[Shiv Swaminathan is Professor and Associate Dean (Research) at Jindal Global Law School (JGLS). Many thanks are due to Niranjan Venkatesan for his comments; my teaching assistant, Veda Singh and to Aaditi Pradeep and Rusha Ghosh Dastidar students of JGLS, for their research assistance]
This is part I of a multi part cheat-sheet on the doctrine of frustration (technically comprising impossibility, illegality and frustration of object) and force majeure (regulation of contingencies by agreement of parties). It draws from two distinct projects I am presently working on, one in legal philosophy (on the place of skill in knowing the law) and the other on the genealogy of central doctrines of Indian contract law. It is not intended to digest all the cases law on frustration—which would frustrate its foundational purpose—but rather to give heuristic short-cuts to anticipate a common law judge’s likely approach to a frustration case. Section A outlines the methodology which the note builds upon. Section B discusses the central principles of the doctrine and illustrates them with English cases. Section C makes the case that Indian law on frustration ought to be understood along the lines of English law.
‘Non haec in foedera veni. It was not this that I promised to do
– [Per Lord Radcliffe, Davis Contractors Ltd. v Fareham Urban District Council [1956] AC 696, 729].’
A. Methodology of the Guide
That strikingly unremarkable number ‘42’ was Deep Thought’s answer to the question of meaning of life, the Universe and everything. But as a student once pointed out to me, the trouble with 42 is not just that is ‘42’—whatever that means—but that its meaning is ‘whatever one likes it to be’. It is no better than being met with advice to throw dice when asked the meaning of something—incidentally, the dots on a pair of dice too add up to 42. To many this phrase in the epigraph which treated as ‘the watchword of the modern doctrine of frustration’ is about as useful a guide to understanding frustration as ‘42’. Even Lord Radcliffe’s fuller definition within which it is embedded does not brighten the outlook much:
‘[F]rustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.’
One would be getting the wrong end of the stick if one treats this as an axiom and seeks to apply it in a rule-like manner to detect applications of the doctrine. As Patrick Atiyah warns us, its application is typically explained by illustration rather than further definition’ [S. Smith, Atiyah’s Introduction to the Law of Contract (6th ed. Clarendon Press 2006) p.185]. Indeed, Lord Radcliffe himself pointed out ‘it is not always expressed in the same way’ [Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, 726]. This, in itself, should come as no surprise. The common law is full of concepts such as ‘reasonableness’, ‘proximate cause’ and the like which although fiendishly difficult to define, lawyers converge on picking out extensions of, with remarkable facility and accuracy [Swaminathan, ‘What the Centipede Knows: ‘Polycentricity and “Theory” for Common Lawyers’ Oxford Journal of Legal Studies]. Despite difficulty in definition, common lawyers can more often than not agree on specific illustrations of such concepts. The reason they are able to do that is they have with long years of experience developed a kind of ‘tacit knowledge’ or ‘aesthetic sense’ which resists being reduced to a set of rules [Swaminathan, ‘Mos Geometricus and the Common Law Mind: Interrogating Contract Theory’ (2019) 82 Modern Law Review 46].
Here in dealing with ‘frustration’, we are in the presence of one such area, better tackled by tacit knowledge than rules and definitions. As I have argued elsewhere, areas of law dominated by tacit knowledge are often the graveyards of Euclidean theory which starts out with one principle that is meant to explain all of the area. Little wonder then, that a number of ‘theories’ purporting to elucidate the basis of frustration have been offered in the case law—and all have had chequered careers [Hugh Beale, Chitty on Contracts (32nd ed. Sweet and Maxwell 2018) p.23-009 (they ‘shade into one another’)]. ‘Theoria’ in Greek meant nothing more than ‘to see’ something—and a theory is tinsel qua theory if it does not help us anticipate outcomes in cases before us accurately.
What is likely to work in such areas is an approach that is agnostic to Euclidean theory and seeks to capture the collective intuitions of the legal profession in that area. In other words, a heuristic shortcut—a guide which allows lawyers access to theoretical insight enough to predict outcomes accurately in cases while letting the philosophers slog it out endlessly on the ultimate basis and axioms. Fortunately for us, one such heuristic short-cut is readily available when it comes to frustration and that is of a ‘common mistake’—which will come to, shortly.
There are three divisions into which frustration cases fall: 1. Impossibility of performance; 2. Illegality of performance and; 3. ‘Frustration of the object’ underlying performance. Of these, impossibility and illegality are fairly straightforward in their application. As we shall see, no definitions are required to detect cases of impossibility or illegality. The trickiest cases, by far, are those of ‘frustration of object’ and it is precisely here that finds the point of departure for theory-spinning and logic-chopping. As Atiyah notes, the cases of ‘frustration of object’ closely mimic the logic of ‘common mistake’ (fundamental mistake) cases with a result that applying this test serves as a handy predictive mechanism [Atiyah op cit 185]. Here we will deviate from the common academic practice of keeping mistake and frustration separate [Edwin Peel, Treitel: The Law of Contract (14th ed. Sweet and Maxwell 2015) pp.19-121] and seek to understand frustration cases (only those in the third category of ‘frustration of purpose’) through the lens of mistake.
