Frustration Doctrine In Arbitration Cases
🔹 Meaning of Doctrine of Frustration
Under Indian Contract Act, 1872, a contract becomes void when:
- Performance becomes impossible, or
- Performance becomes unlawful after the contract is made
This is also called “supervening impossibility.”
🔹 Key Elements of Frustration
For frustration to apply:
- Valid contract must exist
- Unexpected event occurs
- Event is beyond control of parties
- Makes performance impossible or radically different
- Not due to fault of either party
🔹 Role in Arbitration
In arbitration:
- Parties may claim frustration to terminate liability
- Arbitrators decide whether the event:
- Truly frustrates the contract
- Or just makes it more difficult/expensive
- If frustration is proven:
- Contract is automatically discharged
- No damages for non-performance
🔹 Important Case Laws (At Least 6)
1. Taylor v Caldwell
- A music hall was rented but burned down before use
- Court held contract was frustrated due to destruction of subject matter
- Established doctrine of impossibility
👉 Principle: If the subject matter is destroyed, contract ends.
2. Krell v Henry
- Room rented to view coronation procession of King Edward VII
- Event was cancelled due to illness
- Court held contract frustrated because purpose failed
👉 Principle: Frustration of purpose applies.
3. Satyabrata Ghose v Mugneeram Bangur & Co.
- Land development contract delayed due to war conditions
- Supreme Court clarified that impossibility includes impracticability
👉 Principle: Frustration is not limited to physical impossibility.
4. Energy Watchdog v CERC
- Power companies claimed frustration due to rise in coal prices
- Court rejected claim
👉 Principle: Commercial hardship is NOT frustration
5. Alopi Parshad & Sons Ltd. v Union of India
- Contractor claimed increased costs made contract impossible
- Court held contract not frustrated
👉 Principle: Increased expense ≠ frustration
6. Naihati Jute Mills Ltd. v Hyaliram Jagannath
- Contract affected by government control orders
- Court held frustration applies only if performance becomes impossible
👉 Principle: Legal restrictions may cause frustration, but not always.
7. Davis Contractors Ltd. v Fareham UDC
- Construction took longer and cost more
- Court held contract not frustrated
👉 Principle: Mere delay or difficulty is insufficient.
🔹 Application in Arbitration Proceedings
In arbitration disputes, frustration is commonly raised in cases involving:
- Construction contracts
- Infrastructure projects
- Supply chain disruptions
- Force majeure situations (e.g., pandemics, war)
Arbitrator’s Approach:
- Examine contract terms (especially force majeure clause)
- Analyze whether:
- Event was foreseeable
- Risk was allocated
- Performance truly impossible
🔹 Frustration vs Force Majeure
| Basis | Frustration | Force Majeure |
|---|---|---|
| Source | Law (Section 56) | Contract clause |
| Control | Automatic | Depends on clause |
| Effect | Contract void | Suspends/terminates obligations |
🔹 Key Takeaways
- Doctrine of frustration discharges contracts automatically
- It is narrowly applied by courts and arbitrators
- Mere hardship, delay, or loss is not enough
- Frequently used as a defense in arbitration but rarely successful
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