The “doctrine of frustration” and “force majeure” have become crucial facets of law in the time of the global pandemic, COVID-19, and have become crucial facets of contracts and accountability. Section 32 and section 56 of Indian Contract Act, 1872 play an important role in this.
Introduction:
The spread of Coronavirus had an enigmatic repercussion on almost every sector. Every contractual obligation including sponsorship contracts is being affected by COVID-19. It has not only affected India’s economy, but also affected other countries’ economies too like the United Kingdom. One sector most affected by this pandemic is the sports industry. Many championships and games scheduled this year including the UEFA European Championship and the Tokyo Olympic Games have been postponed from 2020 to 2021. The Indian Premier League (IPL) too has been postponed. As we should know, every tournament and championship contains so many contracts and there is also an agreement between every sport tournament comptroller and television broadcasters. So, due to the prevalence of this pandemic, will there be any lawful action against party who is unable to perform contractual obligations by an aggrieved party? If the answer to this question is no then what is safeguarding them? The answer to this question will be no because of some exceptions given under English as well as Indian law, popularly known as the doctrine of frustration and the doctrine of force majeure.
If any person is unable to perform any contractual duty, they will not be liable for not fulfilling those duties if they have a valid defense under the concept of force majeure or the common law doctrine of frustration.
Force Majeure or Act of God
Under contract law, force majeure is a provision which absolves a party from non-performance of contractual obligations which is caused by circumstances or events out of the parties’ control and makes performance impossible. These events may include war, floods, drought, civil unrest or terrorist attack, or sudden natural calamities. Covid-19 could effectively be covered under natural calamities and so parties can claim a defense under force majeure. This clause needs to be reexamined or else Covid-19 could be upheld for each and every contract.
The 148-year-old law, Indian Contract Act, 1872 controlling Indian contracts has not expressly referred to force majeure. But, Section 32 and Section 56 of Indian Contract Act, 1872 have relevancy in such a circumstance.
Section 32 of ICA,1872 talks about the enforcement of contracts contingent on an event happening i.e. contingent contracts to do or not do anything based on if an uncertain future event happens, cannot be enforced by law unless and until the event has happened. If an event becomes impossible in itself the event becomes void under this section. Here are some illustrations:
Illustration: 1) A, a person, contracts 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.
Illustration: 2) A, a person, makes a contract with another person, B, for buying B’s horse if A survives C. This contract of obligation cannot be enforced unless and until C dies in A’s lifetime.
Section 56 talks about agreements to do impossible acts: 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. And both these words are used as convertible expressions. Generally, Doctrine of Frustration can be applied in many cases but mostly applicable in two cases which are: 1) When the object of a contract becomes impossible to execute, or, 2) When any unforeseen event occurs which is beyond the control of the bound party and which makes the performance of the contract impossible. Here are some illustrations of Section 56:
Illustration: 1) A, a person, contracted to sell the horse to B on 1st January 2020. But the horse died on 31st Dec. Therefore, the previously made contract between A and B becomes void because the object of the contract is not in existence.
Illustration 2 is more relevant to the present context:
Illustration: 2) A, a resident of India, entered into a contract with B, a resident of another country i.e. China. Some portion of the contract was performed but a major portion was still to be performed and the Government of India declares war on China and suspends all transaction with China. After this the contractual obligation becomes void and party who is unable to perform his obligation can claim the defense of impossibility of contract.
There are some specific situations in which the doctrine of frustration applies:
• Change of circumstances: A contract will frustrate where circumstances arise which make the performance or fulfillment of contact impossible in the manner and the time contemplated.
• Death or incapacity of Party: A party to a contract is excused from performance of the contract if it depends upon the existence of the given person and that person dies or becomes too ill to perform.
• Government, Administrative or Legislative Intervention: A contract will perish when legislative or administrative intervention has so directly operated upon the specific performance of the contract as to change the contemplated conditions of fulfillment.
The ongoing Covid-19 pandemic meets the first situation, making doctrine of frustration a defense against the obligations to fulfill a contract. Hence, the World Health Organization declared Coronavirus an Act of God and parties to a contract can use Coronavirus as a defense or protection from legal consequences.
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, as insisting upon such performance would be unjust. 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.
The Supreme Court of India explained the ambit of Section 56 of ICA, 1872 in the case Satyabrata Ghose v. Mugneeram Bangur and Co., 1954. The Court established a few principles in this decision. The court held that he word ‘impossible’ in Section 56 does not mean physical or literal impossibility. And a contract will be held impracticable or impossible based on the purpose and object of the promissor. 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.
Does Spread of COVID-19 in the Aggregate Qualify as an Act of God?
For any act to be considered an Act of God, it must be unusual, extraordinary, grave and sudden such that it is very hard to foresee such a turn of events. Conclusively, COVID-19 cannot be considered an Act of God by the court. This is a decision the court will soon have to face.
Conclusion
On March 11, 2020, COVID-19 was declared a pandemic. This affects all the sectors across the country and various countries’ economies. In this scenario, force majeure will be the determining factor to understand the significance of these circumstances. The scenario of India in case of force majeure will vary from case to case depending on the facts and circumstances of each case. Under Indian Law and English Law both 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.
Lastly, I would like to end with a legal maxim which is based on the doctrine of frustration: “les non cogit ad impossibilia” which means “a man cannot be compelled by law to do what he cannot possibly perform.”
For more on COVID-19, see our special coverage.
Shailee Mishra is a second-year student at the University of Allahabad, Uttar Pradesh, India
Suggested citation: Shailee Mishra, The Importance of Force Majeure and the Doctrine of Frustration in Covid-19, JURIST – Student Commentary, May 5, 2020, https://www.jurist.org/commentary/2020/05/shailee-mishra-force-majeure-covid-19/
This article was prepared for publication by Tim Zubizarreta, JURIST’s Managing Editor. Please direct any questions or comments to him at commentary@jurist.org
