EASUN ENGINEERING CO. LTD V/S THE FERTILIZERS & CHEMICALS TRAVANCORE LTD

CITATION	AIR 1991 Mad. 158 167
DATE OF JUDGEMENT	3rd JANUARY, 1990
COURT	HIGH COURT OF MADRAS
APPELLANT	EASUN ENGINEERING CO. LTD
RESPONDENT	THE FERTILISERS & CHEMICALS TRAVANCORE LTD
BENCH	A.A. HADI

INTRODUCTION

The legal case of Easun Engineering Co Ltd vs The Fertilisers and Chemicals Travancore Ltd recognised that a legitimate justification for non-performance is the impossibility imposed by the law. Contracts that are valid at the time of formation but that later turn out to be unenforceable or difficult to carry out due to changes in the law or other circumstances cannot be carried out, which leads to frustration. A contract is said to be discharged when an alteration in the law makes it void.

FACTS OF THE CASE

1)Between the respondent, The Fertilisers and Chemicals Travancore Ltd., and the appellant, Easun Engineering Co. Ltd., there existed a contract for the supply and installation of eighteen Power Transformers.

2) Since the contract’s terms specified that it was a “firm price” contract, the price could not be altered until the deal was finished. 

3)The contract also specified that the firm price condition would not apply and the defaulting party would not be liable for damages if a “force majeure” event caused a delay in the supply of transformers.

4)Due to a war in the Middle East, the price of a type of oil needed to manufacture power transformers increased 400%. As a result, the appellant was unable to fulfil their contractual obligations after having supplied six power transformers.

5)The responder terminated the agreement. The respondent demanded damages from the appellant in the amount of Rs. 26,44,243/-. The appellant counterclaimed for 12,33,325-75 rupees.

ISSUES RAISED

1)Was the appellant liable for breach of contract because they didn’t fulfil their end of the bargain?

2)Was there any frustration with the contract between Easun Engineering Co Ltd and The Fertilisers and Chemicals Travancore Ltd?

CONTENTIONS OF APPELLANT

1)Despite the fact that they had fulfilled their end of the bargain, the appellant claimed that the respondent had unilaterally terminated the contract without giving a sufficient or valid reason. 

2)The appellant contended that they were unable to supply because of force majeure circumstances, which included strikes, blackouts, and a sharp rise in transformer oil prices brought on by the state of war.

3)The plaintiff argued that since there may only be a business hardship in this instance, damages for the performance breach should be granted.

4) EASUN argued that they were unable to supply because of force majeure events, such as power outages, strikes, and a sharp rise in transformer oil prices brought on by war, among other things. There is no denying that the transformer delivery was delayed. It is also undeniable that FEDO extended deadlines for multiple requests from EASUN until 31-3-1975.

4) EASUN made three separate claims against the second respondent, Empire: one under Annexure A for Rupees 13, 07, 417; another under Annexure B for Rs. 10, 30, 716; and a third under Annexure C for Rs. 3, 06, 000. These claims amounted to a total of Rs. 26, 44, 243.

CONTENTIONS OF RESPONDENT

1. According to the terms of the purchase order they accepted, the respondent alleged that the appellant had not fulfilled their obligations under the contract. They were forced to terminate the contract as a result, and as a result of the appellant’s breach of it, they are entitled to damages. 
2. They argued that since there was only a commercial hardship, damages for the performance breach should be granted.
3. In its case, FEDO argues that EASUN violated the terms of the purchase order that FEDO accepted, that FEDO was left with no choice but to terminate the contract, and that as a result of EASUN’s breach of the contract, FEDO is entitled to the damages listed above from EASUN.
4. However, FEDO had counterclaimed for Rupees 12, 33, 325.75.

Later, it was referred to arbitration.

JUDGEMENT

The Umpire explicitly stated in the Award that FEDO could not rely on delays to terminate the contract before 31-3-1975. The Award also emphasises how noteworthy it is that, in their previously mentioned counterclaim, FEDO did not seek liquidated damages for the aforementioned delay. This is most likely because FEDO had granted a time extension and had accepted the delay. The Award also concludes that the Middle East War conditions and the Indian government’s ordinance imposing higher excise duties were the primary causes of the enormous 400% price increase in transformer oil. Therefore, even though the contract was a firm price contract, the Umpire concludes after analysing the oral and documentary evidence that, given the aforementioned force majeure conditions, EASUN was justified in requesting a variation in transformer oil price. The Umpire also discovered that, although liquidated damages are stipulated in the contract in FEDO’s favour, the relevant clause explicitly states that liquidated damages are not to be applied in the event of a delay brought on by circumstances beyond the control of the parties. As has already been mentioned, FEDO did not seek liquidated damages. The Umpire also notes in the Award that it is peculiar that FEDO, in their written statement during the counterclaim, did not even provide an explanation for their decision to forego liquidated damages, despite their argument that the contract was terminated because EASUN was tardy in performing its obligations. The Umpire concludes that a force majeure condition exists based on the FEDO’s non-claim of liquidated damages as mentioned earlier.

ANALYSIS

The price increase of transformer oil after the contract was signed was EASUN’s primary complaint. However, nothing about the increase would be considered normal under typical trade circumstances. However, given that it was 400% higher because of some unforeseen War conditions, it was extremely unusual. Therefore, it is reasonable to draw the conclusion that, as the Supreme Court noted in the aforementioned passage, a “fundamentally different situation” “unexpectedly emerged.” Accordingly, the Supreme Court found that at that point the contract no longer binds the parties, “not because the Court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation.” Since the Supreme Court determined that there was only a “vague plea of equity” for voiding the contract’s terms, the actual outcome of the aforementioned Supreme Court case depends on the facts of the case.

CONCLUSION

In this instance, the ruling establishes the principle that non-performance of contractual obligations may be legitimately justified by impossibility brought about by a change in the law or in the circumstances after the contract was formed. Under such circumstances, the supervening event frustrated the contract, making its performance impossible. It is an important case involving the doctrine of frustration and Section 56 of the Indian Contract Act, 1872, and the learned judge’s decision was warranted.

REFERENCES

1. https://indiankanoon.org/doc/63931/
2. https://lawplanet.in/easun-engineering-co-ltd-vs-the-fertilisers-and-chemicals-travancore-ltd-case-summary-1991-madras-hc/
3. https://www.casemine.com/judgement/in/5608ffc1e4b0149711152896

This article is written by Druti Dutta, student of Symbiosis Law School, Noida; Intern at Legal Vidhiya.

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