TABLE OF CONTENTS

1.

1. Introduction
2. Doctrine of Frustration
2.1 Definition
2.2 Essential Elements
2.3 Frustration under Indian Context
2.4 Effects of Frustration
3. Force Majeure Clause
3.1 Definition
3.2 Essential Elements
3.3 Effects of Force Majeure
4. Comparison of Doctrine of Frustration with Force Majeure Clause
5. Stand of the Court
5.1 CTI Group Inc vs. Transclear SA
5.2 Coastal Andhra Power Limited vs. Andhra
Pradesh Central Power

01
01
01
03
03
04
04
04
05
06
07
08
08
09

6. Conclusion
7. Bibliography

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INTRODUCTION

After the formation of a contract, certain change of circumstances makes contractual

performance illegal or impossible to perform 1. Doctrine of Frustration is a part of law where
discharge of contract occurs by reason of supervening impossibility or illegality of the act agreed
to be done. It was evolved to mitigate the rigour of the common laws insistence on literal
performance of absolute promises2. It lays down a positive rule of law and does not leave the
matter to be determined according to the intention of the parties. Frustration is a developing
concept; like negligence, its categories are never closed but are as wide as categories of human
1 Sir Jack Beatson, Andrew Burrows and John Cartwright, Ansons Law of Contract,
29th Edition, Page 473.
2 Ibid, 28th edn, (ed J.Beatson), Oxford University Press, New York, 2002, p. 530

conduct.3 Force majeure is one of the grounds to trigger off doctrine of frustration. A force
majeure clause in contract clause serves to deal with the risk of events which fall short of
frustration. Though the traditional rationale for force majeure clauses involved "unanticipated
events" and "impossibility" of performance, more recent practice has used force majeure
provisions as a broader risk allocation tool. Such clauses can be successfully employed to
recognized industry or project specific risks4.
In this project, the doctrine of frustration and its necessary elements are well explained. An inter
relationship between the doctrine of frustration and force majeure clause is studied and also the
difference in the applicability of both the doctrines are elaborately discussed. It seeks to illustrate
inter alia that the comparison between the doctrines of Force Majeure and Frustration is not akin
to two peas in a pod. The project also elaborately throws light on the opinion of the Court in
such circumstances with the help of various judgments given in recent cases.
2.

DOCTRINE OF FRUSTRATION
2.1 Definition
The Latin maxim referred to in the English judgment lex non cogit ad impossibilia also
expressed as impotentia excusat legem in common English acceptation means, the law
does not compel a man to do that which he cannot possibly perform 5. The essential idea upon
which the doctrine of frustration is based is that of impossibility of performance of the
contract. Frustration may be defined as the occurrence of an intervening event or change of
circumstances so fundamental as to be regarded by the law both striking at the root of the
agreement, and as entirely beyond what was contemplated by the parties when they entered
into the agreement.6

3 P.C Markanda, Agreements to do impossible act, Page 871.

4 Lowell A. Westersund, Q. C., FMC Law, Force Majeure Clauses In Construction
Contracts
5 Industrial Finance Corporation of India Ltd. V. Cannore Spinning and Weving Mills
Ltd., AIR 2002 SC 1841: (2002) 5 SCC 54.
6 P.C Markanda, Page 870.
1

Lord Radcliff in the eminent case of David Contractors Ltd vs. Fareham UDC7 opined the
following:
....frustration occurs whenever the law recognises that without default of either party, a
contractual obligation has become inapplicable of being performed because the
circumstances in which the performance is called for would render it a thing radically
different from that which was undertaken by the contract.'....It was not this that I promised to
do.
It means that when the concept operates, the event brings about the radical change that is
usually termed a frustrating event8. However, the mere fact that an event deprives a party to
a contract of benefits which were expected from its performance, or even renders
performance physically impossible, does not imply that the doctrine can be used as an excuse
for not performing, since a party may be found to have taken the risk of such an eventuality9,
or undertaken an absolute promise to perform.
There is no uncertainty as to the materials upon which the Court must proceed. The data for
decision, on the one hand, the terms and conditions of the contract, read in the light of the
then circumstances and, on the other hand, the events which have occurred. In the nature of
thing there is often no need for any elaborate enquiry. The Court must act upon a general
impression of what its rule requires. It is for that reason that special importance is necessarily
attached to the occurrence of an unexpected event that, as it were, going to change the face of
the things. But even so, it is not hardship or inconvenience or material loss itself which calls
the principle of frustration into play."10
7 [1956] AC 696 at 729. This principle was adopted in Australia: Codelfa
Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337,
41 ALR 367.
8 The concept may also operate where a series of events combine to make
performance radically different. Pioneer Shipping Ltd v. BTP Tioxide Ltd [1982] AC
724 at 738, 744.
9 Horlock v Beal [1916] 1 AC 486 at 525.
10 Davis Contractors Vs Fareham Urban District Council, [1956] A.C. 696
2

