COMMERCIAL IMPRACTICABILITY UNDER THE INDIAN LAW OF CONTRACT: THE UNIDROIT PRINCIPLES AS THE WAY FORWARD?

: The present era of heightened liberalisation has encouraged an increasing number of jurisdictions across the globe to offer some respite to the parties to a contract when they experience a subsequent and unforeseen change in circumstance in the form of hardship. However, there is sufficient judicial dicta in India – a common law jurisdiction – to detect a certain hostility to recognising any such situation that is short of impossibility within the definition of section 56 of the Indian Contract Act 1872. The blind application of traditional common law principles has proven to be unsuitable to resolving the predicaments arising in modern-day contracts, which are often affected by inflation and other legal or political changes that have the potential to alter the contracted price of performance to the detriment of one party. The present author suggests that the Indian courts should begin to refer to the International Institute for the Unification of Private Law’s (UNIDROIT) approach espoused in its Principles on International Commercial Contracts (the UPICC). Unlike the Indian law of contract, the UPICC adopts a dichotomy between the theories of hardship and force majeure , and consequently provides different solutions to address these matters. Employing the UPICC as a gap-filler will assist the Indian courts in interpreting these issues according to well-defined and internationally accepted standards so that the parties can receive fair and adequate relief when the performance of their contract has been affected by hardship.


COMMERCIAL IMPRACTICABILITY UNDER THE INDIAN LAW OF CONTRACT: THE UNIDROIT PRINCIPLES AS THE WAY FORWARD?
Saloni Khanderia* Abstract: The present era of heightened liberalisation has encouraged an increasing number of jurisdictions across the globe to offer some respite to the parties to a contract when they experience a subsequent and unforeseen change in circumstance in the form of hardship. However, there is sufficient judicial dicta in India -a common law jurisdiction -to detect a certain hostility to recognising any such situation that is short of impossibility within the definition of section 56 of the Indian Contract Act 1872. The blind application of traditional common law principles has proven to be unsuitable to resolving the predicaments arising in modern-day contracts, which are often affected by inflation and other legal or political changes that have the potential to alter the contracted price of performance to the detriment of one party. The present author suggests that the Indian courts should begin to refer to the International Institute for the Unification of Private Law's (UNIDROIT) approach espoused in its Principles on International Commercial Contracts (the UPICC). Unlike the Indian law of contract, the UPICC adopts a dichotomy between the theories of hardship and force majeure, and consequently provides different solutions to address these matters. Employing the UPICC as a gap-filler will assist the Indian courts in interpreting these issues according to well-defined and internationally accepted standards so that the parties can receive fair and adequate relief when the performance of their contract has been affected by hardship.

A. INTRODUCTION
The principle of the sanctity of contracts has been envisaged in the traditional legal doctrine pacta sunt servanda, which means that agreements must be respected. This principle has been uniformly adhered to in civil and common law jurisdictions, and is commonly considered to mandate the strict performance of contracts. 1 Although the principle reinforces certainty and stability in contractual obligations, its rigid application may sometimes run counter to the principles of reasonableness, justice and good faith when extenuating supervening circumstances render the performance of the contract problematic. 2 In such cases these generally recognised legal principles may favour relief, whether in the form of amendment to the terms of the agreement, governing commercial contracts. 8 They may potentially serve as a gap-filler in the national law of contract where the latter does not contain an appropriate solution on a particular question; or as a model law for a country that is looking forward to update its statutes. 9 As Michaels reports, several jurisdictions across the globe have considered and have relied on the provisions of the UPICC while reforming their domestic laws. 10 Spain, Lithuania, the Czech Republic, Slovakia, Ukraine, Hungary, Brazil, Argentina and Russia are some examples of such legal systems that have drawn inspiration from the UPICC. 11 The purpose of this paper is to accordingly analyse the relevance of the UPICC's approach on hardship in modernising the Indian position on commercial impracticability or hardship. The structure of this paper will be as follows: section B will provide a comparative overview of the international best practices on hardship, and focus in particular on the UPICC's provisions on the subject; and section C will examine the Indian approach towards hardship and evaluate the need for the country to employ the UPICC to interpret, supplement or develop the law on this subject. Section D will offer concluding remarks and the author's suggestions for change.

B. INTERNATIONAL BEST PRACTICE ON HARDSHIP: AN OVERVIEW
Although the definition of hardship varies among legal systems, the principle typically refers to any change in circumstances after the conclusion of the contract, which does not render performance impossible but rather severely alters the equilibrium between the parties. 12 These circumstances may be a result of any sudden legal, political or 8  economic changes in a country where performance is supposed to take place, and which in turn significantly increases the agreed cost of implementing the contractual obligations or diminishes its value.

