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INTRODUCTION

The after-effects of Covid-19 and the lockdown have been drastic on the Indian Economy. It has led to financial slowdowns all over the world. As a result, many businesses are finding it difficult to fulfill their contractual obligations. This is where the defence of force majeure and doctrine of frustration come into play.

FORCE MAJEURE

Force Majeure means ‘greater force’ in French. It has not been defined in any statute, however, the Black’s Law Dictionary defines it 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”.

Clauses relating to Force Majeure are included in contracts to excuse the non-performance of contracts in case of the occurrence of events beyond the control of parties. These events include Acts of God like natural calamities, war, epidemics or pandemics, civil unrest, and many more. 

The Indian Contract Act, of 1872 (hereinafter referred to as The Act) does recognise Force Majeure explicitly. However, if a contract contains a clause relating to Force Majeure impliedly or expressly then it is governed by Section 32 of the Act. This section provides for contingent contracts i.e. those contracts which are contingent on the happening of an event. If a Force Majeure event occurs beyond the contract, then it will be governed by Section 56 of the Act which provides that a contract to do an impossible act is void.

• ESSENTIAL CONDITIONS FOR FORCE MAJEURE

1. The event must make the performance of the contract impossible
2. The event must be inevitable but does not include economic hardship
3. The happening of the event must be unpredictable.
4. The event must be a supervening event and not a result of the default of parties
5. All the conditions precedent to performance must be fulfilled.
6. Parties have fulfilled their duty to mitigate.

• EXCEPTIONS TO APPLICATION OF FORCE MAJEURE

1. Where there is negligence or malfeasance on the part of either party.
2. Where the act could not be performed by the party due to acts already contemplated.
3. Cannot be enforced where contracts have become commercially difficult to perform.

• CONSEQUENCES OF FORCE MAJEURE

1. Terminate the contract, or
2. Suspend the contract during the existence of a Force Majeure event, or
3. Waiver of damages or penalties for non-performance, or  
4. Change in consideration.

The terms of the contract and the Force Majeure clause usually determine the consequence based on the object aimed to be achieved by it.

• COVID-19 AS A FORCE MAJEURE EVENT IN INDIA

The Government of India on 19th February 2020 issued a memorandum via the Finance Ministry stating that Covid-19 will be treated as a natural calamity and come under the purview of force majeure and it may be invoked following the due process of law[1].

A group of Indian steel importers recently requested an injunction against the encashment of Letters of Credit in favour of South Korean exporters in the matter of Standard Retail Pvt. Ltd. and Ors. v. M/s. G. S. Global Corp & Ors.[2]. The Bombay High Court had the opportunity to address the issue of application of force majeure and doctrine of frustration in light of Covid-19. Even though "epidemics" was included as one of the circumstances that qualified as Force Majeure in this case, the Force Majeure clause only protected the suppliers from non-performance and not the importers. Although the vendors and exporters met their obligations, the importers argued that because of the nationwide lockdown and travel restrictions, the imported products could not be picked up. As a result, the supplier's contracts will be terminated due to frustration, and Letters of Credit won't be used.

However, the Court ruled that importers are not covered by the force majeure clause and that the letter of credit is a separate transaction unrelated to the underlying problem. It was further noted that the distribution of steel was classified as an essential service and that there were no movement restrictions on it according to notices and advisories issued by the Government of India. Furthermore, it was noted that lockdown is transient and only lasts for a short time, therefore it cannot be used as a defence against contract frustration. The Court declined to issue any interim reliefs for the aforementioned grounds.

In contrast, in the matter of Halliburton Offshore Services Inc. v. Vedanta Ltd. and Anr.[3] before the Delhi High Court. The petitioner asked for a one-week delay in the invocation of bank guarantees on the ground that the work will be finished within a week of the lifting of the lockdown. The argument against the plea was that it was only an afterthought and that there had already been multiple reminders delivered since 2019. Vedanta Ltd. argued that only significant fraud would warrant the granting of an injunction against the use of a bank guarantee. However, the Court observed that the invocation of a bank guarantee could be postponed even in situations where "irreparable injury" or "unique equities" existed. The COVID-19 outbreak and lockdown were considered to be a Force Majeure occurrence, beyond the control of any party, by the Court, and awarded an ad-interim injunction in the favour of Halliburton Offshore Services Inc.

Therefore, it can be concluded that Indian Courts applied the rule of Force Majeure based on the facts of each case. 

DOCTRINE OF FRUSTRATION

This doctrine is based on the legal maxim “Les non cogit ad impossibilia” meaning the law cannot compel a man to do something which he cannot perform. Its origin can be traced back to the English Law case of Taylor v. Caldwell[4]. If either party to the contract does not fulfill the obligation, then the other party is entitled to compensation. However, there is an exception to this rule under Section 56 of the Act. This allows the party to relieve its liability if it is unable to perform the contract due to an unforeseen circumstance. In such a case the contract becomes void. 

• ESSENTIAL CONDITIONS FOR THE DOCTRINE OF FRUSTRATION

1. There must be a valid contract between the parties.
2. There must be a part of the contract that is still to be performed.
3. It is impossible to perform the contract.

• EXCEPTIONS TO THE DOCTRINE OF FRUSTRATION

1. If the circumstance that has made the performance of the contract impossible is self-induced by the parties, then this doctrine would not apply.

• CONSEQUENCES OF DOCTRINE OF FRUSTRATION

1. The principle of Restitution under Section 65 of the Act is the consequence of the doctrine of frustration. It means that if a contract becomes frustrated, then any party who has received any consideration as part of the contract must return it to the party from whom it is received. 
2. The contract becomes void and parties are discharged of their liabilities. 

The court in the case of Govindbhai Govardhanbhai Patel v. Gulam Abbas Mulla Allibhai[5], took view over the term ‘impossible performance’ mentioned in Section 56 and stated that parties will be discharged if the performance of the contract becomes frustrated due to some inevitable event beyond their control.

DIFFERENCE BETWEEN FORCE MAJEURE AND DOCTRINE OF FRUSTRATION

If you view these two from the eyes of a common man, you would say there is no difference between them. However, these two are easily distinguishable from each other.

1. The doctrine of frustration is embedded in legal statutes like the Indian Contract Act, of 1872. Whereas, Force Majeure has no legal concept and can be enforced only if it is impliedly or expressly mentioned in the contract.
2. In the doctrine of frustration, the unforeseeable circumstance is directly linked to the impossibility of the parties performing the contract. Whereas, in Force Majeure, the parties to the contract predict a list of events that may allow the application of it.
3. On application of the doctrine of frustration, the performance of the contract becomes impossible and parties are discharged of their liabilities. Whereas, in Force Majeure, the performance may be suspended or postponed depending on the terms of the contract. 

CONCLUSION 

These two doctrines are often confused with each other and are overlapping to some extent. However, where Force Majeure is a contractual clause to save parties in case of the occurrence of events beyond the control of parties but explicitly or impliedly mentioned in the contract. On the other hand, the doctrine of frustration comes into play when the performance of the contract becomes impossible due to an unforeseen circumstance making the contract void.

Application of these by Indian Courts in recent cases has rescued several parties by not making them liable for the non-performance of the contract. Their applicability will be dependent on the terms of contracts, the application of cases to these provisions, and their interpretation by Courts.