COVID-19: Legal Implications
March 17, 2020
THIS IS NOT AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE. PLEASE CONTACT LEGAL ADVISOR FOR ANY SPECIFIC LEGAL ADVICE OR QUERY.
On March 11, 2020, the World Health Organization (WHO) characterised COVID-19 (Corona Virus Disease, originated in 2019) as a ‘pandemic’.
Merriam-Webster online dictionary defines ‘pandemic’ as an ‘occurring over a wide geographic area and affecting an exceptionally high proportion of the population’.
While the effect of COVID19 is wide spread, here we limit ourselves to the associated potential legal risks and practical considerations.
1. Impact on past transactions
(i) Executed contracts, particularly long term, should be reviewed. Provisions that would be relevant to consider include, the term of the contract, force majeure clause, change in law, notice, and material adverse effect. Certain ‘force majeure’ provisions require demonstration of how the force majeure event has directly affected the performance of the contract – the cause and effect should be evaluated carefully.
(ii) Examine if the contract stands ‘frustrated’ (a concept under the Law of Contract). Section 56 of the Indian Contract Act, 1872 deals with ‘Agreement to do impossible Act’, commonly referred to as ‘frustration of a contract’.
(iii) Examine how rights and obligation of the parties get affected.
2. Execution of contracts
(i) Consider ‘electronic signature’ in accordance with applicable law. In India the provisions of the Information and Technology Act, 2000 and Rules made thereunder shall apply.
(ii) The governing law of the contract and cross-border implications, in case of cross-border transactions, are important factors to consider.
(iii) It is important to remember that mode of signature does not affect the requirement of stamp duty.
3. Risk mitigation measures to be considered
(i) After identifying the potential risks, the parties may considerinsulating the transaction entirely from such risks, where possible, or at the least minimize the damage likely to be caused by such risks.
(ii) Certain situations may merit withdrawal from participating in the transaction in order to protect from accruing any financial liability.
(iii) The pandemic may result in delay in execution of the transactions – therefore, it would be advisable to check for any attached financial liability that the parties to the transaction may incur.
4. Impact on future transactions
(i) For all future transactions it will be important to carve-out all potential risks which might affect any of the party’s performance of their obligations.
(ii) The parties should contemplate if the risk will merely delay the transactions or it is plausible that the entire transaction may fall through.
(iii) It will be important to consider if the outbreak may affect service providers such as suppliers or distributors, especially if such party is located at a place with complete prohibition on travel.
5. Other observations
(i) Reporting and filings with regulatory authorities required before the closure of the financial year need to be kept in mind.
(ii) Insurance cover(s), if any, need to be checked together with the terms and conditions thereof.
(iii) Employers would be bound by government (central and local level) directive, as may be issued from to time.
(iv) Representations and warranties pertaining to COVID-19 in respect of ongoing and future transactions may be considered.