As the world hunkers down indoors, businesses pull down their shutters and countries close their borders in the wake of the COVID-19 pandemic, the impact of the fear and panic caused by the novel Corona virus is not limited to health concerns. Demonstrated amply by the plummeting stock markets, the pandemic has severely obstructed the ability of businesses around the globe to maintain operations and fulfil existing contractual obligations. The social distancing measures have also led to postponement/ adjournment of all non-urgent litigations/arbitrations indefinitely.

IMPACT ON ONGOING LEGAL PROCEEDINGS

Internationally, the future of dispute resolution and arbitration has become uncertain. Most states in Europe have closed their courts and postponed hearings for at least a month. Ireland, UK.1, USA2 and France limited the court work to only urgent cases and have either indefinitely postponed or severely restricted jury trials. Italy, the European epicentre of the pandemic, has shut down all courts until 22.03.2020. Even international forums such as the European Court of Human Rights and the European Court of Justice have suspended hearings until first week of April, except the ones where an adjournment would result in irreparable damage.

Proceedings of major arbitration institutes centred in Europe, Singapore and other countries such as South Korea, China, USA, Canada have been disrupted, with proceedings being suspended in some places for as long as two months.

The Indian legal system is not insulated from the alarming impact of COVID-19. With a massive pendency rate5 , the Indian legal system is struggling to meet the situation without derailing its normal course of business for long. In order to avoid over-crowding and human interaction, courts across the country have adjourned scheduled regular hearings, limiting the hearing only to urgent matters alone, until further notice. However, the rapid increase in the number of reported COVID-19 cases and resultant fatalities, have compelled some courts to extend the suspension till 03.04.2020.6 In an attempt to discourage filing of all non-urgent matters, courts have even taken steps to even impose costs on litigants who portray frivolous grounds of urgency despite the Court’s directive that only urgent matters would be taken up to decongest the Court and minimise the risk of COVID-19 transmission.7 With the suspension of court proceedings till further notification, delay and expiry of limitation is bound to occur. A litigant’s quandary is only aggravated with Tribunals and courts shutting filing counters and limiting filings only to urgent cases.

JUDICIAL DECISIONS AMIDST THE COVID-19 CHAOS

The Kerala High Court and Allahabad High Court were among the first forums to take cognizance of the pandemic. In Darpan Sahu v. State of Uttar Pradesh and Ors.8, the Allahabad High Court observed that the impending threat of fatal consequences of the pandemic call for extraordinary measures including ‘self-quarantine’. In view of this, the Court directed the State Government Authorities to restrain from taking any coercive measure against any person and differ any proceeding in matters pertaining to recovery, auction, eviction, and demolition for two weeks until 06.04.2020. A similar order was also passed by the Kerala High Court on 19.03.2020 where the Court directed banking and financial institutions, income tax departments and GST authorities to defer recovery proceedings and any coercive action till 06.04.2020.9 Both the orders of the Kerala and Allahabad High Court were swiftly challenged before the Hon’ble Supreme Court which has stayed the orders of the High Courts as also the legal proceedings pending before the High Courts in relation to the same.

In the interest of avoiding overcrowding of courts to the detriment of the public, the High Courts lost sight of the fact that, such a decision would effectively result in non-payment of tax by way of GST, severely bruising an already bleeding economy. While courts are swiftly acting in order to minimize community exposure and prevent the spread of the virus, in doing so, they ought to be mindful of balancing the physical health of the public with the economic health of the country.

A long-term impact of COVID-19 will be on sustainability of contracts and performance thereof in a global set up. The impact of the widespread panic on manufacturing, tourism, health care and aviation sectors is already massive. With liberalisation and globalisation, the increased inter-dependence of nations will give rise to a new a class of disputes owing to delay and non-performance of contracts. The most reliable contractual clause which will come to the rescue is ‘Force majeure’ or the doctrine of frustration of contract. Since the legal position related thereto is heavily dependent on the actual phrasing of the relevant clause in the agreement, naturally, signatories to a badly drafted contract will suffer the wrath and end up in court.

The most obvious legal question that will arise in all cases is whether the impact of COVID-19 would permit the invocation of a force-majeure or frustration of contract. The Office Memorandum issued by the Policy Division of Department of Expenditure Procurement, Ministry of Finance throws some light on interpretation of the ‘force majeure clause’ under the Manual for Procurement of Goods, 2017. As per the Office Memorandum, disruption of supply chain owing to corona virus is classified as ‘a natural calamity’. The Ministry of New and Renewable Energy has also issued a similar Office Memorandum, directing renewable energy implementing agencies of the Ministry to treat any delay owing to disruption in supply chains due to spread of coronavirus as a Force Majeure event, upon necessary documentary proof being produced in this regard.

However, in view of the fact that the aforesaid Office Memorandums are limited to government contracts alone, the applicability of the definition or interpretation to all other contracts include private contracts is uncertain. In such a scenario, courts while interpreting force majeure events and contractual breaches may place reliance on the Office Memorandums and the legislative intent therein, to apply a similar interpretation in private disputes.

In addition to the above, matters relating to employee compensation during the lock down phase, consumer disputes owing to cancellation of hotel bookings/flights and insurance protections against COVID-19 will be issues that the courts will soon adjudicate upon. It is also unclear whether ‘force majeure’ will come to the rescue in cases where the performances of contract is already delayed.

As far as legal professionals are concerned, COVID-19 is the perfect Catch 22 situation. While work is decelerating right now, soon there will be new claims arising out of contractual delays, disruption in provision of service, manufacturing of goods, export and import contracts, breach of shipment contracts.

CAN WE CURTAIL THE IMPACT ON LEGAL PROCEEDINGS?

If the pandemic were to continue, the Indian legal system will suffer majorly, unless courts and counsel quickly adapt to the aid offered by modern technology. The importance of e-filing of petitions, affidavits and other legal documents has never been felt as much as now. Complete shutdown of the judicial system is not an option13 therefore, the Supreme Court of India has advocated the adoption of virtual courts at the earliest.14 E-filings, arguments via video conferencing will be brought to place to address the delay and shut down which is unexpectedly brought about by COVID-19. Some High Courts, like the Delhi High Court, have also followed the Apex Court’s lead and are encouraging digital payments and e-filings of matters.

When social distancing and self quarantine are the need of the hour, the importance of artificial intelligence, technology and the internet cannot be undermined. Arbitrations and court proceedings must adopt digitisation, to ensure that litigants and commercial transactions do not unduly suffer. Though implementing this in the Indian context may seem difficult due to lack of infrastructure in courts and other judicial forums located in remote areas, the Supreme Court seems to be leading the charge, ensuring that the rest of the country follows, one step at a time.

Superior Forces – Is COVID-19 Dangerous for Your Contracts & Disputes?

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ABOUT AUTHORS

SHILPA GAMNANI

ATMAJA TRIPATHY