There are other distinct advantages to taking this route in addition to the superiority of its predictive power. Firstly, frustration of object or purpose is only too easy to misunderstand, for in a large number of cases which come up before courts, the object of one of the parties to that contract would have taken a hit; but it takes the ‘common object’ or ‘common purpose’ to be knocked out for there to be frustration, which is much rarer. As Viscount Haldane had put it, the change ought to be ‘so sweeping that the foundation of what the parties are deemed to have had in contemplation has disappeared’ such that ‘contract itself has vanished with that foundation [Tamplin SS v Anglo Mexican Petroleum [1916] 2 AC 397, 406-407].’ Secondly, the language of ‘radical difference’ is inherently vague and could easily be mistaken to apply to cases of ‘commercial impracticability’ which on a spectrum are nowhere near the English law’s criteria of frustration [Treitel op cit pp.19-032-033]. This is rather like giving ‘animal at least twice the size of a fly’ as a crossword clue for ‘elephant’ [The image is from Simon Blackburn, Spreading the Word (Clarendon Press 1984)]. Anchoring frustration to common mistake keeps us from being misled by the vagueness of these terms and finding too many ‘false positives’ for frustration. Finally, ‘mistake’ and ‘frustration’ are twins conjoined at birth. Both of them came into English law in rapid succession in the middle of the 19th century having been imported from civil law and having as their provenance the ‘will theory’.[1]
The inaugural frustration (impossibility) case of Taylor v Caldwell rested the decision on the idea of a continued common assumption of the parties about the existence of the hall (which was destroyed by fire hence making the contract incapable of performance). This idea continues to feature prominently in later cases where the logic of impossibility was extended to ‘frustration of purpose’ cases—the question whether parties have contracted ‘on the footing that a particular thing or state of things would continue to exist’ [Tamplin [1916] 2 AC 403, 404]. Had the hall already been destroyed unbeknownst to parties, at the time of entering the contract, the contract would be void for common mistake [Further, the fusion of the two concepts can also be seen in the case of the famous coronation cases]. If the parties’ assumptions about a contract turn out to be different ‘from the state of things at the time of formation’ the case is regulated by the doctrine of mistake [Mindy Chen Wishart, Contract Law (5th ed. Oxford University Press 2012) 251]. If the parties’ assumptions turn out to be different from ‘state of things as they turned out to be’ frustration kicks in [Mindy Chen Wishart, Ibid.]. The only difference is as to timing [E. McKendrick, Contract Law: Text, Cases and Materials (6th ed. 2012) p.516; Chen-Wishart (n20) p.285]. Indeed, mistake too, can be summed up by pointing out ‘I did not agree to that [Chen-Wishart (n20) p.252].’
B. English Law
Basic Principles
What is known as the doctrine of frustration encompasses impossibility, illegality and frustration of purpose. Frustration pleas are most successful when it comes to impossibility and illegality. Impossibility and illegality, as we shall see, are relatively easier to identify and unsurprisingly also the clearest to apply since the cases here are the most successful. Bingham LJ’s summary of key principles of the doctrine of frustration in J. Lauritzen A .S. v. Wijsmuller
B. V. (The Super Servant Two) [1990] I Lloyd’s Rep 1 is widely regarded as authoritative:
1. ‘Since the effect of frustration is to kill the contract and discharge the parties from further liability under it, the doctrine is not to be lightly invoked, must be kept within very narrow limits and ought not to be extended.’
2. ‘Frustration brings the contract to an end forthwith, without more and automatically’
3. ‘The essence of frustration is that it should not be due to the act or election of the party seeking to rely on it’.[2]
4. ‘A frustrating event must take place without blame or fault on the side of the party seeking to rely on it’
Firstly, the strictures about ‘narrow’ limits of frustration are directed at the third limb of the doctrine of frustration, namely, ‘frustration of purpose’.[3] It is not directed at the first two limbs, namely, impossibility and illegality. Impossibility and illegality are relatively easier to detect and apply. The marginal or partial cases of impossibility and illegality would be pushed into the third category and adjudged for ‘frustration of purpose’.
Secondly, it might be useful to treat points 3 (self-induced) and 4 (fault) as eliminative conditions to be posed at the very start of enquiring if there is frustration. No further enquiry into frustration is called for if these are present [See Chen-Wishart op cit p.287]. Lastly, the point (2) that frustration brings an end to the contract automatically applies equally to all three limbs of frustration. No power to mould relief by adapting a contract to changed circumstances and continuing it [See McKendrick (n23) p.44].
