5 May 2020

[Link] Courts, Contracts & Coronavirus

Sidharth Chopra and I write about what dispute resolution could look like in a post-pandemic world, and what we now need to be looking at as we deal with contracts, interpreting existing ones and drafting new ones...

So much that we've built up over the years now seems less than infallible. We will likely have to go back to the drawing board and work towards substantially renovating the legal structures and mechanisms we've developed over the years. Thankfully, though, the fundamentals of the law which we take for granted have remained stable.

Some countries are preparing for recessions of a kind not seen in our lifetimes, and we can be reasonably sure that the way we work will change. With the opportunity to cut operational costs by taking advantage of technological advances, and the precariousness of just-in-time supply chains becoming obvious, there will almost certainly be changes in both manufacturing and services sectors. The latter is also likely to spill into governance and the judiciary once digitised systems to support work are put into place. [....] Although no-one knows what a post-pandemic world will look like, questions regarding jurisdiction of courts to determine rights and liabilities of parties would probably arise more frequently. [....] In the short term, the problems which could crop up whilst determining dispute resolution mechanisms can be ameliorated with well-drafted contracts that anticipate potential issues and respond to them. In the long-term, however, the only way forward is to create processes to untangle the jurisdictional conundrum on a multilateral international basis.

Published at Medianama on 20 April 2020 and at Bar and Bench on 01 May 2020.

(This post is by Nandita Saikia and was first published at IN Content Law.)

6 April 2020

Contracting in the Wake of Contagion

In 'The Silence of the Girls' by Pat Barker, which retells the Iliad from a woman's point of view, a priest of Apollo invokes the god when the Greek Agamemnon refuses to return his daughter to him. Apollo, as the Greeks seem to have forgotten in the moment, is the mouse God. Not long after, plague strikes their camp outside the walls of Troy.

This is, of course, not the first time that Agamemnon, who comes across as being a thoroughly unpleasant person determined to impose his will on those he thinks he can dominate instead of negotiating agreements with them, has foolishly wrangled with women. He has sacrificed his daughter Iphigenia to be able to reach Troy in the first place and her mother, Clytemnestra, has sworn vengeance which she will get although Agamemnon does not yet know it. Their story has been memorably reimagined in 'The House of Names' by Colm Tóibín.

Agamemnon is now more myth than man if ever he existed, and his tale is being told in the voices of the women he encountered over a millennium after they may have lived. Although there almost certainly would have been earlier retellings, it is unarguable that it is not easy for women's voices to be heard.

Our histories have long been incomplete: they have told tales of the past through the eyes of men, usually those men who have managed to suppress others. Women have often been incidental to their tales: they appear as props or trophies, rarely people in their own right.

Plague and war may strike everyone in their path but to call them equalisers simply because they do not respect class, communal, or gender divides is misleading. Where there is inequality, they exacerbate it simply because they put into sharp relief the differing abilities of various groups of people to survive them. Where resources and support structures differ, where discrimination exists, survival rates cannot be the same.

Human nature, however, seems to have remained the same, largely unchanged through time. In his history of wars in the Hellenic world fought a few centuries before the birth of Christ, the Athenian general Thucydides, who was careful to mark himself out as a historian, writes of the effect of war on domestic strife and of the plague. Although we may now think more in terms of contagion, civil unrest and gender equality — consent in the sheets, dissent in the streets, as it's now sometimes put — and balk at the thought of the wars of the ancients being replayed, much that Thucydides has to say sounds remarkably familiar. Translating his history of the Peloponnesian War in the nineteenth century, Richard Crawley wrote, and it is perhaps worth reading at least some of his words on the subject without the crutch of paraphrase:

[... OF STRIFE]

