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Published : July 21, 2012 | Author : Vandana Jaiswal
Category : Contracts laws | Total Views : 21325 | Rating :

Vandana Jaiswal
Vandana Jaiswal, Student, 5th Year, Dr. Ram Manohar Lohiya National Law University

A force majeure clause relieves one or both parties from liability to perform contract obligations when performance is prevented by an event or circumstance beyond the parties’ control. Typical force majeure events may include fire, flood, civil unrest or terrorist attack. Force majeure is a term used to describe a "superior force" event. The purpose of a force majeure clause is two-fold: it allocates risk and puts the parties on notice of events that may suspend or excuse service.

Force majeure is present in common law as the doctrine of frustration of contract. This doctrine says that a contract will be frustrated if its fundamental purpose is destroyed. If this happens then the parties to the contract will be discharged from their obligations to perform the contract. Force majeure is some event which is unforeseen and unstoppable and which renders the performance of the contract impossible. The doctrine of frustration says that a contract’s performance will be rendered impossible because of some intervening or supervening event after the contract has been made. A lot of people while entering into contracts incorporate these force majeure clauses to be relieved from performance of all or part of their obligations on the happening of certain specified events beyond the control of the parties.

A party faced with an external occurrence or event that may make its performance under a contract impractical, onerous or even impossible might seek to argue that the contract has been frustrated. Under English law, frustration will result in the contract being terminated so that the parties are excused from further performance. However, in order for a contract to be frustrated, the event in question must be unforeseen, it must have occurred without the fault of either party to the contract and it must either make the contract’s performance impossible or it must destroy the fundamental purpose of the contract. The contract must also not contain a provision dealing with the supervening event, otherwise there can be no frustration on the basis that the contract has already allocated risk in terms of that occurrence.

The doctrine of frustration is present in S. 56 of the Indian Contract Act 1852. It says that any act which was to be performed after the contract is made becomes unlawful or impossible to perform, and which the promisor could not prevent, then such an act which becomes impossible or unlawful will become void. The Supreme Court pointed out that the doctrine of frustration could not be availed by the defendant when the non-performance of the contract was attributable to his own decision.

The doctrine of frustration comes into play when a contract becomes impossible of performance, after it is made, on account of circumstances beyond the control of the parties or the change in circumstances makes the performance of the contract impossible. The Court can give relief on the ground of subsequent impossibility if it finds that the whole purpose or the basis of the contract has frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was not contemplated by the parties at the date of the contract.

So it is seen that applicability of both force majeure and frustration of contract require a supervening event which is not foreseeable and is not attributable to either party too. If it is foreseeable then it will be a breach of contract and hence non-excusable. Also this supervening event must render the performance of the contract impossible in both the cases.

The source of the doctrine of frustration in English Law is the case of Taylor v. Caldwell. In this case it was held that when an opera house, which was rented for holding concerts was destroyed by fire, the contract was frustrated. This was because the very thing on which the contract depended on ceased to exist or if a certain thing happened. Thus it was held that for the doctrine of frustration it must be so that the nature of contract is such that it would not operate if a thing ceased to exist. Again in Krell v. Henry, where rooms were rented out along the route of the procession for the king’s coronation and the coronation was postponed due to the king’s illness, the contracts for renting out the rooms were held to be frustrated. This meant that the doctrine of frustration would also apply to cases wherein a certain thing did not happen.

The effect of both force majeure and the doctrine of frustration is that it leads to discharge of contract between the parties thus relieving them of their obligations under the contracts. Due to the apprehension that courts may not apply the concept of frustration of contract, parties incorporate force majeure clauses in their contracts thus specifically providing for relief from any liability in case of an event which may render of performance of the contract impossible. Again force majeure clauses may also provide for extension of time instead of relieving the parties from their obligations on the happening or non-happening of a certain event. This is the difference between force majeure and frustration of contract. So contracts which provide for shipment of goods from one place to another have such clauses which say that if goods are not delivered within a certain period of time then some additional time will be stipulated for delivery failing which the contract may be cancelled.

