An appeal before the Supreme Court in which the Court considered whether a supervening event which resulted in the loss of cargo transported to the Maldives, constituted unforeseeable circumstances that resulted in the contract being frustrated.1
- Coralgate Maldives Pvt Ltd (“Coral Gate”) entered into an agreement with BMC Transport and Projects Pvt Ltd (“BMC”) whereby BMC would facilitate the transport of 3000 metric tons of aggregate from Tuticorin, India to Ha. Alidhoo.The terms between the parties to the contract are stipulated in a Proforma Invoice sent to Coralgate from BMC on 7 June 2008.
- The aggregate to be transported by BMC was purchased by Coralgate under a separate agreement between an Indian company – Krishna and Co export house.
- BMC loaded 3,000 metric tons of aggregate onto a barge of theirs and embarked on the journey to transport it to Ha. Alidhoo. The barge, however, was caught in a storm on 24 June 2008 and was capsized, losing the cargo with the cargo consequently lost at sea.
- Coralgate, however, had made the full payment of USD 123,000 under the agreement on 22 June 2008.
- Coralgate sued BMC in the Civil Court for recovery of the total amount paid for transport of the aggregate, recovery of the amount paid for the aggregate, and legal fees.
- BMC, however, contended that the aggregate was being transported when it was struck by the storm and the barge subsequently capsized. BMC further contended that the cargo was lost due to no fault or negligence on their part. In support of this claim, BMC provided a police report of the incident that supported their assertion.
- Civil Court held in favour of Coralgate and granted the recovery of the transport cost for the cargo.The Court, however, did not grant the recovery of the cost of the aggregate and the legal fees.
- The High Court upheld the Civil Court’s decision.
When does an unforeseeable supervening event make performance impossible rendering the contract frustrated in accordance with Section 22(a) of the Contract Act.2
Unanimously dismissing the appeal held that:
- based on the conduct of BMC and Coralgate, neither party foresaw the supervening event which radically changed their obligations under the contract which resulted in impossibility of performance;
- Carolgate can claim to recover the full amount paid to BMC as freight charges.
- Generally, two requirements need to be met to show that the contract has been frustrated due to a supervening event: (a) neither party foresaw the event at the time of contracting, and (b) the unforeseen event radically changed the obligation from what was undertaken. However, in deciding whether a contract has been frustrated, rather than seeking a single test that can be applied to all cases, a multi-factorial approach taking into account all facts and circumstances of the case is the most suitable test to be applied. The question for courts to ask is whether, as a result of the event, obligation of the parties has become a thing radically different from what was undertaken.
- A party to a contract who has paid money can claim to recover the full amount on the ground that the consideration for which he paid has wholly failed. Where consideration has only partially failed and thereby the contract is only partially frustrated, a party to a contract who had already paid money can only claim for the amount paid less benefit the party has received.