What are the legal and financial consequences when a company does not fulfill its obligations during the current crisis?
he global business environment was rocked to its core in March 2020 when the World Health Organization (WHO) declared the COVID-19 outbreak as a pandemic. The subsequent measures taken all over the world to reduce the spread of the virus severely impacted nearly every industry in every country. Industries such as retail, tourism, hospitality and transportation, for instance, have been significantly affected, and questions about their long-term viability remain, even as economies slowly open up again. Other industries have fared better, food and beverage and ISP companies among them. These industries may even grow during — and following — these otherwise uncertain times.
However, what is certain is that most businesses have faced operational difficulties because of supply chain disruption, raw material delivery slowdowns, and labor shortages.
Given this unprecedented reality, the performance of commercial contracts going forward is likely to become more difficult in the post-pandemic environment. As the world's fifth largest economy, India serves as a paradigm of sorts for understanding some of the legal ramifications related to COVID-19 with respect to breach of commercial contracts.
What does it mean, for example, when a company is unable to fulfill its contractual obligations? Can a company seek protection under the contractual provisions for force majeure and the doctrine of frustration of a contract? And what is the appropriate framework — and the application of the framework — for calculating economic damages, if any, in a commercial dispute? (For example, disputes arising from non-performance of a contract during the current crisis.)
For a deeper analysis related to these issues, read the article “Ordinary Times in Extraordinary Circumstances,” which can be accessed through FTI Consulting's Asia-Pacific website. Co-authored by FTI Consulting and the leading law firm in India, Cyril Amarchand Mangaldas, the article provides an extensive review of certain aspects of potential contractual disputes that may arise, risk management strategies for businesses, and the implications of the crisis on the quantification of damages.
FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm.