Frustration and Force Majeure: A Guide for the Perplexed – Part III

[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 the final part 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). Part I and II are available here and here respectively.

C.  Indian Law

Received wisdom has it that section 32 of the Indian Contract Act (contingent contracts) deals with force majeure clauses and section 56 of the Act deals with frustration [Energy Watchdog v Central Energy Regulatory Commission (2017) 14 SCC 80 at para [34]]. The drafting history of the Act, however, clearly reveals that section 32 borrowed from civil law pertains to ‘suspensive’ conditions and not ‘resolutory conditions’—which is what force majeure clauses are. This smidgen of genealogical detail is unlikely to be of practical significance and hence is left for another occasion [see my forthcoming paper ‘Frustration and the Indian Contract Code: A Genealogy’—the genealogy series extends to published papers on privity, consideration, formation, and stipulated sums]. 

The point of departure for the law on frustration in India is section 56 of the Indian Contract Act, 1872, the relevant portion of which reads as under:

56. Agreement to do impossible act.—An agreement to do an act impossible in itself is void. 

Contract to do act afterwards becoming impossible or unlawful—A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

At the time the Act was drafted, Taylor v Caldwell (1863) had just been recently handed down and the English law was still wedded to the notion of ‘impossibility’—the paradigm of which was destruction of subject matter. When it came to personal contracts, the cognate of destruction was death or incapacity (e.g. blindness) [Hall v Wright, 1859 discussed above]. Accordingly, the draft code (1866) had illustrations about destruction (clause 28, illustration c on destruction of hall) and incapacity (clause 25, illustration b on singer losing voice through illness) & (clause 28, illustration d on blindness of painter). In 1871, Robin v Davison was decided which extended the rule to cases of temporary incapacity in a person which is to say a person being ‘too ill’ (piano player being too ill to perform). Robinson v Harman seems to be the source behind illustration (e) of section 56 (actor being ‘too ill to act’). The final Act dropped the permanent incapacity illustrations of ‘blindness’ and ‘losing voice’ presumably, since the illustration of a lesser incapacity would have, in any case, covered it. [for more on this, see my forthcoming paper ‘Frustration and the Indian Contract Code: A Genealogy’].

The point of going into this in some detail is two-fold. 

One, is to rule out the argument that section 56 of the Act or any of its illustrations were designed to support ‘frustration of purpose’. In 1872, the idea of ‘frustration of purpose’ was still some time away from blipping the radar—it came into English law only in 1874 in Jackson v Union Marine Insurance. Unsurprisingly, the Indian Contract Act does not provide for it. Early on, Pollock and Mulla pointed out (with reference to Krell v Henry) that the plain terms of section 56 could not extend to cases of frustration of purpose [Pollock and Mulla 1909 2nded. 254]. Pollock in his book on the English law of contracts, makes an identical point about s. 56 being ‘too narrow’ and ‘unsatisfactory’ since it fails to encompass cases of ‘frustration of purpose’ [ F. Pollock, Principles of Contract Law 9thed. 1921 p. 307]. Despite this, courts kept drawing on English law as Pollock himself notes, so that in practice, there was ‘no material divergence’ between English and Indian positions on this [ibid 307]. The Privy Council too recognised ‘frustration of purpose’ in Hurnandrai Fulchand v Pragdas Budhsen [(1923) 25 Bom LR 537 (PC)] (the doctrine was not applicable to the case at hand).

