Interpretation of Doctrine of Frustration & Force-Majeure Clause
There is always a sense of confusion when it pertains to Doctrine of Frustration and clause of Force –Majeure in an operating contract. This ambiguity sometimes brings either of the parties of the agreement, to the court of law and brings an end to the contract. Therefore both Doctrine of Frustration and clause of Force-Majeure is thoroughly analyzed and interpreted herein.
Force-Majeure Clause: A contractual provision allocating the risk if performance becomes impossible or impracticable as a result of an event or affect that the parties could not be anticipated or controlled .The expression “Force Majeure” is the intention to save the performing party from the consequences of anything of the nature stated above or over which he has no control.
The requirements of Force-Majeure are:
(a) It must proceed from a cause not brought about by the defaulting party’s default.
(b) The cause must be inevitable and unforeseeable.
(c) The cause must make execution of the contract wholly impossible.
The Force Majeure clause should be construed with a close attention to words which precede or follow it, and with regard to the nature and the general terms of the contract. Therefore, the words “any other happening” in such a clause must be given ejusdem generis construction so as to engulf within its folds only such happenings and eventualities which are of the nature and type illustrated in the same clause with close attention to the nature and terms of the contract and would not reasonably be within the power and control of the party.
Where reference is made to Force Majeure, the intention is to save the performing party form the consequences of any thing over which he has no control. This is the widest meaning that can be given to Force Majeure’.
Frequently, a number of events are specified and then followed by the words’ or any other causes beyond our control’. Such general words in a commercial document are prima facie to be construed as having their natural and larger meaning. Clauses which excuse performance in general terms as may be construed as Force Majeure clauses. Thus, a clause in a contract of sale which provides that the date of delivery is approximate only, and that the seller is not to be responsible for any delay or non-delivery, does not confer upon him an absolute discretion whether to deliver or not and so render the contract nugatory, but only to excuse him if non-delivery is due to a cause outside his control. In the absence of a clear intention to the contrary, a Force Majeure clause will not be construed to cover events brought about by a party’s negligence or willful default.
A Force Majeure clause which is prefaced by such words as ‘while ever effort will be made to carry out this contract” will be rendered nugatory unless the party relying on it has in fact made reasonable efforts to ensure that the contract is performed.
Doctrine of Frustration is defined in Section-56 of Indian Contract Act, 1872.
Section 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.
The Doctrine of Frustration is really an aspect or part of law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of Section- 56.
Section 56 of the said act lays a positive rule relating to frustration and does not leave the matter of frustration to the court to be determined. There can be no agreement on altered circumstances and it has also been held that if consideration of the terms of the contract in the light of the circumstances when it was it was made shows that the parties never agreed to be bound in a fundamentally different situation which unexpectedly arises the contract ceases to bind at that point, not because the court in its discretion considers it just but on true construction it does not apply in that situation.
The Doctrine was first developed in English Law when it was stated ‘In common rule of contract was that a man was bound to perform the obligation, which he had undertaken, and could not claim to be excused by the mere fact that performance had subsequently become impossible ; because the party could expressly provide in their agreement, the upon fulfillment of a condition or occurrence of an event, either or both of them would be discharged of some or all of their obligations under the contract. Then in 1863, the decision of the Queen’s Bench in Taylor v Caldwell introduced an exception to this rule by using the device of implying of a term; and where the plaintiff had sued the defendant for damages for breach of contract.
Frustration signifies a certain set of circumstances arising after the formation of contract, the occurrence of which is due to no fault of either party and which render performance of the contract by one or both parties physically and commercially impossible. Where the entire performance of a contract becomes substantially impossible without any fault on either side, the contract is prima facie dissolved by the doctrine of frustration.
The law excuses further performance under the doctrine of frustration, where the contract is silent as to the position of the parties in the event of performance becoming literally impossible or only possible in a very different way from that originally contemplated.
The doctrine of frustration operates from further performance where:
(a) It appears from the nature of the contract and the surrounding circumstances that the parties have contracted on the basis that the fundamental thing or the state of things will continue to exist, or that some particular person will continue to be available, or that some future event, which forms the basis of the contract, will take place.
(b) Before breach an event in relation to the matters stipulated in.
(c) Renders performance impossible or only possible in a very different way from that contemplated, but without default of either party .
The doctrine of frustration is an aspect and part of law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done, and hence comes within the purview of the said Section . But it is also stated to perform an important function of defining the scope and extent of contractual obligations. The Doctrine of Frustration and Clause of Force-Majeure are different when it is brought in terms of a Agreement but when it is seen together in Section- 56 of Indian Contract Act, 1872 it appears the same.
Definition by Black’s Law Dictionary.
Serajuddin Vs State of Orissa, AIR 1969 Ori 152
Serajuddin Vs State of Orissa, AIR 1969 Ori 152
Dhanrajmal Govindram Vs Shamji Kalidas and Co, AIR 1961 SC 1285
Satyabrata Ghose Vs Mugneeram Bangur, AIR 1954 SC 44
Shyam Biri Works Pvt. Ltd. Vs U.P Forest Corporation, AIR 1990 SC 205
Paradine Vs jane (1647) Aleyn 26.
122 AER 309
Halsbury’s Laws of England, fourth edition, Vol 9, Para 450.
Naihati Jute Mills Ltd Vs Khyaliram Jagannath, AIR 1968 SC 522.
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