The doctrine of frustration is not a rule of positive or substantive law, but a rule which is
made applicable to interpretation of contracts to find out whether the contract has become
frustrated, that it has either become impossible of performance, and even if possible of
performance, has become useless and ineffective. The result is the parties to the contract are
discharged from their obligations under the contract.11
2.2 Elements
The doctrine of frustration is not applied on the ground that the parties themselves agreed to
an implied term which operated to release them from the performance of the contract. The
essence of frustration is that it should not be due to the act or election of the party and it
should be without any default of either party and if it was partys own default which
frustrated the adventure, he could not rely on his own default to excuse him from liability
under the contract.12 In order to establish that the contract has been frustrated, following
conditions must be satisfied:
(a) That the act should have become impossible;
(b) That impossibility should be by reason of some event which the promisor could not
prevent; and
(c) That the impossibility should not be self induced by the promisor or due to his
negligence.13
2.3 Doctrine under Indian Law
Section 56 of the Indian Contract Act, 1872 incorporates the doctrine of frustration which
relates to the performance of contracts which purports to deal with one class of circumstances
under which performance of a contract is excused on the ground of the contract becoming
void.14 It lays down the rule of positive law and does not leave that matter to be determined
11 G.A Galia Kotwala and Co. Ltd v. K.R.I Narsimhan, AIR 1954 Mad 119 (DB).
12 Lal Mohan Ghosh v. Ramanath Shaha, AIR 1954 Tri 17.
13 Gwalior Rayon Silk Mfg. (wvg) Co. Ltd v. Andavar & Co., AIR 1991 Ker 134; Hari
Singh v. Deewani Vidyawati, AIR 1960 J & K 91.
14 Journal of Indian Law Institute,Vol.37, No.4 (1995), p. 446
3

according to intention of the parties.15It does not deal with the cases in which an event, the
parties took it for granted will never happen does happen and makes the performance of the
contract impossible. If it be held that this section is exhaustive, no relief can be granted to
any of the parties on the happening of such an event, but this would be against the very
principle underlying the section. If the inability to perform the contract is due to the fault of
one of the parties, he cannot successfully plead frustration. It is also true that if the parties
expressly contract with reference to the occurrence of the supervening events, frustration is
inapplicable. But there is another type of case outside these rules. The parties when they
made the contract, may have foreseen the supervening event as probable, but may have made
no express provision with respect to it. If such event occurs, frustration can be pleaded16.

a.

2.4 Effect of doctrine of frustration

Contract frustrated automatically: The rule established at common law is that the
occurrence of the frustrating event brings the contract to an end forthwith and
automatically.17 It is not required that the either party to the contract take steps to

b.

rescind the contract, it automatically gets terminated on the happening of event.

Future obligations discharged: The effect of frustration at common law is to release
both parties from any further performance of the contract. All obligations falling due

c.

for performance after the frustrating event occurred are discharged.

Accrued obligations remain: Legal rights or obligations already accrued and due,
before the frustrating event occurred, are left undisturbed.

3.

FORCE MAJEURE CLAUSE

3.1 Definition
Force majeure has been defined as something occasioned by the elementary forces of
nature unconnected with the agency of man or other cause, and a common carrier is
entitled to immunity in respect of loss so occasioned if he can show that it could not have
been prevented by any amount of foresight, pains and care reasonably required of him. 18

15 Satyabrata Ghose v. Mugneeram Bangur & Co. (1954) SCR 310

16 G.V Ajjappa, Frustration of Contract: A Comparitive Study.
17 Hirji Mulji v. Cheong Yue Steamship Co Ltd (1926) AC 497 at 505
18 Nugent Vs Smith, (1876)1 C.P.D. 423
4

