The Doctrine of Frustration and Force Majeure: Disruptions in Supply Chains


The supply chain comprises a set of processes that happen from creating items before delivering them to the customer. The supply chain includes many elements, including the purchase of raw materials and the reworking of these vital components, the development of a product using the raw materials already in place, sales, product delivery, and customer care. The interruptions to supply chain operations resulted from COVID. Numerous locks across the country affected the flow of products from manufacturing to delivery to the consumer at the point of purchase. It was difficult for manufacturers, distributors, and retailers to replenish their equipment, machinery, and inventory. Exporters and importers found it challenging to ship products across international borders due to substantial disruption to all supply chain agreements. Additionally, companies and individuals tried to negotiate their contracts.

Contractual issues arose because of delays in the execution of contracts or the failure to fulfill contracts due to circumstances that were not anticipated and were discovered due to disruptions in the supply chain. Contracts with the “force majeure” clause have been withdrawn from execution without being liable for any cost to the party affected. In The Black’s Law Dictionary, a “force majeure” event or impact is a situation that cannot be anticipated or managed. However, if the contract was not obligated to force majeure, either party could pursue a remedy under Section 56 in the Indian Contract Act of 1872. To do this, the other party must prove that the unanticipated event made it unachievable for the other party to perform the contract and caused contract failure.

Contracts for the distribution chain in COVID-19 and the impact of the clause of force majeure

The World Health Organization classified COVID-19 as a “global pandemic” in March 2020. In India, it was declared a total shutdown at the end of February. The lockdown’s implementation made contract execution unattainable for everyone involved in the supply chain. The clause on force majeure was invoked by those looking to block contract execution. The Indian Contract Act does not explicitly address “force majeure” clauses. However, Section 32 of the Act does outline the basic requirements.

Section 32 under the Act, A contract becomes invalid if an event that is not anticipated occurs during performance, which causes it to be impossible to perform the contract’s terms. Parties are free to discuss and postpone the agreement to a later date if it is mutually agreed upon because of the unforeseeable circumstance. If an agreement cannot be delayed until a later date, it will be declared null and void by Section 32, and the parties will not be required to perform the conditions of the contract.

Force majeure was not a reason to stop the parties from trying to reduce the loss the party affected would suffer. Following the proposal procedure, Halliburton was chosen to execute a project that included completion and drilling, as in Halliburton vs. Vedanta Limited (2020). In this case, the court concluded that there had to be a legal or legitimate reason to use the force majeure clause. Since the party committed a violation before the unconfirmed occurrence of COVID-19 and Halliburton was informed of the breach, Halliburton was not permitted to claim an exemption in the law of force majeure. Opportunities to treat the exact situation were available but were never used. Halliburton, however, declared the case as a matter of force majeure days before the date. The court was not able to permit such a situation, so the firm was obligated to perform its obligations as per the conditions in the agreement.

A clause for force majeure will terminate a time-sensitive agreement if it becomes impossible to meet the contract’s obligations because of a force majeure incident. In other words, the person using this Force Majeure provision must demonstrate that time is the essential element of the contract.

The party that cannot perform the contract due to continued lockdowns may pursue a remedy based on the frustration theory. This is provided through the Indian Contract Act, even if the warranty does not include a clause that allows for force majeure.

Parties looking for relief by the Doctrine of Frustration

By the Indian Contract Act, a force majeure clause does not make it necessary for the parties to break their contract. By Section 56 of the Indian Contract Act, the party can seek remedies under frustration.

According to Section 56 under the Act, a contract is invalid if it requires performing a procedure that has since been rendered impossible or unlawful (without the fault of the promisor). A supervening, later inability or illegality of the Act intended to be executed due to the contract is necessary.

The term “impossible” was defined by the Supreme Court in the 1953 case of Satyabrata Ghose v. Mugneeram Bangur & Co. The court ruled that an act is in a position to be performed until it becomes impossible, considering the purpose and intent of the contract.

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