"Words had to change their ordinary meaning and to take that which was now given them. Reckless audacity came to be considered the courage of a loyal ally; prudent hesitation, specious cowardice; moderation was held to be a cloak for unmanliness; ability to see all sides of a question, inaptness to act on any. Frantic violence became the attribute of manliness; cautious plotting, a justifiable means of self-defence. The advocate of extreme measures was always trustworthy; his opponent a man to be suspected. To succeed in a plot was to have a shrewd head, to divine a plot a still shrewder; but to try to provide against having to do either was to break up your party and to be afraid of your adversaries. In fine, to forestall an intending criminal, or to suggest the idea of a crime where it was wanting, was equally commended until even blood became a weaker tie than party, from the superior readiness of those united by the latter to dare everything without reserve; for such associations had not in view the blessings derivable from established institutions but were formed by ambition for their overthrow; and the confidence of their members in each other rested less on any religious sanction than upon complicity in crime. The fair proposals of an adversary were met with jealous precautions by the stronger of the two, and not with a generous confidence. Revenge also was held of more account than self-preservation."

[... OF PLAGUE]

"Men now coolly ventured on what they had formerly done in a corner, and not just as they pleased, seeing the rapid transitions produced by persons in prosperity suddenly dying and those who before had nothing succeeding to their property. So they resolved to spend quickly and enjoy themselves, regarding their lives and riches as alike things of a day. Perseverance in what men called honour was popular with none, it was so uncertain whether they would be spared to attain the object; but it was settled that present enjoyment, and all that contributed to it, was both honourable and useful. Fear of gods or law of man there was none to restrain them. As for the first, they judged it to be just the same whether they worshipped them or not, as they saw all alike perishing; and for the last, no one expected to live to be brought to trial for his offences, but each felt that a far severer sentence had been already passed upon them all and hung ever over their heads, and before this fell it was only reasonable to enjoy life a little."

Men unleashing their baser natures, as plague and war are wont to tempt them to do, are not admirable in Thucydides' narration. The meanings of words become unstable, fair phrases camouflage evil, only the expedient is valuable, factionalism is rife and overrides both blood ties and honour, and, in their desperation to prove themselves, men take to conduct more and more extreme, and less and less well thought out. Whether in times of strife or in times of plague, men's aim is merely to make the most of the moment regardless of honour or solidarity. Their own immediate needs take precedence, those of others are relegated to nothingness, an acknowledgement which may have foreseen the selfishness of unbridled capitalism let loose in crisis.

Richard Crawley was not the first to translate Thucydides' work. On the contrary, he was one of a reasonably long line. Centuries before him, Thomas Hobbes had also done so, and it is probably no accident that Hobbes came to think so little of men's natures when they were not reined in. Hobbes' solution to the problems caused by extreme situations was to develop in the social contract a middle ground: he had men give up some of their freedom (to wreak havoc) for the greater good which benefited themselves too. His solution was, even though imagined, an exemplar of the consent theory of contract on a macro scale.

There is enchantment in drafting contracts from scratch: it is, in many ways, akin to creating a world fenced in though it is by immutable facts and existing laws; none of us are exempt from nature's laws even if we derogate from human law. And in the creation of new worlds, we cannot escape the fact that the emergence of instability in existing ones provides the opportunity to envisage ways of life afresh.

We have learnt that capitalism can fail us and, in times of crisis, many of us have been lucky enough to see the welfare state kick into action as contagion spreads. Whether we allow capitalism to triumph over all else in a post-crisis world is a choice we will have to make, one which we will have the opportunity to make given that, ultimately, capitalism tends to be self-destructive and cannot sustain itself in stressful times without being propped up by the collective.

Few of us can make grand gestures but we often can negotiate fairness in our own dealings especially when the ground we stand on is unstable and the powerful, like everyone else, are unsure of how the future will unfold. "Be kind" is a suggestion; we could cumulatively make it a legal obligation based on standard practice. After all, we've found some alternatives to the harshness of the world in acts of individual and social solidarity even though we've rarely (yet) indelibly laid them down black and white. A crisis gives us options in its aftermath: once it is over, we can return to business as normal. Or opt for a kinder world.