The expression force majeure19 is not a mere French version of the Latin expression "vis
major". Strikes, breakdown of machinery and such thing which though normally not
included in "vis major" are included in force majeure. Where reference is made to "force
majeure" the intention is to save the performing party from the consequences of anything
of the nature stated above or over which he has no control 20. Force majeure is a civil law
concept that has no real meaning under the common law. However, force majeure clauses
are used in contracts because the only similar common law concept - the doctrine of
frustration - has limited application, because for it to apply the performance of a contract
must be radically different from what was intended by the parties.21
3.2 Essential Elements
The party seeking protection of the force majeure clause in the contract is legally bound to
prove that he is entitled to be absolved of the contract obligations because of the supervening
event and that he could not have foreseen the event with due diligence and that despite all
care and caution could not have control over it.
The requirements of force majeure are:
a) It must proceed from a cause not brought about by the defaulting party's default;
b) The cause must be inevitable and unforeseeable; and
c) The cause must make execution of the contract wholly impossible.
The force majeure clause should be construed with a close attention to words which precede or
follow it, and with regard to the nature and the general terms of the contract. Bailhache J. in
Matsoukis v Priestman22 held that force majeure covered dislocation of business owing to a
universal coal strike and access to machinery, but not bad weather, football matches or a funeral.
In Lebeaupin v Crispin23 force majeure was held to mean all circumstances beyond the will of
19 Lebeupin v. Crispin, 1920 (2) KB 714
20 Serajuddin v. State of Orissa, AIR 1969 Ori 152: ILR (1969) Cut 93 (DB).
21 Damian McNair, Partner, Head of Finance & Projects, Asia Pacific Force majeure clauses,
Asia Pacific Projects update.

22 [1915] 1 KB 681 at 687

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man, and which is not in his power to control. Therefore, war, floods, epidemics and strikes
come under the ambit of force majeure.
The important caveat is that parties cannot invoke a force majeure clause if they are relying on
their own acts or omissions24. Additionally, the force majeure event must be a legal or physical
restraint and not merely an economic one25.
The Force Majeure Event to include:
a. act of God (such as, but not limited to, fires, explosions, earthquakes, drought, tidal
waves and floods26);
b. war, hostilities (whether war be declared or not), invasion, act of foreign enemies,
mobilization, requisition, or embargo27;
c. rebellion, revolution, insurrection, or military or usurped power, or civil war;
d. contamination by radio-activity from any nuclear fuel, or from any nuclear waste from
the combustion of nuclear fuel, radio-active toxic explosive, or other hazardous
properties of any explosive nuclear assembly or nuclear component of such assembly;
e. riot, commotion, strikes, go slows, lock outs or disorder, unless solely restricted to
employees of the Supplier or of his Subcontractors; or
f. facts or threats of terrorism.

23 Supra note 15
24 Supra note 21.
25 Yrazu v Astral Shipping Company (1904) 20 TLR 153 at pg 155;
26 Toepfer v Cremer [1975] 2 Lloyds Rep 118
27 Lebeaupin v Richard Crispin [1920] 2 KB 714 at pg 719
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3.3 Effects of Force Majeure

a. The affected party not in breach.

b. There is suspension of obligations.
c. Payment obligations are not excused.
d. Accrued liabilities are not excused.
e. There is termination after protracted Force Majeure.
f. In case of Construction Contracts, contractor entitled to extension of time and/ or
compensation. The price is fixed in the terms of the contract.
4.

FRUSTRATION COMPARED TO FORCE MAJEURE

English Courts opine28that when a contract has been frustrated, many international trade
contracts incorporate or trigger force majeure clauses. Force majeure is not an English law
concept but it can be applicable to contracts governed by English law where the parties have
incorporated an express force majeure provision in their contract. It provides that one or both
parties can cancel a contract or be excused29 from either part or complete performance of the
contract on the occurrence of a certain specified event or events beyond the parties control30.

28 INCE & Co, International Trade Force Majeure Clauses: Their Role In Sale Contracts, page
1.

29 Central Bank of India Staff Co. operation building society Ltd vs. Dulipalla
RAmchandra Koteswara, R
30 D. Yates, Drafting Force Majeure and Related Clauses, 3 JCL, 186 (1990-1991),
page 202.
7

Sometimes the force majeure clause will entitle one or both parties to suspend performance
or to seek an extension of time for performance. Therefore, unlike frustration, a force majeure
event will not always bring a contract to an end if the force majeure clause provides otherwise.
For example, many Gafta forms contain force majeure/strikes clauses which allow the seller to
serve a notice on buyers setting out that a delay is likely to occur in delivery or shipment of the
goods in question and, if necessary, seeking an extension of time. Where the delay in question
extends beyond thirty consecutive days, the buyers will then have an option to cancel the delayed
portion of the contract.
Another difference between frustration and force majeure is that English law does not prevent a
party from relying on an Force Majeure clause in relation to an event that existed at the time the
contract was concluded (so long as the Force Majeure event falls within its terms), whereas
frustration will only apply in relation to a supervening event. Furthermore, an event must have
been unforeseen in the case of frustration, whereas an Force Majeure clause can be relied on
even if the party relying on the Force Majeure event could reasonably have been expected to take
it into account at the time of entering into the contract 31. The effect of both force majeure and the
doctrine of frustration is that it leads to discharge of contract between the parties thus relieving
them of their obligations under the contracts. Due to the apprehension that courts may not apply
the concept of frustration of contract, parties incorporate force majeure clauses in their contracts
thus specifically providing for relief from any liability in case of an event which may render of
performance of the contract impossible. Again force majeure clauses may also provide for
extension of time instead of relieving the parties from their obligations on the happening or nonhappening of a certain event. This is the difference between force majeure and frustration of
contract. So contracts which provide for shipment of goods from one place to another have such
clauses which say that if goods are not delivered within a certain period of time then some
additional time will be stipulated for delivery failing which the contract may be cancelled32.
5.

