Decoding the Doctrine of Frustration: A Comprehensive Analysis

Introduction

“Les Non Cogit Ad Impossibilia” is a Latin legal maxim that outlines the primary principle in contract law stating that the law does not compel any person to do something impossible to perform. The maxim underlines the idea of the obligation of individuals to not be held accountable for the non-performance of their contractual obligations on the grounds of happening of unforeseeable events beyond their control. In contract law, this notion serves as a founding principle for the Doctrine of Frustration addressing the issue of contention when contracts are affected due to unforeseen circumstances making performance impracticable and radically different from what was originally agreed upon. The doctrine requires unanticipated events due to factors beyond the parties' control.

Historical Background and Evolution

Historically, the Doctrine of Frustration roots can be traced back to the English common law. The evolution of the doctrine backs to the concept of “absolute contract” in the English law of contracts. Under the concept of absolute contract, it was held that the parties to a contract are liable to perform their part of the contract even if it becomes challenging or unattainable due to factors beyond their reach. The same was seen in the case of Paradine Vs Jane (1647)[1], wherein the court ruled in support of the plaintiff that Jane was liable to pay rent despite that the farm was occupied and seized by the enemy forces, making it impossible for the defendant to generate income. However, this rigid approach was unjust to the aggrieved party clearly showing the careful consideration required for subsequent developments in contract law. The court for the very first time recognized that contracts could be frustrated by the occurrence of unforeseen events in the case of Atkinson Vs Ritchie (1809)[2]. The court upheld that the contract stands frustrated due to the outbreak of war between two countries making it difficult to load British ships in a foreign port. The landmark case of Taylor v. Caldwell (1863)[3] is also considered to have brought a significant change by laying the cornerstone on which the doctrine was built. The court established that when the subject matter of the contract is destroyed it becomes unsurmountable to perform the contract just like in the case of Taylor v. Caldwell (1863) wherein the rental of a music hall was destroyed by fire before the event could take place thereby marking the contract as frustrated.

The doctrine holds significance in Indian Contract Law[4] because it protects the parties from being obligated to compensate for unforeseeable activities, safeguarding the parties' interest, and their belief in justice and equity. The Doctrine of Frustration, as described in Section 56 of the Indian Contract Act, of 1872[5], applies when an unanticipated event occurs after the creation of a contract, rendering performance impossible, thereby essentially discharging the parties of their responsibilities.

The doctrine of frustration has been invoked in various landmark cases in India. One of them is Satyabrata Ghose v. Mugneeram Bangur & Co. (1954)[6], where the apex court gave the verdict for a land sale contract to stand frustrated in the event of the government requisitioning the properties during World War II.

Elements of Doctrine

• Unforeseen Effect

The Doctrine of Frustration arises only when the essential condition of occurrence of an unforeseeable event happens thereby making it unattainable to perform contractual obligations. The event of non-performance of the terms of the contract is beyond our reach and not due to their fault. This unforeseen event must also occur after the formation of the contract to attain the criteria. For instance, the events of the internal or external aggressions of war, natural disasters, or a sudden change in law can constitute unforeseen events.

• Impossibility of Performance

The key element of the doctrine lies in the notion of the impossibility of the performance of the contracts. The unforeseen situations must differ from what the parties have originally intended and render contract performance impossible. In addition to the stated element, the nature of the contractual obligations ought to be changed to invoke the doctrine The physical or legal impossibility of the contract adds to the element of the doctrine.

• No Fault of parties

The essential element necessitating the doctrine must be no fault or conduct of either party to the contract. The doctrine will not be invoked in case the parties are to blame or the event is self-induced. The event must be caused by external factors beyond one’s competence to evoke the doctrine and not negligence on the party's side.

Force Majeure and The Doctrine of Frustration

Force Majeure and The Doctrine of Frustration are closely intertwined and pivotal in the view of contract law which provides relief when unforeseen events are exhibited. Both doctrines address situations when parties to a contract are not held liable for the commitment of contractual obligation because of challenging and unattainable circumstances. Yet, they function differently within the legal landscape. Force Majure clauses majorly include provisions for non-performance of the act rendered unattainable and impossible by unanticipated events like the Act of God, the Queen’s enemies, or vis major to be excused at the side of parties from performing the contractual obligations. At the same time, The Doctrine of Frustration clause applies to cases where a contract becomes impossible to perform due to unforeseen events. The Indian Contract Act does not directly mention force majeure; nonetheless, it is acknowledged under Section 32[7], which addresses contingent contracts based on the occurrence of a potential unforeseen occurrence. In contrast, Section 56 of the same act addresses the doctrine of frustration. Force majeure is based on readily apparent contractual provisions, whereas the law of frustration allows a statutory remedy when such terms do not exist. Both principles provide justice while mitigating overly difficult circumstances by acknowledging the influence of unanticipated circumstances on contractual performance.

Energy Watchdog v Central Electricity Regulatory Commission & Ors (2017)[8]

The Supreme Court in the landmark judgment upheld that merely due to the high rise in prices of export of coal does not amount to an unforeseeable event amounting to be one of the factors for non-performance of the contract. A public notice was issued by Gujarat Urja Vikas Nigam Limited (GUVNL) and Haryana Utilities to seek bids for power supply. The parties selected Adani Enterprises for the delivery of the power supply and agreed to an agreement. Later due to the rise in prices of exports of coal from Indonesia, the Adani groups filed a petition to the Central Regulatory Electricity Commission requesting the board to discharge them from their liability on the grounds of doctrine of frustration. The case was then challenged in the Supreme Court after getting its refusal from the board. In this particular instance, the court ruled that the increase in the price of coal exports from Indonesia did not render the contract incapable of performance, and so the contract could not be frustrated.

The case deals with the intricacies of the interplay between force majeure and the doctrine of frustration. This landmark case provides light on how unforeseen events and contractual clauses are understood under Indian law.

a. Force Majeure

The Force Majeure clause was invoked by the petitioners as a justification for their inability to perform the contractual obligations of supplying electricity at agreed terms and conditions. The Supreme Court held that force majeure clauses must be strictly interpreted following the contract. The court also observed that force majeure clauses are particular to the events stated within the contract and emphasized that economic suffering alone does not constitute a force majeure occurrence.

b. Doctrine of Frustration

The Doctrine of Frustration was also invoked by the petitioners as a plea stating that the contract was frustrated under Section 56 of the Indian Contract Act. The Supreme Court upheld that for frustration to apply, performance must become physically or legally impossible, or substantially change the nature of the contract.

Conclusion

The doctrine of Frustration plays a crucial role in contract law and has been continuously playing a significant role, evolving ever since its implementation. It protects circumstances that could jeopardize contractual obligations. Protecting the sanctity of contracts and acknowledging the practical constraints that can render a contract is what is intended to achieve. Upholding the integrity and impartiality of contractual relationships by ensuring that the parties to a contract are not incorrectly punished for occurrences that are beyond their reach. However, it needs to be kept in mind that the mentioned keys have to be carefully considered by the practitioners in the field, and of course, by those who draft the contracts.

[1] Paradine v Jane (1647) Aleyn 26, 82 ER 897

[2] Atkinson v Ritchie (1809) 10 East 530, 103 ER 784

[3] Taylor v Caldwell (1863) 3 B & S 826, 122 ER 309

[4] Indian Contract Act 1872

[5] Indian Contract Act 1872, s 56

[6] Satyabrata Ghose v Mugneeram Bangur & Co (1954) SCR 310

[7] Indian Contract Act 1872, § 32

[8] Energy Watchdog v Central Electricity Regulatory Commission & Ors (2017) 14 SCC 80