Contractual practice on hardship: A Comparative Overview
The acceptance of the doctrine of hardship has varied across civil law and common law jurisdictions. Therefore, while civil law systems have generally adopted a dichotomy in proposing solutions for changed circumstances that have resulted in the contract becoming more onerous to perform and those which have resulted in total impossibility, this development has not been followed by common law jurisdictions. In addition, the United States prescribes its own hybrid solution to hardship, which does not resemble the approach adopted by the civil or the common law jurisdictions.
Among the civil law systems, the French legal system has historically recognised the principle of hardship under the theory of imprévision. 13 Although French law initially restricted the application of the theory to administrative contracts, its scope has over time been extended to other forms of contractual relationships provided that the parties have expressly agreed to this effect. 14 In addition, several other civil law jurisdictions such as Austria, 15 Germany, 16 Greece, 17 Italy, 18 the Netherlands, 19 Portugal 20 and the Scandinavian countries 21 also embrace the doctrine of hardship in their respective laws to reflect the principle of good faith. 22  hardship with impossibility, whereby circumstances that have made the contract more onerous to perform constitute grounds for discharge when the agreement has been rendered useless or radically different from the parties' contemplation at the time of the conclusion of the contract. 32 In this respect, section 2-615 of the Uniform Commercial Code, 1978 (UCC), which is applicable (at least in part) to all of the fifty states and 261 of the Restatement Second (2d) of Contracts, 1981 accordingly employ the principle of impracticability for the sale of goods and other forms of contracts under US law. As the comments to the UCC and the Restatement 2d clarify, the occurrence of circumstances such as 'extreme or unforeseen difficulty, expense…', or 'a severe shortage of raw materials or supplies due to war…' may constitute impracticability only if they form the basic assumption on which the contract was concluded and furthermore alter the very nature of performance. 33 In other words, a simple rise or fall in prices would not amount to impracticability unless it was 'well beyond the normal range' or 'wholly abnormal '. 34 In comparison, the principles of the English common law exclusively determine performance and non-performance by the doctrine of frustration of contract. 35 Consequently, England does not recognise the theory of hardship and mandates the strict adherence to the principle pacta sunt survanda. Typically, English courts will refrain from acknowledging pure impracticability or hardship except when it results in the frustration of the contract -for instance when the parties are unable to carry out the contractual obligations for a considerable amount of time and subsequently experience an increase in the cost of performance. 36 In this respect, judicial dicta demonstrate that a change in circumstances that has rendered performance more onerous would not lead to the discharge of the contractual obligations, 37  a subsequent 'hundredfold increase' in the prices. 38 This implies that the common law doctrine does not permit a contractual obligation to be excused from performance unless it has either been rendered impossible, 39 or has frustrated the purpose in such a manner that literal performance, although possible, has become fundamentally different from the original contemplation of the parties, and thus the purpose of the contract is defeated. 40 For this reason, the parties would not be discharged from their contractual obligations on such grounds regardless of whether they have incorporated an express stipulation to this effect via a force majeure clause in their agreement, which would accordingly, be void. 41 In summary, civil law jurisdictions adopt a rigid dichotomy in their approach to permitting a deviation from the strict performance of a contract. While parties may be discharged from their obligations in case of impossibility to perform, the occurrence of hardship mandates the renegotiation of the terms to accommodate to the changed circumstances. The US, on the other hand, equates changed circumstances that have resulted in impossibility with those that have merely rendered performance more onerous, insofar as it permits the parties to be discharged in both these situations, although it imposes a high threshold in terms of the extremity of circumstances required for such an outcome. In comparison, the courts in the UK are mandated, under the doctrine of frustration of contract, only to acknowledge supervening changed circumstances that have destroyed the very bargain that the parties have made, and thus refrain from providing respite when the performance has merely become more onerous.

