INTRODUCTION
No one ever imagined the present-day world to
be a reality one day! All of us might have seen a number of sci-fi movies which
revolved around corona like pandemics but who thought that the reel and
real-life differences will become so bleak one day that we won’t be able to
distinguish. The world today revolves around – sanitizers, social distancing,
face masks and lockdown.
Lockdowns have brought about a devastating
effect on the national economy as well as the life of every citizen but have
you ever thought what impacts do these lockdowns have on the contracts and
their performances? In this article, we will discuss the two major principles
which govern the contracts during these times of distress- the doctrine of
frustration and force majeure. For a
better understanding, let us look at a brief timeline of the national lockdown
which the country has been under since March’20 after the World Health
Organisation (WHO) officially declared coronavirus/covid-19 as a pandemic on
March 11, 2020:-
14
March 2020: The Government of India declared
COVID-19 as a "notified disaster".
22
March 2020: Nation observed 22-hour voluntary
curfew on the appeal of PM.
24
March 2020: The Government of India ordered a
nationwide lockdown for the next 21 days.
14
April 2020: Lockdown extended till 3rd
of May, with a conditional relaxation after 20th April for the
specific regions where the spread of the virus was under control.
01 May
2020: GOI extends the lockdown further by two weeks
until 17 May.
12 May
2020: PM announces economic relief package with the
aim of Self-reliant India.
17 May
2020: The lockdown was further extended till 31 May
by the ‘National Disaster Management Authority’.
30 May
2020: The ongoing lockdown further extended till 30
June in containment zones, with services resuming in a phased manner starting
from 8 June. It is termed as "Unlock 1".
Now, when we think about the obstruction and
hindrance presented in the performance and fulfilment of various commercial
contracts due to covid-19, two major legal concepts need to be highlighted,
namely- the doctrine of frustration and force
majeure. In this part of the article, we will try and understand these
concepts and in the later parts, further topics like correlation and their
application in the suits filed in courts will be dealt with.
The term ‘force majeure’ has been defined in
Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated
nor controlled. It is a contractual provision allocating the risk of loss
if performance becomes impossible or impracticable, especially as a result of
an event that the parties could not have anticipated or controlled.’
What if a contract doesn’t include a force
majeure clause?
If a contract does not include a force majeure
clause, the parties would have to ascertain in light factors such as the nature
of the contract, the nature of the event and so forth, as to whether Section 56
of the Contract Act (which deals with agreements between the parties to do an
impossible act) and which has been briefly discussed below, can be applied to
such contract so as to discharge the parties from their contractual
obligations.
The doctrine of frustration comes into action
in these two situations- first where the performance is physically cut off, and
second where the object has failed. The SC of India has held that the section
56 will apply to both kinds of frustration[1].
For better justification, many explanations
have been put forward for the doctrine of frustration as a part of the law of
contract. Most well-known theories are- theory
of implied term and just and
reasonable solution, but these theories are not applicable under Indian
laws as the Supreme Court justice B.K. Mukherjea said in the case of Satyabrata
Ghose v Mugneerma Bangur & Co.,[2] “These differences in the way of
formulating legal theories really do not concern us so long as we have
statutory provision in the Indian Contract Act. In deciding cases in India, the
only doctrine we go by is that of supervening impossibility or illegality as
laid down in section 56 of the Contract Act, taking the word ‘impossible’ in
its practical sense and not literal…”.
There are specific grounds of frustration and
some of the well- established grounds are-
· Destruction of subject
matter
· Change of circumstances
· non- occurrence of the
contemplated event
· Death or incapacity of
a party
· Government,
administrative or legal interference
· Application to leases
It has to be taken into notice that only a few
of these grounds are applicable during the present conditions put forward due
to the coronavirus outbreak. One of the grounds being ‘change of circumstances’
gels to the legality of the current subject-“where circumstances arise which
make the performance of the contract impossible in the manner and at the time
contemplated”[3].
Sometimes the performance of a contract
remains entirely possible, but due to the non-occurrence of an event
contemplated by both parties as the reason for the contract, the value of
performance is destroyed
.
Similarly, a contract will be dissolved when
legislative or “administrative intervention has so directly operated upon the
fulfilment of the contract for a specific work to transform the contemplated
conditions of performance. The effect of an administrative intervention has to
be viewed in regard with the terms of the contract, and if the terms show that
the parties have undertaken an absolute obligation regardless of administrative
changes, they cannot claim to be discharged[4].
Claims under this situation- quantum meritum claims.
A well-known English law doctrine of quantum meritum has been allowed by the
courts under this section. The Supreme Court observed in State of Madras v
Gannon Dunkerley & Co.[5]
that a claim for quantum meritum is a claim for damages for breach of
contract. The value of the material used or supplied is a factor which
furbished a basis for assessing the amount of compensation.
The Supreme court has passed a few recent
judgements concerning this sphere of contracts which shall be taken up and
scrutinized in the next part.
REFERENCES
[1]
AIR 1945 SC 44
[2]
AIR 1954 SC 44
[3]
Viscount Maugham in Joseph Constantine Steamship Line Ltd. V Imperial Smelting
Corp. Ltd., 1942 AC 154 (HL)
[4]
Naihati Jute Mills Ltd. V Khayaliram Jagannath AIR 1968 SC 522: (1968) 1 SCR
821
[5]
AIR 1958 SC 560
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