We know nothing of history but what its detritus has left us, and chronologies are often unclear. Still, what we do know with reasonable certainty is that the crises of the past have been followed by substantial social and legal change, some to resurrect pre-crisis environments and others to radically change those environments, to strengthen inherent power or to diffuse it. And such changes have often been wrought by contract.

We are not facing the plague but allusions to it insofar as parallels to the legal effects of generalised contagion extend are arguably not inapposite. There have been notable pandemics in history: the plague of late antiquity which hit the Eastern Roman Empire, the Black Death of the middle ages which travelled along the silk road and decimated the population of Europe, and the plague of the nineteenth century which affected India and other parts of Asia. Known timelines do not support the thesis that a mention of the effect of supervening events on contracts in Justinian's Digest followed the outbreak of plague although the Digest does seem to have been compiled after a military campaign which could well have seen some form of contagion spread.

Contemporary sources do not seem to tell us of the rationale which underlay the legal changes of the Middle Ages either, and there is always the fear of subscribing to the fallacy: post hoc ergo propter hoc, after this, therefore because of this. Nonetheless, we do know that there were substantial changes to English law and society around the time of the Black Death: the Statute of Labourers and the development of the writ of assumpsit coupled with penal and performance bonds which parties agreed to likely controlled prices, held individuals to their commitments, and created certainty of liability in cases where debts were not honoured. Together, they also presaged the end of feudalism and the emergence of a society in which relations tended to be guided more by consent and promises of money than by fealty and promises of protection.

Closer to our own time, in a way it was plague that helped bring about the end of the British Empire. The enforcement of the 1897 Epidemics Act which was meant to contain plague was not well received by Indians at all not least because it tended towards the brutish. The statesman, Bal Gangadhar Tilak, wrote in his newspaper Kesari of myth and of the historical killing of Afzal Khan by the Maratha warrior Chatrapati Shivaji who had defeated the Mughals at their strongest to create the Maratha Kingdom. The British saw analogies to themselves in his writing and, although no causal link was ever demonstrated between the two, soon after the publication of the pieces, Pune's plague commissioner was killed.

Tilak was convicted of sedition, and the men who killed the plague commissioner were hanged. Despite having come down with a heavy hand on dissent, the British were forced to reassess their methods and come to an agreement with Indians on how to go about containing the plague. This was a microcosm of government by consent, and it is not for nothing that it is said that this is the period that marked the beginning of the end of the British Empire in India.

Consent is not a perfect tool to ascertain the legitimacy of contract either between citizen and state, or between citizens inter se. It is always susceptible to being contaminated by choice inhibition, impossibility, mistakes of facts and law, and undue influence, some of which factors contract law takes into consideration albeit in an inadequate manner. Still, the substratum of contract law is equity, and it is perhaps worth building on that foundation so that contract law itself, in its whole, comes to respect not just manifest consent but also takes into consideration the totality of circumstances in which consent is obtained so as to help build fairer, kinder world for all of us. History is on our side.

(This post is by Nandita Saikia and was first published at IN Content Law. Some of the ideas in it were earlier explored on Twitter @nsaikia.)

15 March 2020

#CancelEverything: Interpreting 'Force Majeure' Clauses and Contractual Obligations

With everything from art exhibitions, plays, sports matches, and book fairs being cancelled in the wake of a pandemic, the one question which many of those who are involved in organising and participating in these events are being forced to deal with is: What is the effect of the cancellation on agreed obligations?

Most of the relevant contracts do, of course, have 'force majeure' clauses which take into account what should happen if plans don't materialise as hoped but interpreting those clauses is not always entirely straightforward.

The Historical Bases of Interpretation

The term force majeure tends to be used as a generic catch-all term whilst speaking of how supervening circumstances may affect contractual obligations. It is, however, a French term (drawn from the Latin vis major) which was brought into the Common Law primarily through the factual matrices which English courts dealing with mercantile and commercial matters had to determine.

English Common Law courts have themselves historically veered towards absolute contracts with only a few exceptions such as incapacity in contracts requiring personal performance or the total destruction of the subject matter of a contract leading to frustration.

