Force Majeure and Doctrine of Frustration

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Force Majeure and Doctrine of Frustration

1. Introduction-

In contract law, situations may arise where parties to a contract are unable to fulfil their contractual obligations due to unexpected events. Such principles as the Doctrine of Frustration and Force Majeure solve these problems. But while they have similar goals, they differ widely in how they are used, their scope and legal implications. To give readers a profound insight into these doctrines’ definitions, major points of interest in them, practical uses, and how they compare.

2. Force Majeure

Force majeure in French means “superior force:” it is an event beyond the control of parties that makes performance under the contract legally impossible. A force majeure clause usually identifies specific occurrences such as natural disasters , wars, industrial actions or pandemics that would be considered as force majeure.

Main Points:

  1. Events must make the contract impossible to perform: For an event to be considered Force Majeure outside the contract, it must completely disrupt the foundation of the agreement. The event must destroy the basis of the contract and its purpose. The situation needs to be examined to see if it has entirely undermined the agreement.
  2. The event must be unavoidable and not just economically difficult: Simply having increased costs or expenses doesn't qualify as Force Majeure. The event must be inevitable.
  3. The event must be unpredictable: It must be something that could not be foreseen or expected with reasonable care. If there was an advance warning of the event, it won't trigger the Force Majeure clause.
  4. The event must not be due to the party’s fault: The incident must occur only because of the unexpected event, not due to any party’s failure. If the event didn’t prevent the party from fulfilling its duties, the Force Majeure clause cannot be invoked.
  5. Notice requirement: Many Force Majeure clauses require the non-performing party to inform the other party. This notice is a necessary condition to invoke Force Majeure. Failing to comply with this requirement means the party cannot use the Force Majeure clause.
  6. Duty to minimize loss: A party relying on the Force Majeure clause must take all reasonable steps to reduce the loss caused by their non-performance.

3. Doctrine of Frustration

This doctrine comes into play when an unanticipated event fundamentally alters the nature of the contractual obligations so that performance becomes impossible, illegal or radically different from what was originally anticipated by both parties. This is not dependent on any particular clause in the agreement but rather a common law principle.

Main Points:

  • A contract will be frustrated when:


When the event occurs, which renders the performance of the contract impossible or transfers the agreed obligation of the contract into some different obligation without any party's fault, then the contract will be said to be frustrated. It is immaterial if the Contract has become more expensive or more difficult. Delay caused in performance of the contract by Pandemic Covid-19 could be a frustrating event.

  1. Supervening Event:

One of the requirements of the Doctrine of Frustration is that the “supervening event” must not be the fault of the non-performing party. In current situation of Pandemic Covid-19, the parties to the contract cannot be held responsible for the spread of the same but the court may nevertheless take the view that a failure to fulfil the contractual obligation by performing a contract is a result of the non-performing party's acts or decisions. If after the party's have entered into a contract, there are changes in legal implementations due to which the performance of a contract has become unlawful, then it will be considered as a frustrating event. Thus in dealing with Pandemic Covid-19, if the government passes any law/notification which renders the performance of the Contracts unlawful, then those contracts will be said to be frustrated.

  1. The effect of frustration:

After the frustration, the contract comes to an end without choice or election of both the parties. It is not mandatory to issue a notice or notify other party in case of frustration of a contract. The contracting parties are discharged from their respective contractual and legal liabilities and also from future performance and any future obligations. It is to be noted that the amount paid/cost incurred/Benefit incurred by the party to the contract before the frustrating event shall be repayable . The amount which is to be duly payable at the time of completion of the contract will be no longer payable.

4. Comparison

It is important to understand similarities and differences between force majeure and doctrine of frustration when handling contractual relations effectively. The table below summarizes major comparative aspects:

Feature

Force Majeure

Doctrine of Frustration

Basis

Specific contractual clause

Common law principle

Event Scope

Defined within the contract

Broad, unforeseen events

Relief Mechanism

Temporary suspension or extension

Automatic discharge of the contract

Notification

Usually required

Not typically required

Mitigation

Required to mitigate effects

No mitigation required

Restitution

Not usually addressed

Addressed to prevent unjust enrichment

5. Practical Implications

  1. Force majeure clauses should be carefully drafted by parties, outlining precisely what constitutes a force majeure event, notification procedures and the parties’ obligations. By doing this parties may avoid arguments and ensure that each party knows what is expected of him as for unanticipated events.
  2. In the absence of a force majeure clause, parties may need legal advice to ascertain whether the concept of doctrine of frustration can be used in this case or not and what actions should follow this.
  3. Both theories point out how important risk management and contingency planning are in business contracts. It is necessary for contracting parties who incorporate relevant terms in their agreements to identify potential risks. This proactive approach will result in a framework that helps mitigate impacts from unexpected events thus managing disruptions.
  4. Different jurisdictions apply the principle of force majeure and doctrine of frustration differently since they depend on judicial precedents as well as statutes accordingly. For that reason, parties must consult local jurisprudence and statutory provisions with respect to their particular situations for purposes understanding how those doctrines would be interpreted or given effect in them respectively.
  5. Parties may also decide to insure against certain risks that can lead to force majeure. Alternatively, the contract might be having arbitration or mediation clauses for resolving disputes in case something unexpected happens.


6. Conclusion

Both force majeure and frustration clause are terms in law that are important when it comes to handling contractual obligations when there is unanticipated occurrence of events. While the former relies on specific contractual terms and offers temporary relief, the latter acts as a common law doctrine of equity whereby a contract is discharged automatically if it is impossible or becomes radically different in an important aspect.

It is essential for one to grasp these principles so as to draft sound contracts as well as managing risks and disruptions which could surprisingly interrupt the performance of contracts. By thoughtfully considering and incorporating these axioms into their practice, parties will develop their preparedness and resilience thereby ensuring that in the worst possible circumstances their contracts remain valid and fair.

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