Karnika Seth

The doctrine of frustration is of great significance in the International Trade transactions, as also, are the Force Majeure clauses since there is a greater element of uncertainty in cross border transactions as compared to purely domestic transactions as they are subject to diverse political and economic influences. While the English Law envisages the doctrine of frustration of contract, the American Uniform Commercial Code provides for commercial ‘impracticability’ where such impracticability affects the basic assumption on which the contract was made (however in English law the term ‘Impossibility’ is generally used). The French system admits “Force Majeure” whereas the German advances the notion of “Wegfall der Geschftsgrundslage “- collapse of the basis of the transaction. The principles on which the doctrine of frustration is based are well settled. However, the application of the doctrine sometimes involves complicated analysis. Lord Diplock in Pioneer Shipping Limited Vs. BTP Dioxide Ltd, the NEMA expressed his view as under:

“Never a pure question on fact but does in the ultimate analysis involve a conclusion of law as to whether the frustrating event or series of events has made the performance of the contract a thing radically different from that which was undertaken by the contract”.

Frustration of a contract occurs only where after the conclusion of the contract a fundamentally different situation has unexpectedly emerged. The emergence of some new set of circumstances may make the performance of the contract more difficult, onerous or costly than was envisaged by the parties when entering into the contract, for example, a sudden, even abnormal, rise or fall in prices or the failure of a particular source of supply requiring the seller to obtain supplies from another more expensive source. However, these events will not normally operate to frustrate a contract. This position was discussed in the British Movietonews Ltd. Vs. London & District Cinemas Ltd. However, an important exception was also recognised by the House of Lords in this case that “if on the other hand a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point not because the Court in its discretion thinks it just and reasonable to qualify the terms of the contract but because on its true construction it does not apply in that situation.”

* Advocate practising in Supreme Court Of India and High Court Of Delhi
Lord Radcliffe in Davis Contractors Ltd. vs. Fareham UDC, reiterated these principles as “frustration occurs whenever the law recognizes that without the default of either party a contractual obligation has become incapable of being performed because of the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract”.
These principles were applied in many cases such as Amalgamated Inv and property Co. V John Walker& Sons , National carriers V Panalpina ,etc

In Brauer & Co. (Great Britain) Ltd. Vs. James Clerk (Brush Materials) Ltd Denning LJ held that the sellers of the Brazilian Pissava, a woody fibre used in making of the brush and the like, under a CIF contract containing the clause “subject to any Brazilian Export Licence” were not relieved of their obligation to procure a licence due to escalation in prices by 20% to 30% in excess of prices agreed upon with their buyers. Denning Ltd., however, stated that if the price was a 100 times high as much as the contract price that would be a fundamentally different situation which had unexpectedly emerged and the sellers would not be bound to pay for the escalated price of the export licence.