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The Ambivalent Notion of ‘Fundamental Breach’ in Indian Law of Contract: Towards a New Paradigm 

• Published: 02 June 2022
• Volume 43 , pages 391–420, ( 2022 )

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• Saloni Khanderia 1 , 2  

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This paper analyses the concept of fundamental breach under Indian law of contract. In doing so, it provides a comparative assessment with English law. It examines some plausible reasons for Indian law not being a favourable choice in the international community despite its wide-ranging similarity to English law. The paper accordingly identifies some mechanisms to develop Indian law in the interests of predictability. It considers the role that the provisions of the PICC on the subject may play during regulatory reforms to fill the gaps in Indian law. A close examination of the provisions of Indian and English law of contract demonstrates the requirement to prove that the breach was material before determining the consequences of the same as a necessary corollary. Simultaneously, although India resembles English law at many levels, the lack of legislative reform or judicial activism in the Republic to clarify the exact consequences of a breach may have contributed as a factor to render it an unpopular choice of law among parties to an international contract. On the contrary, English law has undergone significant development in recent years, and the choice of the legal system to govern international agreements is widespread.

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The UNIDROIT Principles as Reference for the Uniform Interpretation of National Laws: Report on Hungarian Law

Italian national report on the use of the upicc in order to interpret or supplement national contract law, unidroit principles as reference for uniform interpretation of national laws: czech republic.

See Bridge ( 2010 , p. 916).

See in this respect, the decision of the English court in Karsales (Harrow) Ltd v Wallis [1956] 2 All ER 866, discussed below.

See, George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803.

See for instance, the legal principles of Italy, Finland, Denmark, Sweden and the United Nations Convention on the International Sale of Goods [CISG].

See in this respect, the discussion in Part II.B below.

For a detailed discussion on the doctrine of frustration under the English common law, see, Rapsomanikas (2014, p. 256 et seq ).

For a detailed discussion on force majeure in civil law jurisdictions, see, Katsivela ( 2007 , p. 112).

[1956] 2 All ER 866.

Ibid., p. 869.

Ibid., p. 871.

Ibid. But see the decision of the Privy Council in Canada Steamship Lines Ltd v The King [1952] AC 192. The decision regulated the parameters of exclusion clauses on negligence. Accordingly, the party that has breached the contract could not evade liability for negligence unless the exclusion clause included an express indication to this effect. In circumstances where such an express indication was missing, the court would examine whether the exemption clause contained any general words on loss or damage which were wide enough to extend to the loss caused by negligence. If the wordings were not wide enough, the court would evaluate whether ‘the head of damage could be based on some other ground other than negligence’ – provided that it was not fanciful or remote.

See generally, (unnamed) ‘The Nine Lives of Fundamental Breach’ (1985) 10 Canada Business Law Journal 80.

[1966] 2 All ER 61.

Ibid., p. 75–76, referring to UGS Finance v National Mortgage Bank of Greece [1964] 1 Lloyd’s Rep 446 (Eng CA) 453.

Ibid., p. 98.

See, Atkin ( 1981 , p. 437), referring to Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283, 288.

See, Waddams ( 1978–1979 , p. 296).

[1970] 2 W.L.R. 198.

See in this respect, Beatson et al. ( 2020 , p. 199).

Ibid., p. 205 which indicates that prior to the Consumer Rights Act 2015 [CRA], the provisions of the UCTA extended to consumer and non-consumer contracts.

Beatson et al. ( 2020 , p. 206).

[1980] AC 827 (HL).

Ibid., p. 847.

Ibid., p. 843.

Beatson et al. ( 2020 , p. 199) referring to Photo [1980] AC 827 (HL).

Photo Production , ibid.

Ibid., p. 813.

See, George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803. Also see, Persimmon Homes Ltd v Ove Arup and Partners Ltd [2017] 2 CLC 28.

Bridge ( 2010 , p. 916); and Beatson et al. ( 2020 , p. 519).

See HongKong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, 66.

Treitel ( 2014 , p. 974, [18–032]).

Ibid., p. 974 referring to Vigers v Cook [1919] 2 KB 475.

Ibid., pp. 977–979 referring to HongKong Fir [1962] 2 QB 26. In HongKong Fir the court refused to permit the termination of the contract upon finding that the real intention of the party was not that the failure to perform a seaworthy vessel was sufficiently serious—but, that the contract had become a bad bargain for that party as a result of the ‘catastrophic fall in the freight market’.

Ibid., p. 975, referring to Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148.

Ibid., p. 976 referring to Bradford v Williams [1872] LR 7 Ex 259; and Beatson et al. ( 2020 , p. 521) referring to Millar’s Karri and Jarrah Co v Weddel [1909] 100 LT 128.

See, Anson, Ibid.

Treitel ( 2014 , p. 1031, [18–129]).

See, Beatson et al. ( 2020 , p. 517).

Ibid., s 51.