STAND OF THE COURT IN DECIDING SUCH CASES

31 Ibid, pg 1.
32 Vandana Jaiswal, Interpretation of Doctrine of Frustration and Force Majeure
clause.
8

In the absence of a force majeure33 clause, the legal doctrine of frustration provides potential
recourse. It is invoked in situations where a contractual obligation has become incapable of being
performed (whether due to impossibility or impracticability). The mere fact that an event which
was not contemplated by the parties when they entered into the contract has occurred does not
amount to frustration34. It is the purpose of the contract which must be frustrated. Where
frustration occurs, the parties to the contract will be excused from their respective obligations by
the contract being brought to an end. The party seeking protection of the force majeure clause in
the contract is legally bound to prove that he is entitled to be absolved of the contract obligations
because of the supervening event and that he could not have foreseen the event with due
diligence and that despite all care and caution could not have control over it. There may be
certain situations where a party may not be extended protection of force majeure clause.
An agreement was made whereby one party agreed to construct a hydroelectric station on
a river and supply electricity to the other party, in return for his giving up rights over the river. A
subsequent law forbade the construction of such station except under Government authority.
Held, this did not amount to force majeure since it had not been alleged that the law has proved
an insurmountable obstacle to performance of the contract; the Government might have been
given permission for the work to be carried out, if asked. Accordingly, the proposed builder of
the power station was liable in damages35.
In CTI Group Inc vs. Transclear SA (the Mary Nour)36, the Court of Appeal affirmed an
earlier High Court decision where the defendant was held liable to CTI for failure to supply
cement as required under a contract. The source of Transclears cement stopped supplying the
company and alternatives could not be sourced. This was due to commercial pressure exerted by
33 Jane Hughes, James Dudbridge, retrieved from
http://www.collyerbristow.com/FileServer.aspx?oID=1452&lID=0, Collyer Bristow
firm, last visited on 30.10.2012.
34 British Movietonews Ltd v. Fareham UDC [1956] AC 696 at pg 715.
35 Kahn-Freund, Levy and Rudden, A Source Book on French Law (1973)413
36 [2008] WLR(D) 254
9

a third party Cemex, a state owned company that operated a cartel in the area. Transclear argued
that the contract with CTI had become frustrated because it was impossible to complete. The
actions of Cemex had prevented any chance of supply. The court did not agree, stressing that: (i)
the character of the performance remained the same and (ii) the choice of companies not to
supply was the result of normal pressures involved in a commercial climate. This case serves to
highlight the importance of specific provisions within a contract dealing with such events. One
crucial weakness in the doctrine of frustration is in its inability to include specific events that are
likely to be an issue. Force majeure clauses however, offer parties an opportunity to spell out
matters in more detail and to specify events. While force majeure is an ambiguous term, this
ambiguity is one of its benefits. It must be flexible 37 enough to cover events which are by their
very definition are unforeseeable. A well drafted force majeure clause along with a well
determined procedure for dealing with unexpected events will be of maximum benefit and will
provide the parties with a sensible, structured way to deal with serious unexpected events38.
In the case of Bhagwandas Metals Ltd vs. M/s Raghavendra Agencies, force majeure condition
stated that non availability of the relays is a force majeure condition beyond the control of the
defendants. Courts query was whether non-availability of the relays was a force majeure as
contended by defendants. It was stated in the contract that the panels shall be delivered within 5
months from the date of receipt of technically and commercially clear purchase order or receipt
of advance or drawing approval, whichever is later subject to force majeure conditions. The
plaintiff filed a case due to huge loss suffered by the non delivery of relays required for an
entire expansion program. Court relied on the case of Gaga Saran v. Ram Charan Ram Gopal 39
and held that the plaintiff was not entitled for damages and defendant could not supply relays
was a force majeure clause not doctrine of frustration.