The exceptions to absolute contracts in Common Law tended to be extremely narrow and,  without the subject matter of the contract having been destroyed, it was no easy matter to convince a court to free a party from contractual obligations. For example, in the 1647 case of Paradine v. Jane, a tenant who was sued for rent was held liable to pay it despite the land having been in the possession of the king’s enemies for two years.

Unsurprisingly, having the law veer so strongly towards requiring that contractual obligations be honoured was not ideal, and the Common Law began to recognise ‘impossibility’ increasingly often as an reason to free parties from their obligations which, in its turn, led to the development of the law of commercial impracticability in the United States of America.

'Commercial impracticability' was succinctly explained in the 1981 US Restatement (Second) of Contracts, § 261, which stated: “...after a contract is made, a party’s performance is made impracticable without [the party’s] fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made, [the party’s] duty to render that performance is discharged as a result, unless the language or the circumstances indicate the contrary.”

All things said and done, Common Law courts have generally not been especially enthusiastic about recognising ‘force majeure’ – in inverted commas to mark its use as a generic term – although ‘force majeure’ and its associate, the doctrine of frustration, are a part of the jurisprudence to which they adhere. India, too, has usually been hesitant to relieve parties of their obligations as a perusal of the discussion of precedent in the 2017 case of Energy Watchdog v. Central Electricity Regulatory Commission decided by the Supreme Court reveals. (Paras. 34 to 40)

In Civil Law courts, the judicial approach  to addressing the effects of supervening events has historically been more flexible than it has been in Common Law Courts. Two extracts from the ‘Codex Legum Anglicanarum; or, a Digest of Principles of English law Arranged in the Order of The Code Napoleon' by George Blaxland (published in 1839 by Henry Butterworth) highlight the difference in no uncertain terms.

The translation of the relevant Articles of the Code Napoleon, reproduced below, is followed by a note leading one on to the ‘parallel principle’ in English law.

1147. The debtor is condemned, if there be ground, to the payment of damages and interest, either by reason of the non-performance of the obligation or by reason of delay in its execution, as often as he cannot prove that such non-performance arises from a foreign cause which cannot be imputed to him, although there be no bad faith on his part.
1148. There is no ground for damages and interest, when by consequence of a superior force or of a fortuitous occurrence, the debtor has been prevented from giving or doing that to which he has bound himself, or has done that from which he was interdicted.

Following the note leads one to Blaxland’s statement of the parallel principle in English law (quoted here without its footnotes): “If a person enter into an express and positive stipulation, though it may be hard, false, and absurd, yet he must abide by it. And a fortuitous occurrence, though it arises from a foreign cause, not imputable to him, does not discharge a party from liability for breach of the contract; but he must answer in damages.”

Thus, even in the mid-nineteenth century, the English understanding of ‘force majeure’ was limited though it was perhaps not quite as rigid as it had been in the seventeenth century.

About 30 years after the publication of Blaxland’s comparative study, the British enacted the Indian Contract Act in which they included a provision which, in effect, codified ‘force majeure’ in Indian law.

Indian Contract Law

The 1872 Indian Contract Act is a sparely-worded statute which lays down the parameters within which parties may contract with each other. It allows them the freedom to contract assuming they fulfil the criteria of competence although the freedom is not absolute: the law also explains such subjects as when an agreement would be void or voidable, when restitution is payable, and what procedure should be followed to enter into a valid contract.

India, of course, did not share English history and the nuances of power struggles between various courts for jurisdiction were lost when the British brought their laws halfway across the world to what was then their colony. Thus, Indian contract law crystallised into the essence of what was most workable in English law although, in its underlying rationale, there came to be no rigid lines between jurisprudential aspiration and statutory code.

Running through the length of the 1872 Act is a strong flavour of equity intended to be public policy: the statute could be said to codify principles which had previously existed in doctrine to form a coherent whole allowing persons to treat with each other whilst simultaneously attempting to curb them from taking unfair advantage of each other. In doing so, however, statute did not come to supplant doctrine, and the two have continued to co-exist.