The UNIDROIT's Solution to Hardship
With the UPICC, the UNIDROIT offers a practical and sustainable solution on commercial impracticability or hardship to assist lawmakers and courts to interpret, 38  The UPICC's significance lies in the fact that although they are in the form of soft law, 43 they are apolitical and are not drafted by government officials, but rather by experts in the field in their private capacity. 44 In relation to the subject of hardship, the UPICC offer neutral clarifications insofar as they draw inspiration from jurisdictions across the globe to reflect the values of both the civil and the common law systems. 45 They therefore adopt rules that are recognised in most legal systems and are consequently not tilted in favour of any country's specific interests. 46 The UPICC embrace a rigid dichotomy between the principles of force majeure and hardship. The UPICC's provision on force majeure is included in its chapter on non-performance. A disadvantaged party may be excused from performance due to the occurrence of a supervening event if it is able to prove the existence of force majeure via article 7.1.7 of the UPICC. Although force majeure pertains to impossibility to perform, it is not limited to events that are attributable to acts of God or vis major.
Instead, the scope of article 7.1.7 extends to the occurrence of any impediment that was beyond the party's control, 47 and which it 'could not reasonably be expected to have taken into account at the time of the conclusion of the contract, or to have avoided or overcome it or its consequences'. 48 The parties to a contract may, in such circumstances, terminate the contract and withhold performance due to such 42  impediments, 49 provided that the supervening event was unforeseeable and beyond the parties' sphere of allocated risk. 50 Appropriately, if such impediment is temporary, nonperformance on account of force majeure would merely be excused as long as the effect of such event lasts. 51 As regards hardship, the UPICC incorporate the common law's preference for the strict adherence to the principle pacta sunt survanda as a basis but further accommodate to unique and extenuating circumstances that may potentially render performance more onerous but not impossible. In this context, article 6.2.1 stipulates that each party is bound to perform its obligations irrespective of whether 'the performance has become more onerous for one of the parties'. 52 However, article 6. the time of formation of the contract. 54 In a related vein, the disadvantaged party must prove that it did not assume the risk of such an event. 55 Although the parameters for determining the circumstances that constitute a 'fundamental alteration' are nebulous, 56 the Official Comments illustrate that this could either be due to a dramatic rise in the price of the raw materials that are required for the production of the contracted goods; because of an increase in the cost of the services that need to be rendered; or as a consequence of an introduction of new safety regulations. 57 Such effects are thus most likely to be experienced by the party that is obliged to perform the non-monetary obligations. 58 In a related vein, dramatic inflation or a frustration of purpose that is attributable to sudden changes in the market conditions would also constitute hardship under the UPICC insofar as these diminish the value of performance that one party was entitled to receive under the contract. 59 Upon the determination of hardship, the UPICC further entitles the disadvantaged party to the right to request the renegotiation of the terms of the contract via article 6.2.3. However, intervention by a court is permissible if such renegotiations are unsuccessful. 60 In such situations, the court may adapt the contract 'to restore its equilibrium' and to achieve a 'fair distribution of the losses between the parties'. 61 Such adaptation may either mandate a modification of the agreed prices; changes in the quantity to be delivered; a change in the means, method or duration of performance; or require a compensatory adjustment. 62 Alternatively, the court may order the termination of the contract if such adaptation is unfeasible. 63 This being the case, under normal circumstances the UPICC does not advocate the discharge of the parties from performance merely on the grounds of hardship. 64 In this respect, it reaffirms civil law's practice insofar as it endeavours to keep the contract alive as far as practicable. 65 The UPICC thus also adopt a more liberal and contemporary approach in comparison with the English law of contract, which considers frustration of purpose as a ground for discharge and further does not acknowledge any changes which merely render performance more onerous. 66

C. THE THEORY OF HARDSHIP UNDER THE INDIAN LAW OF CONTRACT
In India, every domestic dispute arising from the performance and non-performance of a contractual obligation -regardless of whether it involves a government, private enterprise or an individual -is governed by the Indian Contract Act 1872. In addition, that legislation also regulates disputes arising from transnational contracts, when the proper law is that of India.
The Indian Contract Act 1872 does not contain any specific provision on hardship. Instead, support for hardship is confined to judicial dicta, which indicate that the paradigms of the subject shall be assessed within the parameters of the principles of discharge by the frustration of contract. In particular, paragraph two of section 56 of the legislation which is predicated on the English law regulates the subject of frustration and provides: a contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
A contract is thus said to be frustrated under section 56 of the Indian Contract Act 1872, when discharge has occurred either due to impossibility or when performance becomes radically different from the original contemplation of the parties. 67 Impossibility or force majeure under the Indian law of contract is subject to the express stipulations of the parties' agreement, but is not merely limited to acts of God or vis major. Instead, force majeure extends to all other unforeseeable supervening events that the parties cannot prevent by any amount of human care and diligence. 68   due to a force majeure event, namely the sudden change in the law, it had rendered performance in the manner that was originally contemplated by the parties impossible and, thus, constituted 'frustration' within the ambit of section 56 of the Indian Contract Act 1872. Consequently, the parties were discharged since 'the basic premise' of the contract had been wiped out, 99 and they 'found themselves…in a fundamentally different situation' from what they initially agreed. 100

