What is doctrine of frustration?

267 votes

The current COVID-19 lockdown has brought many businesses to a standstill and, at the very least, interrupted all businesses. In light of supply chain and workforce difficulties, together with the increased cost of performance in many cases, you may be struggling to meet your contractual obligations. On the flip side, your partners or suppliers may be struggling to meet their contractual obligations to you. With continued uncertainty, the effects may be ongoing.
 

What is Doctrine of Frustration and how can it help in contract related issues?

Sometimes, the performance of a contract is possible when the contract is made but becomes impossible or unlawful upon happening of an event which could not have been prevented. This phenomenon is referred to as the ‘Doctrine of Frustration’. Therefore, in case the contract does not include a force majeure clause, the parties who are unable to carry out their contractual obligations can ask for relief under the doctrine of frustration under Section 56 of the Indian Contract Act, 1872.

Due to the supply chain disruptions caused by the lockdown, it is likely that the performances under many contracts will be delayed, interrupted or even cancelled. Parties to a contract may seek to delay or avoid their responsibilities under the contract, either because the lockdown has legitimately prevented them from performing their contractual obligations, or because they are seeking to use it as an excuse to free themselves from an unfavorable deal. They may also cite COVID-19 as a basis for renegotiation of the cost or other key contractual provisions. This is why it is important to determine whether COVID-19 will be considered as a ‘Force Majeure’ event.

In India, the Department of Expenditure, Procurement Policy Division, Ministry of Finance issued an Office Memorandum on February 19, 2020, in relation to the government’s ‘Manual for Procurement of Goods, 2017’, which serves as a guideline for procurement by the government. In the Memorandum, the ministry has stated that the COVID-19 outbreak could be covered by a force majeure clause on the basis that it is a natural calamity. Therefore, parties to a contract can take defence under force majeure for not performing their contractual obligations during lockdown.
 

How can a lawyer help?

Looking at the complexity of the issue, it is highly impossible for a layman to understand the technicalities involved in the issue. Interpretation of terms of a contract in accordance with the law is in itself a very technical task and beyond the scope of expertise of a layman. This is why it is imperative in times like these to have a corporate lawyer by your side who can help you understand the technicalities involved and can formulate the right strategies to ensure the desired result in contract-related litigation.

LawRato LawRato

981 votes

Doctrine of frustration means:
1. The objective of the agreement is impossible to perform
2. An occurance of an event which renders the performance impossible since it is beyond the reasonable control of the party to the agreement. lockdown due to Covid is a situation which is beyond the reasonable control...hence performance may be effected. However whether the lockdown actually effects your performance or not needs to be judged based on the promises made in the contract.

And how can it help you depends upon the nature of contract for which perusal of the agreement is important.

Advocate Medha Banerjee LawRato