Thus, in India, 'force majeure' is not only reflected in Section 56 of the Indian Contract Act but is also closely allied to the doctrine of frustration. It is one of a series of concepts associated with the law as part statutory provision and part theoretical doctrine.

That not all jurisdictions have the same understanding of 'force majeure' is unsurprising considering that its prototype was gleaned from the ancients; Justinian’s digest in the 6th century CE made reference to the effects of supervening events and, even at that time, such considerations were not new. Since then, the notion has had to withstand the tides of time and disparate histories.

Nonetheless, the underlying rationale of ‘force majeure’ clauses finds a place in all systems of law that trace their roots, whether directly or indirectly, to Roman law.

The Indian Understanding of ‘Force Majeure

The fact that 'force majeure' has numerous avatars is not in itself reason to assume that it is ‘boilerplate’ signifying nothing or that it is implicit in all contracts or that it must be strictly interpreted although, at various times and in varying jurisdictions, each one of those assumptions has individually found itself to be justifiable with reference to case law.

In India, an agreement does not easily become void for on account of alleged vagueness in the 'force majeure' clause. In the case of M/S Dhanrajamal Gobindram vs M/S Shamji Kalidas & Co. decided on 27 February 1964, the Supreme Court held that an agreement would not be void due to vagueness and uncertainty on account of its using the phrase ‘subject to the usual force majeure clause’ as the intention of the parties could be adduced through evidence; they must have had a form of the clause in mind when they signed the agreement.

The approach of the Supreme Court is interesting not so much because it clarified the law on vagueness in the such circumstances but because it referred to the history of 'force majeure' without disputing it or isolating the Indian corpus juris from it.

The Supreme Court both acknowledged the ancient roots of the modern understanding of  'force majeure'  and recognised the continental tradition which differs from Common Law upon which Indian law tends to rest. What the approach of the court suggests is that Indian law is not opposed to becoming better acquainted with understandings of 'force majeure' which do not stem directly from Common Law.

This, of course, leaves the door open to having 'force majeure' and clauses which articulate it be understood with reference to the jurisprudence of both Common and Civil Law systems. Such interpretation allows them to be understood not just as narrow independent agreements between parties to deal with supervening events but as expressions of intent between parties realising the equitable rationale writ large in the 1872 Indian Contract Act, the statute which facilitates their entering into contracts in the first place, and as instruments which could be used to level extremely uneven power structures.

Articulations of Reasonableness 

In India, 'force majeure' clauses have the potential to be bulwarks against unreasonableness in contractual relationships. They may be used not merely to protect contracting parties from unfairness but to stand against unreasonableness within contracts; they help realise concepts that have been known since Roman times; ad impossibilia nemo tenetur: nobody is held to the impossible, and can be interpreted through the numerous lenses each tending towards equity.

After all, the general notion that persons are not obliged to do what becomes beyond them on account of supervening circumstances has, in our own time, found expression both in statute and in legal doctrine. Along with other concepts (such as those against unjust enrichment and undue influence), all of which tend to coalesce to form a reasonable framework — i.e. a justifiable, workable, and  equitable framework whose construction has been guided by reason — within which contracting parties are not set against the impossible or penalised for not being able to achieve the impossible, ‘force majeure’ has become an instrument through which reasonableness can be pursued within the context of a contract.

The result of having reasonableness embedded in Indian contract law in this manner has meant that, in the interpretation of a contractual provision, it is both possible and prudent to interpret clauses not just with reference to the (lone) applicable Section of the 1872 Indian Contract Act which is immediately impacted but also with reference to the other Sections of that statute, with reference to sui generis statutes which may impact the subject matter of a contract, with reference to legal theory, with reference to tort law, and with reference to Common Law — Indian contract law, for all the brevity of its primary statute, has become a melting pot of diverse legal traditions and sources amenable to being moulded to forms which are equitable.

(This post is by Nandita Saikia and was first published at IN Content Law.)