An analysis on - "Force majeure"

'Force majeure (or vis major) and hardship are two concepts that govern situations of changed circumstances in international commercial contracts and an explanation how changed circumstances are regulated in India, making comparisons with these two concepts.'

Force Majeure means "bigger force". This clause is used in any contract to excuse a party from his/her liability, if some unforeseen event took place which was beyond the control of the parties. This clause helps the parties to get rid of their contractual obligations[1].

Quintessentially, force majeure clauses cover occurrences of events like a riot, strike, war, crime etc. or events which are Act of God i.e., natural disasters like earthquake, hurricane, flood, volcanic eruption etc. One most crucial aspect to remember is that force majeure clause excuses a party from performing his or her obligations if the party has exercised due care but has still failed to perform[2].

Hardship clause[3] in a contract is intended to cover cases in which an unanticipated event occur that fundamentally amend the equipoise of a contract leading to excessive burden being placed on one of the parties involved. Hardship is generally comprised by the presence of any of the three elements mentioned[4]: First, the situation should have arisen beyond the control of either party; self-induced hardship is not taken into consideration. Second, they must be of rudimentary character. Third, they must be entirely unexpected and non-capricious.

Hardship clauses convent'ionally agnize that parties are supposed to perform their contractual obligations even if events have made the performance more arduous than would rationally have been expected at the time of the peroration of the contract[5].

Hardship and Force Majeure share similar feature because both of them are concepts of risk allocation in a given contract. Both of them are equipped to cater situations involving a changed circumstance which utterly changes the complexion of the contract between the parties. Hardship and Force Majeure are the two exceptions of the cardinal benchmark PactaSuntServanda and meliorate its strictness. The difference between these two concepts is heightened when we take into consideration the situations that these are to deal with. Hardship Clause is for a situation where the execution by the suffering party has become arduous and difficult, but it doesn't become impossible, but Force Majeure is a situation where the performance of the contractual undertaking becomes impossible even if it is temporary. In addition to that, the motive behind the insertion of these two clauses is also different. Hardship clause is introduced in a contract to allow renegotiation and amendments to the contract in order to make the contract feasible to be performed in the current situation. In this case, the parties are willing to perform the contract. Whereas Force Majeure clause is inserted to deal with a situation where the performance of the contract becomes impossible, in this case, the intention of the parties is to terminate or suspend the contract.

An example of Force Majeure: suppose because of a typhoon a sea port is shut down, so the seller who was about to ship his goods using that port will now be unable to ship the goods. Now, this is an act of god and thus was something which was beyond the control of the seller. So the seller in such a situation can claim that he was unable to perform his part of the contract because of force majeure.

An example of Hardship: suppose Ankit enters into a contract with Shikha Private Ltd. Shikha Private Ltd is involved in the business of disposal of waste and is based in country C, for the purpose of arranging the storage of its waste. The contract provides for a Five-year tenure and fixed price based on per ton of waste. Four years after the conclusion of the contract, the Government of country C raises the prices of storing waste by eight times. In such a scenario Shikha Private Ltd may successfully invoke hardship, but only with respect to the one remaining year of the contract.

When it comes to changes in circumstances [6] India follows Doctrine of frustration. Protection under this doctrine is claimed, after the parties have entered into a contract, and then if because of events which were beyond their control, the whole purpose of the agreement is frustrated or make it very arduous or impossible, or even illegal to perform.

The doctrine of frustration is invoked in three circumstances [7]. First, when performance of the contract becomes impossible. Second, when performance of the contract becomes illegal. Third, when because of events beyond the control of the parties the whole purpose of the contract is defeated.

Doctrine of frustration is talked about in Section 56 of the Indian Contract Act which talks about agreements to do impossible acts.

Section 56[8] talks about two different scenarios which lead to impossibility of performance[9].

Initial Impossibility: an agreement to do any act which is impossible in itself is void: Let's understand this with an example: A enters into an agreement with B to build a house by magic. Since this is impossible to perform so it's void.

Subsequent impossibility: sometimes it's possible to perform the contract when it is made, but because of certain subsequent events the performance becomes impossible/unlawful. Let's understand this with an example: Suppose A enters into an agreement with B in context to the sale of Article: X, but later what happens the government made a law against the sale of such article.

In both the above-mentioned cases the contract becomes void.

Let's discuss the above-mentioned situations in the light of the case Taylor v/s Cladwell. In this case, the court held that there are two preconditions to apply this rule. First, the contract should be positive and absolute and second, it should not be subject to any condition either express or implied.

As per this case 'doctrine of frustration' comes to play when either the subject matter has disappeared or when the object that the parties had in mind cannot be materialized.

The Indian legal system has not yet adopted the Hardship concept. The Indian Legal system has to traverse to this doctrine. But since India is a member to UNIDROIT, so this doctrine will definitely hold persuasive value before the Indian Courts. But given the dynamic changes that the world is going through where companies around the world are burdened under contracts this doctrine will have immense importance. And adoption of this doctrine will also reduce the chances of future litigation.

Bibliography

Books Referred

  • J. Beatson, 'Anson's Law of Contract', Oxford University Press,(1998).
  • The Indian Contract Act, (1872).
  • Dinshaw Fardunji Mulla, 'The Indian Contract Act', Lexis Nexis, (2011).

Web pages

  • http://legaldictionary.net/force-majeure/
  • http://www.investopedia.com/terms/f/forcemajeure.asp
  • https://library.wlu.ca/sites/default/files/pdfs/tutorials/hsessay.pdf
  • http://www.ohrc.on.ca/en/iii-principles-and-concepts/3-grounds-discrimination-definitions-and-scope-protection
  • https://www.trans-lex.org/700700/_/icc-force-majeure-clause-2003-icc-hardship-clause-2003-icc-publication-no-650/
  • http://www.articlesbase.com/law-articles/impossibility-of-performance-s56-doctrine-of-frustration-indian-contract-act-3367853.html
  • https://www.lawteacher.net/free-law-essays/contract-law/doctrine-of-frustration.php
  • http://www.steptoe.com/f-260.html/

[1]http://legaldictionary.net/force-majeure/(as accessed on 22nd January 2017) 
[2]http://www.investopedia.com/terms/f/forcemajeure.asp(as accessed on 20th January 2017) 
[3]https://library.wlu.ca/sites/default/files/pdfs/tutorials/hsessay.pdf(as accessed on 20thJanuary 2016) 
[4]http://www.ohrc.on.ca/en/iii-principles-and-concepts/3-grounds-discrimination-definitions-and-scope-protection (as accessed on 19th December 2016) 
[5]https://www.trans-lex.org/700700/_/icc-force-majeure-clause-2003-icc-hardship-clause-2003-icc-publication-no-650/ (as accessed on 19th December 2016) 
[6]http://www.articlesbase.com/law-articles/impossibility-of-performance-s56-doctrine-of-frustration-indian-contract-act-3367853.html (as accessed on 22nd December 2016) 
[7]https://www.lawteacher.net/free-law-essays/contract-law/doctrine-of-frustration.php (as accessed on 22nd December 2016) 
[8] The Indian Contract Act (1872)
[9]http://www.steptoe.com/f-260.html/ (as accessed on 26thJanuary 2016)  

 

Ankit Ambasta 
on 24 October 2017
Published in Others
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