No frustration of contract if parties agree that force majeure condition would not operate

The Delhi High Court reiterated, that if parties to a contract agree to fulfil their obligations despite an intervening/force majeure circumstance, there can be no frustration of contract, in the matter of Bharat Heavy Electricals Limited VS. G+H SCHALLSCHUTZ GMBH [O.M.P. (COMM.) 151/2018], decided on 11.07.2018.

Challenge

In the instant case, the Petitioner was charged with the construction of a power plant in Marib, Yemen by the Public Electric Company of Yemen. The petitioner issued a Purchase Order in favour of the respondent for supply of four identical Exhaust Gas Systems along with supervision for Erection and Commissioning of the same for the Marib Project in Yemen.

The petitioner, on 20.02.2015 wrote to the respondent to put on hold with immediate effect the Purchase Order till further communication due to political turmoil and deterioration of civil life in Yemen. Thus, a force majeure condition existed which was also not disputed by the parties. However, Clause 25 of the Purchase order stated that:

“In the event of hold / force major conditions M/S G+H will keep material in their custody for 6 months without any storage charges to BHEL and if it is not possible to make shipment to Marib even after 06 months of the scheduled delivery, then to ship / dispatch the material to Mumbai / Haridwar and claim the payment. The CFR value will remain unchanged in such eventuality.”

A bare reading of the above Clause would show that the parties had agreed that in the event of a force majeure condition, the petitioner would not be completely discharged of its obligation to pay for the components.

The issue before the Court was Whether the said Clause 25 of the Purchase Order would subsist in view of Section 56 of the Indian Contract Act?

Held

The Single Bench of the Delhi High Court placing reliance on the matter titled as Satyabrata Ghose v. Mugneeram Bangur & Co. and Anr [AIR 1954 SC 44] held that “the parties had clearly, in Clause 25 of the Purchase Order, agreed that the force majeure condition would not operate to discharge the parties of their contractual obligation as far as supply of material and payment thereof is concerned. It further provided for the code of conduct to be adopted by the parties if such force majeure condition come to operate; the respondent shall have to keep the materials in their custody for six months without any storage charges payable by the petitioner”.

Paragraph 17 of the judgment titled Satyabrata Ghose v. Mugneeram Bangur & Co. and Anr [AIR 1954 SC 44] is instructive of this proposition of law and is reproduced as under:

“17. It must be pointed out here that if the parties do contemplate the possibility of an intervening circumstance which might affect the performance of the contract, but expressly stipulate that the contract would stand despite such circumstance, there can be no case of frustration because the basis of the contract being to demand performance despite the happening of a particular event, it cannot disappear when that event happens. As Lord Atkinson said in Matthey v. Curling “a person who expressly contracts absolutely to do a thing not naturally impossible is not excused for non-performance because of being prevented by the act of God or the King’s enemies … or vis major”. This being the legal position, a contention in the extreme form that the doctrine of frustration as recognised in English law does not come at all within the purview of Section 56 of the Indian Contract Act cannot be accepted.”

Therefore, in the facts of the case, Section 56 Indian Contract Act would have no application as far as the supply of the materials under the Purchase Order is concerned.