The other, is to point out that Mukherjea J’s dicta from Satyabrata Ghose v Mugneeram Bangur to the effect that everything in the modern doctrine of frustration (including frustration of purpose) is contained in section 56 and that English law on the point is only of ‘persuasive value only’ [para 12], is at best hugely exaggerated and at worst, a red herring [1954 SCR 310]. Mukherjea J’s judgment, in Satyabrata Ghose is itself steeped in English learning. Even before he comes to discuss any of the English cases [para 10 onwards] he begins with defining the scope of ‘impossibility’ in section 56 as being applicable ‘when change of circumstances totally upsets the very foundation upon which the parties rested their bargain’ [para 9]. But this, as alert students would spot, is nothing but the very definition of ‘frustration of purpose’ going back all the way to Jackson v Union Marine Insurance and Krell v Henry. And as Rammohan, Murugavelu, Ray and Parakh point out in a recent paper, the empty incantations aside, English law continues to be heavily relied upon by Indian courts in frustration cases [‘The Doctrine of Frustration under section 56 of the Indian Contract Act (2020) 4 Indian Law Review 85, 91]. For all practical purposes, then, the Indian law on frustration and force majeure is the same as English law. The differences that exist are, for the most part, cosmetic. For one, Indian courts hold that leases can never be frustrated [Dhruv Dev Chand v Harmohinder Singh AIR 1968 SC 2014] while English courts hold that they can hardly ever be frustrated [see Panalpina op cit]

The Indian law adopts the same posture in all the three elements of the doctrine of frustration—-impossibility, illegality and frustration of purpose:

1. The application of the doctrine of frustration, it has been held, ‘must always be within narrow limits.’ Energy Watchdog [para37] citing with approval Tsakiroglou v Noblee Thorl.

2. The doctrine of frustration has been held not to apply to self-induced acts ‘self-induced frustration… where the event which is alleged to have frustrated the contract arises from the act or election of a party.’ Boothalinga Agencies v Poriasami Nadar citing [Maritime National Fish v Ocean Trawlers [1935] AC 524].

3. The doctrine of frustration it has been held cannot apply to a foreseen risk [Energy Watchdog at [para 40].

4. Just like in English law, Indian law also holds that ‘when there is frustration the dissolution of the contract occurs automatically.’ Satyabrata Ghose v Mugneeram Bangur at [para 21].

5. Similar to English law, the supervening circumstances must leave behind a contract ‘radically differen[t]’ (in Energy Watchdog citing with approval Sea Angel] or ‘fundamentally different’ in Alopi Parshad v Union of India (1960) 2 SCR 793 at para (21)]. 

6. The supervening circumstances must ‘upset [] the very foundation of the contract’ at [para 9] Satyabrata Ghose [para 9]. Similarly, as Shah J put it in Naihati Jute Mills v Khyaliram, ‘parties must have made their bargain upon the basis that a particular thing or state of things would continue to exist’ [para 7].

There is also a clear endorsement of the approach towards obligation being a ‘different thing’ as opposed to being more onerous.

7. ‘There must’ as Shah J put it, ‘be a, change in the significance of obligation that the thing undertaken would, if performed, be a different thing from that which was, contracted for’ Naihati Jute Millsat [para 12]. In other words, there must be a ‘break in identity’ [Energy Watchdog quoting with approval, Sea Angel at [para 39]].

8. Noting that this is ‘law both in India and in England’ in Alopi Parshad, Shah J held that courts cannot ‘absolve a party merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous’ at [para 22]. 

9. In England as in India, a force majeure clause will pre-empt the application of the frustration if it makes provision for the contingency in issue [Energy Watchdog at para 45]. It follows that when the force majeure clause is not engaged either because of under-inclusion or the event being one of a kind that it could not foresee, the court’s jurisdiction to invoke frustration is not pre-empted.

What this brief survey reveals, in itself, should not come as a surprise. In a number of areas, Indian contract law has drawn heavily from English contract law. This is despite the fact that Indian contract law is governed by a code, namely, the Indian Contract Act, 1872 [see R.N. Gooderson ‘English Contract Problems in Indian Code and Case Law’ (1958) 16 Cambridge Law Journal 67]. In fact, as I have argued earlier, there have been areas where there is ample evidence that the drafters have wanted to move away from the English contract law in areas like consideration, privity, formation and stipulated sums. Despite this, the law in India has followed English law in all these areas.

What are the odds that courts in India would have moved away from English law on a point on which the code was silent? 

Much lesser than 42!

[concluded]

– Shiv Swaminathan

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