Ibid., s 52.

Ibid., s 54(7)(f).

Ibid., ss 42(2) and 43.

Ibid., ss 42(3) and 44.

Ibid., s 45.

Beatson et al. ( 2020 , p. 150).

s 11(3), SGA.

Ibid., s 13.

Ibid., s 15.

Ibid., ss 13 and 15.

Ibid., s 14.

Ibid., s 14(2A) and (2B) of the SGA; and Beatson et al. ( 2020 , p. 171) which indicates that the expression ‘satisfactory quality’ replaced the criterion of ‘merchantable quality’ as a result of the amendment of the SGA in 1994.

Ibid., s 14(3); and Beatson et al. ( 2020 , pp. 172–174).

Ibid., s 14(2A), SGA 1979, inserted by the Sale and Supply of Goods Act 1994.

s 11(3), SGA; and Beatson et al. ( 2020 , p. 150).

See in this respect, Wickman Ltd v Schuler AG [1974] AC 235 in which the court refused the termination of the contract for distributor’s failure to make one out of the 1400 mandatory visits over a period of four years. Also see, Beatson et al. ( 2020 , pp. 150–151).

[1976] QB 44. The case is also referred to as Cehave NV v Bremer Handelsgesellschaft mbH.

[1962] 2 QB 26. But see, Bunge Corp v Tradax Export SA [1981] 1 WLR 711, 724; and Lombard North Central Plc v Butterworth [1987] QB 527, 535.

See Treitel ( 2014 , pp. 984–985), referring to HongKong Fir [1962] 2 QB 26, 69.

Ibid., p. 70.

Treitel ( 2014 , p. 990 [18–053]).

Beatson et al. ( 2020 , p. 153).

Ibid., p. 152 referring to the decision of the Court of Appeal in Ampurious Nu Homes Holdings Ltd v Telford Homes (Creekside) Ltd [2013] 4 All ER 377 [44], [64].

[1976] QB 44, 60. Also see, Peacock ( 2003 , p. 109) at ff 109, referring to Atiyah ( 2001 , p. 81). Atiyah opines that an implied term will be treated differently from an implied condition. Thus, if an obligation.

‘is express, it may or may not be a condition in the strict sense, but if it is implied under the Act, then it must be (because the Act says it is) a condition—and it was assumed that this means a condition in the strict sense’.

See s 15A(1)(b), SGA.

Ibid., Sections 19, 20 and 22.

Ibid., Section 20(5).

Ibid., Section 9–18.

See, s 2(7), SoGA which defines the term ‘goods’ as ‘every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale’.

Although India has promulgated the Consumer Protection Act, 2019 to regulate consumer contracts, its provisions are not similar to its English counterpart that regulates consumer contracts on the sale of goods, services or digital content. The provisions of the Indian Act are of a general nature.

For a list of signatories to the CISG, visit, http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html (accessed 2 February 2021).

For a detailed discussion on the private international law of India vis-à-vis the applicable law in the absence of choice of the parties, see, Khanderia ( 2020a , b , pp. 439–442).

See s 28(1)(b)(iii), Arbitration and Conciliation Act 1996, Act No. 26 of 1996. See, s 1(2) which states that in matters of international commercial arbitration, the legislation will apply to the whole of India (including Jammu and Kashmir).

Maharashtra State Electricity Distribution Company Ltd [MSE] v Datar Switchgear Ltd and Ors [2018] 3 SCC 133.

[2018] 3 SCC 133.

Maharashtra State Electricity Distribution [MSE] v DSL Enterprises Pvt Ltd [2009] Arb LR 422, 2009 SCC Online Bom 413.

See the decision of the Supreme Court of India in MSE [2018] 3 SCC 133 [67], referring to the decision of the High Court in MSE [2009] Arb LR 422 [51], [53].

See the decision of the High Court in MSE [2009] Arb LR 422 [50].

(2012) 3 SCC 495, referring to the landmark verdict of the House of Lords in Photo Production v Securicor Ltd [1980] AC 827 (HL), 848–852.

(2012) 3 SCC 495, 497–498.

Ibid., p. 497.

See text accompanying note 46.

See, Om Prakash Baldve Kishan v U.O.I. & Another FAO (OS) No 14 of 1980 & FAO (OS) No 32 of 1980 [11]; Federal Commerce and Navigation Ltd v Molena Alpha Ltd [1979] AC 757; Bhadbhade ( 2014 , p. 779).

Bhadbhade ( 2014 , pp. 778–788).

Ibid., p. 778.

See, Citadel Fine Pharmaceuticals v Ramaniyam Real Estates Pvt Ltd Civil Appeal No. 6437 of 2011 [38]. Also see, Bhadbhade ( 2014 , pp. 849–853).

