Force Majeure: A Green Horn in Testing Times of Covid 19; Flash In The Pan

“Force majeure” or vis major in Latin meaning "superior force", also known as cas fortuit in French meaning a fortuitous event; an inevitable accident.

In India, it is covered under ‘second para’ of Section 56 of the Indian Contact Act and is based upon the maxim “Lex non cogit ad impossibilia” law compels no one to do vain or impossible.

There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract, merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous. That is the law both in India and in England, and there is, and there is no general rule to which recourse may be had relying upon which a party may ignore the express covenants on account of an uncontemplated turn of events since the date of the contract – Supreme Court of India

“It is not hardship or inconvenience or material loss which brings about the principle of frustration into play. There must 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” - House of Lords

McCardie J. in Lebeaupin v Crispin [1920] 2 KB 714 said:
‘A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract. The effect of the clause may vary with each instrument.’

It operates as an express risk allocation mechanism between parties in situations that are beyond the parties' control. Examples include the outbreak of war, strikes and so-called Acts of God. Judges have agreed that strikes, breakdown of machinery, which, though normally were not included in “vis major” are included in “force majeure”. Where reference is made to “force majeure”, the intention is to save the performing party from the consequences of anything over which he has no control.

Common Law Rule of Contract 
A man is bound to perform the obligation which he has undertaken and cannot claim to be excused by the mere fact that performance has subsequently become impossible.

The three theories expounded by the English Courts
1.    In F.A. Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum Products Co. Ltd. [(1916) 2 AC 397] where Lord Loreburn stated:
“It is in my opinion the true principle, for no 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'.”

2.    Lord Watson while deviating with the first story said in Dahl v. Nelson, Donkin & Co. [(1881) 6 AC 38] in the following words:
“The meaning of the contract must be taken to be, ‘not what the parties did intend’ (for they had neither thought nor intention regarding it), but that which the parties, as fair and sensible men, would presumably have agreed upon if, having such possibility in view, they had made express provision as to their several rights and liabilities in the event of its occurrence.”

3.    Denning, L.J. in British Movietones Ltd. v. London and District Cinemas Ltd. [(1951) 1 KB 190] expounded this theory as follows:
“Even if the contract is absolute in its term, nevertheless, if it is not absolute in intent, it will not be held absolute in effect. The day is done when we can excuse an unforeseen injustice by saying to the sufferer, ‘It is your own folly. You ought not to have passed that form of words. You ought to have put in a clause to protect yourself.’ We no longer credit a party with the foresight of a prophet or his lawyers with the draftsmanship of a Chalmers.”
   
The House of Lords differed with the third theory in Davis Contractors v. Fareham U.D.C. [(1956) AC 166] and said the following words:

“Frustration occurs whenever the law reorgnises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would tender it a thing radically different from that which was undertaken by the contract.”

“It is not hardship or inconvenience or material loss which brings about the principle of frustration into play. There must 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.”

In an instructive English judgment, namely, Tsakiroglou & Co. Ltd. v. Noblee Thorl Gmbh [Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH, 1962 AC 93 : (1961) 2 WLR 633 : (1961) 2 All ER 179 (HL)] , despite the closure of the Suez Canal, and despite the fact that the customary route for shipping the goods was only through the Suez Canal, it was held that the contract of sale of groundnuts in that case was not frustrated, even though it would have to be performed by an alternative mode of performance which was much more expensive, namely, that the ship would now have to go around the Cape of Good Hope, which is three times the distance from Hamburg to Port Sudan. The freight for such journey was also double. Despite this, the House of Lords held that even though the contract had become more onerous to perform, it was not fundamentally altered.

In Sea Angel case [Edwinton Commercial Corpn. v. Tsavliris Russ (Worldwide Salvage & Towage) Ltd. (The Sea Angel), 2007 EWCA Civ 547 : (2007) 2 Lloyd's Rep 517 (CA)] , the modern approach to frustration is well put, and the same reads as under:

“111. In my judgment, the application of the doctrine of frustration requires a multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix or context, the parties' knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of the contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties' reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances. Since the subject-matter of the doctrine of frustration is contract, and contracts are about the allocation of risk, and since the allocation and assumption of risk is not simply a matter of express or implied provision but may also depend on less easily defined matters such as “the contemplation of the parties”, the application of the doctrine can often be a difficult one. In such circumstances, the test of “radically different” is important: it tells us that the doctrine is not to be lightly invoked; that mere incidence of expense or delay or onerousness is not sufficient; and that there has to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstances.”

The India Perspective 
The second paragraph of Section 56 has been adverted to in Satyabrata Ghose v. Mugneeram Bangur & Co. [1954 SCR 310: AIR 1954 SC 44], and it was stated that this is exhaustive of the law as it stands in India. What was held was that “the word “impossible” has not been used in the section in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose of the parties. If an untoward event or change of circumstance totally upsets the very foundation upon which the parties entered their agreement, it can be said that the promisor finds it impossible to do the act which he had promised to do.”

In Naihati Jute Mills Ltd. v. Khyaliram Jagannath [ (1968) 1 SCR 821 : AIR 1968 SC 522] , the Supreme Court went into the English law on frustration in some detail, and then cited the celebrated judgment of Satyabrata Ghose v. Mugneeram Bangur & Co. [1954 SCR 310 : AIR 1954 SC 44] and concluded that a contract is not frustrated merely because the circumstances in which it was made are altered. The courts have no general power to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events.

In Alopi Parshad & Sons Ltd. v. Union of India [(1960) 2 SCR 793: AIR 1960 SC 588] , the Supreme Court, after setting out Section 56 of the Contract Act, held that it is only when a consideration of the terms of the contract, in the light of the circumstances existing when it was made, showed that they never agreed to be bound in a fundamentally different situation which had unexpectedly emerged, that the contract ceases to bind. It was further held that the performance of a contract is never discharged merely because it may become onerous to one of the parties.

In Mary v. State of Kerala, (2014) 14 SCC 272, the Supreme Court held that the doctrine of frustration excludes ordinarily further performance where the contract is silent as to the position of the parties in the event of performance becoming literally impossible. However, in our opinion, a statutory contract in which party takes absolute responsibility cannot escape liability whatever may be the reason. In such a situation, events will not discharge the party from the consequence of non-performance of a contractual obligation. Further, in a case in which the consequences of non-performance of contract is provided in the statutory contract itself, the parties shall be bound by that and cannot take shelter behind Section 56 of the Contract Act, 1872.

To summarise – The devil is, as they say, in the detail. Exercise the utmost caution which applying Force Majeure. It is not a receipe for every cuisine, best expressed by an idiom ‘Flash in the Pan’ meaning something which disappoints by failing to deliver anything of value, despite a showy beginning. It is not a general rule and will not apply to every case.