Author: Parul Agarwal
INTRODUCTION
With the advent of the COVID-19 pandemic and the numerous restrictions it brought with it, many entities and other parties have found themselves struggling to fulfil the contractual obligations that they have entered into. These restrictions were in the form of complete lockdowns in countries all across the world, limits on the number of people gathering, and other such curbs that hindered normal business activities. Considering the fact that this is an unprecedented situation, which has, presumably, not been brought upon by any act of mankind, there have been attempts by parties to such contracts to look for a way out- majorly through the legal principles, namely, the Doctrine of Frustration, and Force Majeure.
It is aimed, through this article, to explore the extent of both these principles, both in their meaning as well as their possible application to the numerous such cases that have arisen out of the present global crisis.
THE DOCTRINE OF FRUSTRATION
According to Section 56 of the Indian Contract Act[1], when, under particular circumstances, it is rendered impossible or illegal under the law to go through with honoring a contract made in the past, the contract is declared void by the court. Such circumstances are what can be called – ‘the frustration’.
ASPECTS OF THE DOCTRINE OF FRUSTRATION[2]
- There are three conditions that must be fulfilled for this doctrine to be invoked- the presence of a valid contract between the parties, an unfulfillment of the contract (wholly or partly), and the inability of the fulfillment of the contract due to superseding circumstances.
- The issues that cause ‘frustration’ must not be caused by the promisor themselves, since this would lead to misuse of the doctrine.
- The process of determining whether or not the Doctrine can be applied to the case at hand depends both on the question of fact as well as law, with the former constituting the event that resulted in frustration and the latter to judge the eligibility for the doctrine to be applied.
- The event must be such that it defeats the mutual objective of both the parties to the contract and not just one of the two because otherwise, involving the Doctrine will mean unfair advantage to one party, at the loss of the other.
- After the contract is declared void as per this doctrine, all further actions to be performed as a part of the contract will now also cease to exist, i.e., the contract is void in its entirety.
The Doctrine of Frustration is usually applied in extreme situations only. Some of the factors that are necessary for a strong case to be made include- occurrence of the event after the contract comes into force, the essence of the contract being affected to its absolute depth, and that neither of the two parties are themselves responsible for the event’s occurrence. In addition to that, for the Doctrine to be given effect to, it is necessary that the performance of the contract is deemed completely impossible, and not just extremely difficult for one or both of the parties to carry out.
There is a lot of ambiguity regarding whether the effects of COVID 19 will be temporary, and if yes, then till what extent of time, which hence makes it difficult to judge the admissibility of pleas to invoke the Doctrine of Frustration. Moreover, although the pandemic as a whole seems to be an event of frustration, it is the effects of the pandemic that will be taken into consideration by the courts of law while deciding on the question of fact, and not the pandemic as a whole.
FORCE MAJEURE
As per Black’s Law Dictionary[3], force majeure can be defined as an event or force that cannot be foreseen and evited. This principle can be invoked only if such a clause is present in the contractual agreement. Usually, in such clauses, the situations in which events are qualified to be considered to be ‘force majeure’ are specified, and also the process to be adhered to in the event that it is to be invoked to excuse non-performance of the contract by the party.
ELEMENTS OF FORCE MAJEURE[4]
- It is the responsibility of the party that wants to claim Force Majeure to prove that the situation at hand indeed falls within the extent covered by the particular clause in their agreement. It could be an event, or a change in the legal regulations of the jurisdiction.
- It must be proven that this event has made it impossible for the party, through any means, to fulfil the obligations that they have entered into. The inability of the party to fulfill the contract must be complete, and not just partial, for the clause to stand.
- There must be evidence of reasonable attempts on the part of the party to alleviate the effect of the event that has occurred. All possible ways to avoid using the clause must be explored.
- The event in question must be the sole cause of the party being rendered unable to perform their commitment. There must not any other causes, even minor ones for that matter, which are not supported by the terminologies of the clause in the contractual agreement. If such a cause exists, then Force Majeure cannot be claimed.
- The procedure to be followed after such a situation is specified in the contract itself, and there is no law governing the same. It could involve suspending the contract for some time, or even termination of the contract in its entirety.
Application of Force Majeure to contracts during the COVID 19 era will depend on the manner in which the clause is prepared in the contractual agreements. The consequences flowing out of the pandemic are what will be considered to judge the admissibility of the clause, which means there is no blanket cover to all contracts that are operating in this era.
FRUSTRATION AND FORCE MAJEURE
While Frustration is a statutory remedy, Force Majeure is a contractual stipulation. This implies that the former is provided for by law, whereas the latter takes effect as a part of a clause under contractual agreements. If a Force Majeure clause is present in a contractual agreement, and its coverage is complete, then the party cannot take advantage of Frustration. Frustration can be invoked only if the Force Majeure clause is incomplete in its extent or is absent altogether. While Force Majeure is not specified expressly and properly by the law, unlike the Doctrine of Frustration, it is still hinted at in Section 32 of the Indian Contracts Act.[5]
CONCLUSION
Both the Doctrine of Frustration as well as Force Majeure can help parties out of any contractual obligations that have been made impossible for them to fulfill, due to external and uncontrollable circumstances. However, it is mostly Force Majeure that is explored first, with Frustration being considered as the last option. This is because Force Majeure, as spelled out in the agreement itself, can provide better-suited solutions to such issues, as compared to those ruled out in a court of law as per statutory provisions. Before deciding which principle should be argued to reap the maximum benefits, the provisions of the contractual agreement must be carefully looked into, along with the facts related to the event, and both should be weighed out with respect to the extent of both principles.
REFERENCES
[1] The Indian Contract Act, 1872.
[2] Vinay Reddy and Prakash N, ‘The Doctrine of Frustration: Its Development, Features and Anomalies’ (1999) 11 Student Advoc 86
[3] Henry Campbell Black and Bryan A Garner, Black’s Law Dictionary (West Publishing Company).
[4] Poorvi Sanjanwala and Kashmira Bakliwal, ‘What Is Force Majeure? The Legal Term Everyone Should Know During Covid-19 Crisis’ (The Economic Times, 2020) <https://economictimes.indiatimes.com/small-biz/legal/what-is-force-majeure-the-legal-term-everyone-should-know-during-covid-19-crisis/articleshow/75152196.cms> accessed 25 December 2020.
[5] The Indian Contract Act, 1872.