Academic consensus is that confines of frustration are ‘narrow’, its invocation rare [Hein Kotz, European Contract Law (2nd ed. OUP 2017) p.287], and that is ‘difficult to persuade the court to apply it’ [McKendrick op cit p.33]. The notion that there is an avalanche of dammed up valid frustration claims awaiting every unforeseen contingency of a serious magnitude must be moderated by the fact that previous earth shattering events, such as the World War-II or the Suez crisis have not produced any sizeable number of frustrated contracts [Treitel op cit 19-006]. But this pandemic might be a little different in that the imposition of lockdown makes it illegal to do a number of actions in many parts of the world therefore engaging the ‘illegality’and ‘impossibility’ rules in more cases than previous catastrophes did.
Illegality
Illegality is perhaps the easiest of the lot. Supervening prohibition of the very act promised in the contract will make the contract void for illegality. Although, we shall come to Indian law later, it might be pointed out that illustration (d) to section 56 of the Indian Contract Act, 1872 is particularly useful here:
‘(d) A contract to take in cargo for B at a foreign port. A’s Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.‘
In the leading English case of Fibrosa Spolka Ackcyjna v Fairbairn, Lawson Combe Barbour Ltd [1943] A.C. 32, the contract was discharged since the port of delivery came to be occupied by the enemy. Another case could serve as an illustration, subject to an important caveat. In Metropolitan Water Board v Dick Kerr [1918] A.C. 119, where early on in a six-year reservoir construction contract, builders were ordered by the Government to cease construction and dismantle the works on account of the World War, the contract was held discharged. The caveat: as Lord Dunedin pointed out, this was not a ‘clean case of illegality’ where the period of illegality coincides with the period of the contract. Accordingly, a case of this kind would be pushed into the third category and assessed for ‘frustration of purpose’. We shall return to this case under that category. The illegality here is one that arises under the law governing the contract. English law also recognises that illegality in the place of performance can frustrate a contract [Ralli Brothers v Compania Naveria Sota y Aznar [1920] 2 KB 287].
In the wake of COVID-19, this category is likely to play an important role. Where, due to lockdown regulations in play, if the very act promised is prohibited, it would be a ‘clean case of illegality’. It would continue to remain a ‘clean case of illegality’ if the prohibition in the place of performance coincides with the duration of the contract. The cases which are not clean cases of illegality would have to be assessed under the third category here, namely, ‘frustration of purpose’.
Impossibility
The clean cases of impossibility, again, are relatively simple to pick out. The cleanest instance would be the total destruction of subject matter. The landmark case of Taylor v Caldwell ((1863) 122 ER 309) which inaugurated this field in English law, was a case of impossibility caused by the destruction of subject matter. The hire of music hall for a concert along with gardens surrounding it was discharged by the destruction of the hall by accidental fire. The fastidious student would note that this may not be a clean case of impossibility since the gardens were not destroyed by fire—thus pushing this case to the third category, to be assessed for ‘frustration of purpose’—but for our illustrative purposes, we shall continue to treat it as clean case of destruction.
The cognate of ‘destruction’, when it comes to personal services is death or incapacitating illness. Hence these too would be examples of impossibility. Hence if A contracts with B to perform at a theatre and is dead or too ill to stir on the day of the performance, we should have the cognate of destruction, namely, unavailability, and the contract should be discharged [Robinson v Davison (1871) 2 LR269]. As Crowder J’s interjected to point out, a contract to paint a picture is discharged by blindness as is (as Pollock CB pointed out in the same case) a contract to write a book by the insanity of the author [Hall v Wright (1859) 120 Eng. Rep. 695]. When it comes to the use of something, unavailability would have the same consequences as destruction. For instance, the requisition of a ship in Bank Line Ltd v Arthur Capel & Co [(1919) A.C. 435] discharged the charter party. The strict equivalent of destruction here, would be when the duration of unavailability coincides or is lesser than the duration of the contract. Where this is not the case, we enter the territory of ‘partial unavailability’ which would have to be adjudged under the third category for ‘frustration of purpose’.
There is one aspect of the law relating to common mistake that is likely to be relevance here in the case of impossibility cases. When two parties enter into a contract and the mistake is induced by the careless or reckless act of one of them, the contract will not be void for common mistake even if it turns out that the thing does not exist [McRae v Commonwealth Disposals Commission [(1950) 84 CLR 377: here mistake was induced by careless and reckless statements of the defendant’s employee]. It could be argued that if someone enters into a contract when the possibility of the pandemic was clearly in view (depending on the circumstances), and made no provision for it, might not be able to treat it as a frustrating event.
[continued here]
– Shiv Swaminathan
[1] The doctrine at its inception was known as impossibility. The term frustration came to be used after Jackson v Union Marine Insurance in 1874. On the evolution of the notion see: A.W.B. Simpson, ‘Innovation in Nineteenth Century Contract Law’ (1975) 91 LQR 247; and D. Ibbetson, A Historical Introduction to the Law of Obligations (Oxford: Clarendon Press, 1999) 220-244.
