Ordinary Times in Extraordinary Circumstances
Analysis of Legal Implications and Damages Considerations in Light Of COVID-19
On 11 March 2020, the World Health Organization (“WHO”), based on its assessment, characterised COVID-19 as a pandemic. Following the outbreak and the subsequent lockdown measures undertaken by the Government of India in March 2020, all industries have been impacted, albeit to varying degrees.
Industries such as retail, tourism, hospitality, aviation, railways, automobiles, etc., are expected to be most affected and will likely experience significant distress. Food and beverages, media and services companies are expected to be moderately impacted. Some sectors such as internet service and communication software companies might even witness growth.1
Supply chains that were dependent on just-in-time deliveries of parts or finished products to manage inventory levels are facing significant disruption due to unavailability of labour, raw material and restrictions on transportation.
Against this background, performance of commercial contracts will likely become more difficult, with consequences for all parties involved. In this article, we will discuss potential contractual provisions and risk management strategies that may be available to businesses in managing any negative consequences arising from non-performance of their contractual obligations. We will then discuss the implications of the current crisis on quantification of damages in commercial disputes arising out of or during the pandemic.2
The article3 is structured as follows:
- First, we will provide a brief overview of the current state of affairs. In doing so, we will summarise the economic impact of COVID-19 and the legal and regulatory developments that have followed since the virus was declared a pandemic;
- Second, we will introduce and discuss the legal concepts of force majeure and frustration of a contract, and the implications of such events on performance of contracts. We will do so by using a hypothetical example of a potential dispute between a seller and a buyer, arising from the seller’s alleged wrongful termination of contract, involving sale and purchase of refrigerators and air conditioning products between the seller and the buyer; and
- Third, we will briefly discuss the overall framework for calculating damages and the implications of the economic and financial consequences of the pandemic on calculation of damages.
2: This article focuses on the commercial, legal and economic consequences. That is not to at all downplay or overlook, in the very first instance, the pandemic’s human, health and social costs which are significant and sad.
3: This article is jointly written by Cyril Amarchand Mangaldas (“CAM”) and FTI Consulting (“FTI”). Specifically, Sections A, B and G are jointly written by CAM and FTI. Sections C to D and Sections E to F are written by CAM and FTI respectively. Please note that this article is updated as of 31 May 2020.