It is clear that if force majeure clauses are not incorporated in contracts between parties, and if there happens an event which makes the contract’s performance impossible, then the doctrine of frustration will be applied. This is because the said doctrine is applicable in case of events which happen after the contract is made and for which neither any party is responsible nor can they prevent it from happening. Thus in Syed Khursed Ali Vs. State of Orissa and Anr., there was no force majeure clause in the agreement between the parties. The performance of the contract later became impossible and unlawful as it depended on the granting of a certificate which was not granted by the government and the act was declared as unlawful. It was held that the petitioner would not be responsible for payment of any damages nor forfeiture of the security money deposited by him to the opposite party no. 2 as the doctrine of frustration as present in Section. 56 of the Contract Act 1872 would apply to the said contract/agreement. It was said that “it is clear from the facts of the case that the agreement entered into between the parties became impossible to perform as well as unlawful and, thus, amounted to of the same. 56 of the Contract Act, 1872, as quoted above, does not cover every case of which, neither of the parties is responsible. Giving regard to the nature and circumstances of the transaction and implied terms, no doubt is cast in the present case that the performance of the contract on the part of the petitioner became an impossibility and such impossibility can be brought within the fold of "force majeure".”(Para 12)

It was observed by the Hon’ble Supreme Court in Industrial Finance Corporation of India Ltd. Vs. The Cannanore Spinning & Weaving Mills Ltd. and Ors. that “It may be noticed here that the Statute itself has recognised the doctrine of frustration and encompassed within its ambit an exhaustive arena of force majeure under which non-performance stands excused by reason of an impediment beyond its control which could neither be foreseen at the time of entering into the contract nor can the effect of the supervening event could be avoided or overcome. The decision of the Court of Appeal in F.A. Tamplin Steamship Co. Ltd. v. Anglo Maxican Petroleum Products Co. Ltd. 1916 2 AC 397 (which stands quoted (with approval by this Court) in Naihati Jute Mills v. Khyaliram MANU/SC/0348/1967 : [1968]1SCR821 , seems to have settled the law on the same. Lord Loreburn in Tamplin Steamship stated:

"A court can and ought to examine the contract and the circumstances in which it was made, not of court to vary, but only explain it, in order to see whether or not from the nature of it the parties must have made their bargain on the footing that a particular thing or a state of things would continue to exist. And if they must have done so, then a term to that effect would be implied; though it be not expressed in the contract."

Lord Loreburn went on to observe:-
"It is in my opinion the true principle, for court has an absolving power, but it can infer from the nature of the contract and the surrounding circumstances that a condition which was not expressed was a foundation on which the parties contracted..... Were the altered conditions such that, had they thought of them, they would have taken their chance of them, or such that as sensible men they would have said, "if that happens, of course, it is all over between us."”(Para 40 and 41).

Further in V.L. Narasu carrying on business under the name and style of Narasu Pictures Circuit Vs. P.S.V. Iyer and Ors. it was observed that “Where it appears from the nature of the con-tract and the surrounding circumstances that the parties have contracted on the basis that some specified thing without which the contract cannot be fulfilled will continue to exist or that a future event which forms the foundation of the contract will take Place, the contract, though in terms absolute, is to be construed as being subject to an implied condition that if before breach, performance be-comes impossible without default of either party and owing to circumstances which were not contemplated when the contract was made, the parties are to be excused from further performance."

The result of the authorities, therefore, is that in the class of cases to which the doc-trine of applies, there will be implied in the contracts a condition that they will cease to be operative if the basis on which they rest disappears or becomes fundamentally altered. This, however, is a rule of construction and must yield to any contrary intention which the agreement might disclose.”

Hence in conclusion we can safely say that force majeure clauses help parties to avoid or lessen their obligations in case of a supervening event which is beyond their control and which is not attributable to them. In the same way if these force majeure clauses are not present in the contract then the concept of frustration of contract as present in the common law and recognized by the statuette (Sec. 56 Indian Contract Act) would operate to save the parties from any liability because of the non-performance of a contract due to a supervening event which was not attributable to any party.
# Herbert Smith, “Force Majeure: Is it a superior force?”, retrieved from http://www.herbertsmith.com/NR/rdonlyres/A693DB90-40E7-4BD4-B565-37B46F2D3AC1/0/Majeure_2.pdf on 4 April 2012.
# Richard Ruszat, “Force Majeure” retrieved from http://www.coveringcredit.com/business_credit_articles/Laws_and_Regulations/art338.shtml on 4 April 2012.
# INCE & Company, “Force Majeure clauses: their role in sale contracts” retrieved from http://incelaw.com/documents/pdf/Strands/International-Trade/force-majeure-clauses-sale-contracts.pdf on 4 April 2012.
# Ganga Saran v. Firm Ramchand Ram Gopal, AIR 1952 SC 9.
# Kesarichand v. Governor-General-in-Council (1949) Nag 718.
# Satyabrata Ghose v. Mugneeram Bangur & Company. (1954) S.C.R. 310.
# Naihati Jute Mills v. Khyaliram (1968) A.S.C. 522, 527.
# (1863) 3 B.& S. 826
# [1903] 2 K.B. 740
# AIR2007Ori56.
# AIR2002SC1841
# AIR1953Mad300

The  author can be reached at: vandanajaiswal09@legalserviceindia.com

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