Force Majeure and The Doctrine of Frustration – COVID 19

Introduction 

The doctrine of frustration and force majeure have become the common words of law in the time of global pandemic COVID 19. Section 32 and section 56 of Indian Contract Act, 1872 plays a major role in this. Spread of coronavirus transmission had consequence on almost every sector. Every contractual obligation including sponsorship contract is being affected by this pandemic situation it has not only affected India’s economy but also has a great impact on the top foreign economies as well. Talking about India’s Economy, The Indian Premier League (IPL ) has also been postponed. As we know every tournament and championship contains so many contract and there is also an agreement between every sport tournament so the question arises due to of this COVID-19 situation Will there be any lawful action against the party who is not able to perform contractual obligations by an aggrieved party? If the answer to this question is no then what is safeguarding them? The answer to 1st question is NO and the answer to next question is the thing which is safeguarding them is that – some exceptions are given under English as well as Indian law popularly known as doctrine of frustration and doctrine of force majeure.

Act of God or Force Majeure

Under contract law of force majeure is a provision which absolves the party from non-performance of contractual obligations which is caused due to circumstances or events out of the parties control and make the performance impossible. The example of such events include war, floods, drought or terrorist attack or any other natural calamities. Similarly the current situation i.e. coronavirus could be covered under natural calamities so the parties can claim a defence under force majeure. The Indian Contract Act,1872 nowhere expressly referred to force majeure. But section 32 and section 56 of the Indian Contract Act,1872 have relevancy in such a circumstance.

Sec 32 – INDIAN CONTRACT ACT, 1872

This section talks about the enforcement of contracts contingent on an event happening. If an event becomes impossible in itself then such event becomes void under this section. Illustration for better understanding is mentioned below.

• “A”, a person, contract with another person, “B”, that “A”will pay “B” if “B” marries “C”. If “C” then dies without marrying “B”. Now this contract becomes void.

Section 56 – INDIAN CONTRACT ACT, 1872

This section says that an agreement to do an impossible act is void in itself. And impossibility of contract or performance of contract is the central idea upon which the doctrine of frustration is based. Illustration for section 56 as mentioned below for clear understanding.

• “A”, a person contract to sell camel to “B” on 1st March 2020. But that horse died on 28 February 2020. They are for the previously made contract between the person “A” and “B” becomes void because the object of contract is not in existence.

Some specific situation in which doctrine of frustration applies are :

• Change of Circumstances
• Death or Incapacity of Party
• Government, Administrative or Legislative Intervention.

Supreme Court’s Opinion

The Supreme Court of India explained the ambit of Section 56 of ICA, 1872 in the case of Satyabrata Ghose v. Mugneeram Bangur and Co., 1954. The Court established a few principles in this decision. The court held that the word ‘impossible’ in Section 56 does not mean physical or literal impossibility. The court additionally held that if unforeseen events upset the very foundation upon which the parties entered their agreement, the contract can be said to be frustrated. So, in this case, war conditions were known to both the parties and while making the contract both the parties were aware of the difficulty. In such a situation, the requisition of property did not affect the root of the contract. Hence, the contract between Bangur and Ghose wasn’t possible due to the prevalent conditions of war. Bangur sought defense or protection under Section 56 of ICA,1872.

English Law Perspective

The roots of the common law doctrine of frustration come from the decision in the case Taylor VS. Caldwell, (1861-73). In this case it was held that if some unforeseen circumstance occurs during the performance of a contract which makes it impossible to perform, in the way that the fundamental basis of the contract requires, it need not be further performed. Prior to this decision, a contract had to be performed no matter what unforeseen events came. So, previously the law of contracts in England was extremely rigid.

How an Act qualified as Act of God ?

For any act to be classified as an act of God then such act must be of such nature – grave and sudden, unusual, extraordinary.

Conclusion

There is a legal maxim which is based on the doctrine of frustration: les non cogit ad impossibilia it means that “a man cannot be compelled by law to do what he cannot possibly perform”. Under Indian Law as well as  English Law there is no allowance to escape from any contractual obligation and any party still faces strict liability. So, force majeure and the doctrine of frustration play very crucial roles in non-fulfillment of performance of contracts. The ongoing COVID-19 pandemic meet the first situation making the doctrine of frustration or defence against the obligation to fulfil a contract. Therefore, the World Health Organisation also declared Coronavirus as an act of God and parties to contract can use COVID19 as a defence for protection against suffering from legal consequences.

Author: Shubham Sharma,
Delhi Metropolitan Education, I.P. University, 2nd Yr.