Date: 01/06/2019

Assignment 1: Damages and Force majeure

 Clause 29 of the Contract is a Force majeure clause and it prevents the parties’
from terminating or claiming for damages against each other in case of non-
performance or delay in performance caused due to any act mentioned including
the Act of God. And the clause includes a condition precedent, of notification of
occurrence of the event by either of the parties to the other within 15 days from
the date of occurrence of such event.
 The fulfilment of the contract/order was affected by the Floods of Aug’18 and it
qualifies to be considered under clause 29. But the client has not notified some of
its customers within 15 days from the date of occurrence.
 Under section 73 and 74 the claim for either liquidated or unliquidated damages
can succeed only if the delay in performance has caused any loss or damage to the
other party. Here, even in case of existence a loss/ damage the force majeure
clause would cover the same as it’s said to override all the other clauses in the
contract. Further, as there exists failure on part of the client to notify the
customers within 15 days on the occurrence of the flood, there exists a chance for
non-applicability of the clause unless justification for the delay in notifying is
accounted for. This would lead us to the next possible approach of –

1. Whether the delay in performance has resulted in loss/damage to the contracting

party?

 If breach of contract has not resulted in any harm, loss or damage, there is no
question of compensation being granted, however serious or grievous an act of
breach may be. The Supreme Court in Karsandas H. Thacker vs. M/s.The Saran
Engineering Co., Ltd1 the complainant would be entitled to claim damages
under Section 73 of the Contract Act, to receive compensation for any loss by the
damage caused to him which naturally arose in the usual course of business from
such breach or which the parties knew when they made the contract to be likely to
result from the breach of it. Also such compensation is not to be given for any
remote and indirect loss or damage sustained by reason of the breach. Thus, in the
instant matter, the reason for delay in performance is unprecedented and unnatural
to the course of the contract rendering the claim of the customer to damages
invalid. Similarly, under section 74 of the Contract Act, the actual loss has to be
proved in order to claim the liquidated damages. 2

2. Whether the client has a sufficient/ reasonable cause to justify the delay of or not
notifying the customers of the event (flood of Aug’18)?
If the reason for the delay of notification can be justified as due to the Floods itself,
there exists scope for invoking clause 29 rendering the client immune to any claim for
damages caused.
1
AIR 1965 SC 1981 (V 52 C339)
2
Maula Bux Vs Union of India (1969)2 SCC 554
 3. Whether the claim would be for liquidated or unliquidated damages?

It is important to determine the type of damages, if it has been agreed upon by the
parties to pay a certain sum on the breach of contract or the delay in performance of
the contract and such a stipulation is part of contract, it is said to be liquidated
damages (section 74. The agreed sum must be a reasonable and fair estimate
determined to make good the loss or injury to the affected party but it should not be
punitive in nature. Further, even though the sum has been laid down, the injured party
can claim only for reasonable damages3 and not the entire sum determined as
liquidated damages depending on the extent of the loss or injury. It is pertinent to note
that amount stipulated as liquidated amount is the “upper limit beyond which the
court cannot grant reasonable compensation”.4
If the damages have not been agreed upon and need to be ascertained by the court
after assessment of the loss or injury caused to the party due to the breach or delay in
performance of the contract, this is known to be unliquidated damages. Even if a
liquidated damages clause is part of the contract till the time, it is determined by the
court that the party complaining of the breach is entitled to damages, the plaintiff shall
not be granted compensation.5
As the client wants to apply the force majeure clause to waive the right of the
customers to claim damages, it is crucial that the injury or loss be analysed. If
liquidated damages are awarded to the petitioner even when the petitioner has not
suffered any loss, it would amount to 'unjust enrichment', which cannot be
countenanced and has to be eschewed.

4. Determine the stage of performance during which the flood affected the process.
 Whether the performance of the contract was initiated or half-way
through or the order was completed and waiting for transportation?
This would help determine the type of damage- liquidated or unliquidated. If
the process was on-going while being affected by the flood, it will amount to
partial breach of contract (if any) and it will also help in determining whether
any loss was caused due to the delay in delivering the order. The onus is on
the client to prove that no loss has been caused to the customers due to the
delay and that the delay was caused due to the floods, an unprecedented event.

 Whether the delivery date for the order has been extended by the parties,
if so, till when and had the customers notified the client with regard to the
claim for damages ( if so, was it notified at the simultaneously with the
notice for extension of date of delivery of the order) ?
If the customers had extended the time for completion of order with regard to
the floods and without any claim for damages simultaneously, the customer
can be said to have impliedly waived the right to damages. It’s a clear case,
where there has been waiver of the time being essence of the contract by
3
Kailash Nath v. DDA : 2015 (4) SCC 136.
4
ONGC v. Saw Pipes (2003) 5 SCC 705, Indian Oil Corporation v. Lloyds Steel Industries Limited : 2007 (4)
Arbitration Law Report 84 (Delhi).
5
Iron & Hardware (India) Co. v. Firm Shamlal & Bros. AIR 1954 Bom 423
 conduct of the parties. It is to be noted that the conduct of parties in extension
of the date for delivery would be act as a clear waiver of rights ( M/s. Mantech
Consultants Vs. Bharat Oman Refineries Ltd. in Arbitration Petition No.477
of 2006 dated 2nd September, 2011)

As per State of Rajasthan Vs Chandra Mohan Chopra, 6 When the contractor

had not finished the work by the date fixed in the agreement and the State
allowed him to continue and complete it and final bill was prepared without
imposing any penalty in terms of contract soon after the contractor's failure to
complete by fixed date or rescinding the contract or getting work completed
by other contractor, the State was not entitled to compensation as it must be
deemed to have waived its right to fix it and recover the same from the
contractor.
Also a contractor may argue that any rights to assess liquidated damages are
waived where the owner, by action or inaction, encouraged the contractor to
forego its right to stop work upon non-payment and to continue to perform the
contract work upon the understanding that no liquidated damages would be
assessed. Such a waiver precludes the owner from assessing liquidated
damages and requires remission of the corresponding withheld contract funds.
5. Whether a claim for damages has been raised and notified by the customers to
the client?
According to Smither & Co., Inc. v. Calvin-Humphrey Corp.7 an owner/customer who
remains silent at the time that alleged delays occur, while by all appearances
consenting to the continuance of work beyond the contractual completion date, may
not later assert liquidated damages for such delays. And if the customer has not
established an updated schedule for performance of the contract, the client can argue
that it operates as a waiver of any right to assert liquidated damages for delay.

The Madras High Court’s decision in C.V.George and Company vs. M/s.Marshall
Sons (Manufacturing) Ltd.,8 established the essential requirements of section 55 of the
Contract Act, if the affected party wants to claim compensation for any loss
occasioned by the non-performance of the contract within the stipulated time and if
the party accepts performance of the contract, he must issue notice to the other party
of his intention to claim damages. It is therefore clear that if the complainant wants to
claim damages by resorting to Section 55 of the Contract Act he must issue a notice to
the respondent of his intention to claim damages at the time when he accepts
performance of the contract.
Also in the case of State of Kerala v. M.A. Mathai9, it was held that if there are any
delays in the performance of reciprocal obligations by an employer, the contractor
gets the right to avoid the contract but if he does not avoid the contract and accepts
the belated performance, he cannot claim compensation for any loss sustained by him

6
AIR 1971 Raj 229; 1971 Raj LW 194(DB)
7
232 F. Supp. 204 (D.D.C. 1964)
8
1983 MLJ 525
9
2007 (3) CTC 329
due to delay in performance, unless he gives a notice of the same to the delaying
party.