Assessing the Plausible Uses of the UPICC as a Gap-Filler
The Indian Contract Act, 1872 provides no respite to the parties when performance has merely become more onerous unless it has additionally been rendered impossible within the parameters of section 56. The Indian law, therefore, mandates the parties to a contract to delineate specific conditions as the basis of their agreement and subsequently prove its destruction, before petitioning the court for discharge from the performance. 101 The courts in India have, consequently, been compelled to choose between two extreme results -namely, either to compel the parties to perform the contract, and thus completely ignore the change in circumstances that have rendered the performance more onerous, or conversely, permit the parties to be discharged from their respective obligations. These shortcomings are problematic because it has permitted the Indian judiciary to override the contractual provisions irrespective of the parties' intention to be discharged on account of sudden and unforeseen circumstances, such as the escalation of prices, under a force majeure clause. Consequently, parties may be prompted to refrain from selecting the Indian law to govern their transnational commercial contracts. The Indian legal system could, consequently, avoid these anomalies by relying on the UPICC, which has offered a viable solution to tackle 99 See Satyabrata Ghose v Mugneeram Bangur & Co [1954] SCR 310; and Alopi Parshad, AIR 1960 SC 588, wherein the apex court stressed that the supervening circumstances must destroy the bargain that the parties have made. Also see the provisions of the US law of contract on impracticability as enshrined in secs 2-615 and 261 of the UCC and Restatement 2d, respectively, read along with official comment 4 and d to the concerned provisions, which similarly stipulates that discharge due to commercial impracticability will only be permitted if the change in circumstances formed the 'basic assumption' on which the contract was concluded. 100  sudden and unforeseen changes that have merely rendered the performance of the contract onerous.
Unlike section 56 of the Indian Contract Act 1872, the UPICC via article 6.2.2 adopts an unambiguous approach by stipulating that a prima facie case of hardship would be made out as soon as the parties experience a fundamental disequilibrium that is manifested through an increase or decrease in the value of performance. 102 The UPICC's provisions on hardship are consequently applicable regardless of whether the parties have delineated the basic premise of their contract to be something else.
Moreover, the UPICC is predicated on well-defined standards to assess the existence of the conditions that may lead to discharge and could therefore plausibly play a crucial role in the development of the Indian law of contract. The application of the UPICC's provisions to cases of commercial impracticability would prove more desirable for the parties because it would neither compel the disadvantaged party to fulfil the obligations even when the equilibrium of the contract has been fundamentally altered, nor would it immediately discharge such a party from performance. The UPICC would, instead, keep the contract alive, albeit on modified terms, by entitling the disadvantaged party to request for the re-negotiation to accommodate to the changed circumstances. As demonstrated in the discussion above, the UPICC does not entitle the disadvantaged party to be discharged due to the occurrence of sudden supervening events except through a 'comparatively comprehensive method', 103 this is to say when the re-negotiation or adaptation of the contract has been proven unfeasible under article 6.2.3(4); or on the determination of force majeure under article 7.1.7 of the UPICC. circumstances, the Tribunal could have instead adapted the terms of the contract and altered the equilibrium between the parties by taking into account the changed circumstances caused by the dramatic inflation in the prices of coal. These inconsistencies have only arisen due to the narrow precepts within which the Indian courts have been compelled to interpret section 56 read along with section 62 of the Indian Contract Act 1872. As seen above, the judiciary has been combining the determination of hardship with force majeure by refusing to acknowledge the former except when it is complemented with the latter.
That being said, the parties to a transnational contract may plausibly choose the UPICC as the governing law to avoid these incongruities in the Indian approach towards hardship. 107 In other cases, the Indian judiciary may begin on their own motion employ the UPICC's provisions on the subject as a gap-filler to interpret or supplement 108 the application of section 56 of the Indian Contract Act 1872, to cases of commercial impracticability, 109 as they have relied upon other provisions of UPICC in a few instances in the past. 110 Employing the UPICC's favor contractus approach, which adopts the preference for the fulfilment of an agreement, would provide fair and adequate redress in such situations by assisting the Indian judiciary in interpreting precisely how radically changed circumstances can render the contract extremely onerous, but not as such impossible. The parties would consequently be obligated to renegotiate the terms in all cases of hardship, the determination of which as such has been objectively assessed. The utilisation of the UPICC's provisions would further permit the Indian courts to adapt the contract where necessary and feasible -a power enhance the certainty and predictability in the law in India by enumerating the precise circumstances that constitute hardship or conversely force majeure, in an objective fashion.