37 Cricketwood Property and Investment Trust Ltd v. Leightons Investment Trust Ltd
[1945] AC 221 at 235, 241; National Carriers Ltd v Panlpina (Northern) Ltd [1981]
AC 675 at 701, 712.
38 Supra note 28, pg 2-3.
39 AIR 1952 SCC 9.
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In another case of Coastal Andhra Power Limited vs Andhra Pradesh Central Power 40, the
Petitioner CAPL was registered as a 100% subsidiary of the Power Finance Corporation ('PFC'),
filed a case on March 19, 2012. While bidding process was in progress, the power purchase
agreement was executed on March 23, 2007 between both the parties. At that stage, CAPL was
wholly owned subsidiary of the PFC. Reliance Power Limited ('RPL') bid for the project on the
basis of prevailing price of Indonesian coal quotations. RPL purchased the entire 100%
shareholding of CAPL from the PFC on 29th January 2008. On 8th April 2010 CAPL executed a
Fuel Supply Agreement ('FSA') with Reliance Coal Resources Private Limited ('RCRPL') which
had acquired interests in coal from coal mines in Indonesia for supply of coal to CAPL. The
price of coal in Indonesia rose from USD 24 PMT to USD 60 PMT. CAPL claimed that the
unavailability of fuel or dramatic increase in the cost of fuel was a force majeure event under
Article 12.4 of the Power Purchase Agreement. The sudden change of the foreign law was
according to CAPL not in contemplation of the parties at the time of entering into the Power
Purchase Agreement. CAPL further submitted that the change in Indonesian law was also a
change in the law contemplated under Articles 13.2 (a) and (b) of the Power Purchase
Agreement. CAPL was unable to persuade the Court to even prima facie hold that the escalation
in fuel price is a force majeure event providing it with the defence of non-performance of its
obligation under the Power Purchase Agreement. The Court opined that while the issue
concerning increase in price of the Indonesian coal and the consequent invocation of the force
majeure clause by CAPL may not be strictly construed as a dispute arising from a claim by either
party "for any change in or determination of the tariff or any matter related to tariff", it is not as
if the change in the price of coal will not affect the tariff at all. Therefore, the defendant was not
held liable as plaintiff could very well prove the invoking of the force majeure clause and time
extension was given to them to fulfill the terms of the contract.
6.

CONCLUSION

40 MANU/DE/2924/2012.
11

The doctrine of frustration41 is an aspect and part of law of discharge of contract 42 by reason of
supervening impossibility or illegality of the act agreed to be done, and hence comes within the
purview of the said section. But it is also stated to perform an important function of defining the
scope and extent of contractual obligations. If a project company decides it wants to include a
force majeure provision in its project agreements, the best way to limit the application of that
clause is by defining a closed list of events that constitute force majeure for that contract 43. The
Doctrine of Frustration and Clause of Force-Majeure are different when it is brought in terms of
an Agreement but when it is seen together in Section- 56 of Indian Contract Act, 1872 it appears
the same.
7.

BIBLIOGRAPHY
a. P. S Athiyah Law of Contract.
b. Chesire, Fifoot and Furmston Michael, Law of Contract.
c. Doughton Davis, Davis Martin, Contract Law.
d. D. Yates, Drafting Force Majeure and Related Clauses, 3 JCL, 186 (1990-1991).
e. Emdens Building Contracts And Practice, 8th Edn. Volume 1.
f. G.H Treitel., The Law of Contract, 13th Edn.
g. Kahn-Freund, Levy and Rudden, A Source Book on French Law
h. Lowell A. Westersund, Q. C., FMC Law, Force Majeure Clauses in Construction
Contracts.
i. M. A Sujan, Frustration of Contract, 2nd Edn.
j. Priyadrshi Satpathy, Interpretation of Doctrine of Frustration & Force Majeure
clause.
k. Sir Jack Beatson, Andrew Burrows, John Cartwright, Ansons Law of Contract, 29th
Edn., Oxford University Press.

41 Priyadarshi Debashis Satapathy, Interpretation of Doctrine of Frustration & ForceMajeure Clause. Retrived from http://www.legalserviceindia.com/article/l289Doctrine-of-Frustration-&-Force-Majeure-Clause.html. last visited on 01.11.2012.
42 R. Rama Iyer vs. P.K Jacob AIR 2003 Ker 359.; frustration of contract is discharged
as to the future, releasing both the parties from further performance and has to
return the benefits received by it.
43 Supra note 21.
12

l. P C Markanda, The Law of Contract(with special emphasis on law relating to

gurantee, agency, bailment, government contracts, general conditions of contract,
tenders and blacklisting), 2nd Edn, 2003, Volume 1, Wadhwa Nagpur.
m. Sanjiva Row, Commentary on the Indian Contract Act, 1872 and Tenders, 2004.

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