The Coronavirus Pandemic will result in en-masse trigerring of Force Majeure clauses
The Impact of Force Majeure will last well after the Government imposed Lockdown ends
Disputes are likely to arise regarding the extent to which force majeure clauses can be used to cover losses sustained on account of disruptions.
The SARS COVID-19 Coronavirus pandemic has shocked the global economy into recession. While the tourism, hospitality and airline industries have suffered catastrophic crises, the rest of the global economy is left staring at a major recession. As businesses across the globe face revenue shortfalls, en-masse triggering of 'Force Majeure' clauses is bound to result in adverse financial consequences for the parties involved.
The impact of COVID-19 has been acutely felt in the exhibitions industry. Being assembly events, MICE or Meetings, Incentives, Conferences and Exhibition events are likely to remain suspended or muted for the next six months to one year. While the Government-ordered lockdown is likely to end in a few weeks, legal consequences of force majeure clauses will be felt for several months to come.
Key Participants in the Exhibition Industry - Organizers, Venue Owners and Stall Bookers
The key participants in any exhibition comprise (i) Organizers, (ii) Venue Owners and (iii) Stall Participants. Therefore the first contract would be the venue-booking agreement signed between the exhibition organizer and the venue owner (landlord). The second class of agreements would be those executed between the respective stall-participants and the exhibition organizers. Each of these agreements usually contains 'force majeure' clauses designed to cater to unforeseen events.
Force Majeure Clauses in an Exhibition Agreement:
Standard force majeure clauses in an exhibition agreement usually provide for the refund of booking amounts in the event of cancellation of the exhibition. Any person who books a stall can claim a refund if the proposed exhibition is cancelled. Force majeure may also be invoked by an exhibition organizer seeking a refund of earnest money from the venue owner should the event be called off on account of unforeseen acts.
Codification of Force Majeure in India - Section 56 of Indian Contract Act:
Force majeure is akin to the doctrine of 'frustration of contract'. It has been codified in Indian law by enactment of Section 56 of the Indian Contract Act, 1872.
Section 56 declares a contract void if it becomes impossible to perform. Therefore, if an exhibition is unable
Is Time the Essence of an Exhibition Contract?
If the exhibition contract contains a 'time of the essence' clause, then the suspension of the event under Force Majeure would render the contract void. If such a clause is not provided, then the organizers may have a window of time within which to organize a rescheduled event.
In this case of COVID-19, the former would app
Possible Complications for Leased Venues
It is common for major exhibition and event organizing companies to take entire prominent venues on an year-round lease. By paying a fixed monthly rental to the owner, organizers receive the right to retain all amounts received via booking fees. These models are feasible for well-located and prominent venues, where demand for booking is high.
Force majeure clauses in such long-term leases may suffer from a catch. The Supreme Court of India has repeatedly held that the doctrine of frustration of contract does not apply to leases. This is because the lessee remains in possession of the property
Parties may try to Invoke Force Majeure even after the Lockdown ends: