force-majeure or frustrations based on Covid-19. Naturally, it would have to be a fact intensive exercise and a determination of how Covid-19 altered the fundamental basis of the contract. That would be a space to watch jurisprudentially.

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