See, Fertilizers and Chemicals Travancore Ltd v Vellapally Bros Construction Pvt Ltd 1982 SCC Online Ker 281; Chand Rani v Kamal Rani (1993) 1 SCC 519; and Citadel Fine Pharmaceuticals v Ramaniyam Real Estates Pvt Ltd Civil Appeal No. 6437 of 2011. Also see, Bhadbhade ( 2014 , p. 860).

See, Citadel Fine Pharmaceuticals v Ramaniyam Real Estates Pvt Ltd Civil Appeal No. 6437 of 2011 [42].

See, Saradamini Kandappan v S Rajalakshmi & Ors (2011) 12 SCC 8.

s 2(f), ICA.

See, Bhadbhade ( 2014 , p. 839). s 53, ICA stipulates:

‘when a contract contains reciprocal promises and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract’.

Bhadbhade ( 2014 , pp. 839–840).

See, s 12(4), SoGA.

See in this respect, the decision of the Calcutta court in Calicut Engineering Works (P) Ltd v Batliboi Ltd (2007) 1 Cal LT 466 [15].

See, s 12, SoGA.

Ibid., s 12(3).

Ibid., s 12(4).

See, Indochem Electronic & Anr v Additional Collector of Customs AP (2006) SCC 721.

s 12(4), SoGA.

Ibid., ss 14–17.

Ibid., s 16.

Ibid , s 16(2); and Calicut Engineering Works (P) Ltd v Batliboi Ltd (2007) 1 Cal LT 466 [15].

Also see, Mulla ( 2012 , pp. 48–50).

s 15, SOGA.

See, the Sale and Supply of Goods Act, 1994.

See Beatson et al. ( 2020 , p. 171), referring to The Hansa Nord / Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44; and the Law Comm No 162, Sale and Supply of Goods, (1987), [2.9 ff] at ff 220.

See, Section 16(2), SoGA.

Ibid., Section 16(1).

Ibid., Section 15.

Ibid., Section 17.

Ibid., Section 11.

See, Lucknow Automobiles v Replacement Parts Co AIR 1940 Oudh 443; Mahabir Prasad Rungta v Durga Dutta AIR 1957 Pat 586; Venkateshwara Minerals Firm v Jugalkishore Chiranjitlal Firm AIR 1986 Kant 14; and Citadel Fine Pharmaceuticals v Ramaniyam Real Estates Pvt Ltd Civil Appeal No. 6437 of 2011.

s 62, SoGA.

See the decision of the English court in Wickman Ltd v Schuler AG [1974] AC 235; and text accompanying note 87.

See in this respect Section 15A (1), SGA.

[1962] 2 QB 26.

[1976] QB 44.

See, ss 45–54 of SOGA, which discuss the unpaid seller’s right to lien.

Ibid., s 55(1).

Ibid., s. 56.

Fertilizers and Chemicals Travancore Ltd v Vellapally Bros Construction Pvt Ltd 1982 SCC Online Ker 281.

Ibid., [118]–[140].

[1980] 2 WLR 283.

1982 SCC Online Ker 281, [101]–[105].

Ibid., [101].

Ibid., [104].

[1986] 3 SCC 156.

[1995] 5 SCC 482.

Ibid., [83], [84], [89].

Ibid., [83]–[87].

Ibid., [87]. However, the court erroneously stated that the decision of the House of Lords in Photo Production was prior to the enactment of the UCTA.

Ibid., [85].

Ibid., [79]–[80].

Ibid., [88].

Ibid., [82], [89].

Ibid , [87]–[89].

Ibid., [79].

Ibid., [89].

[1980] 2 WLR 283. See Ibid at [36].

[1995] 5 SCC 482, [31]–[37].

Ibid., [32], [38], [40], [47].

[2018] 3 SCC 133, [67] referring to the decision of the High Court in MSE [2009] Arb LR 422 [50]–[53].

1982 SCC Online Ker 281.

See generally, Khanderia, ( 2020a , b , pp. 52, 61–62).

[1980] AC 827.

See text accompanying notes 21–24.

Article 141 states that ‘the law declared by the Supreme Court shall be binding on all courts within the territory of India.’

See the decision of the Supreme Court of Canada in Hunter Engineering Co Inc v Syncrude Canada Ltd. [1989] 1 SCR 426.

ibid [154].

2010 SCC 4, [122].

Black ( 2015 , pp. 156–161) referring to National Westminster Bank v Morgan [1985] 1 AC 686; Cain v Clarica 2005 ABCA 427; and Cope v Hill 2007 ABCA 32.

Tercon Contractors 2010 SCC 4, [123].

Black ( 2015 , p. 161), referring to Richardson v Mellish ( 1824 ) All ER Rep 258.

[1952] AC 192.

Black ( 2015 , p. 152), referring to Kinnear v Canadian Recreation Excellence (Vernon) Corp 2010 BCSC 1899; and Shelton-Johnson v Delta School District No 37 2012 BCCA 439.

See the decision of the Canadian court in Tilden Rent-a-Car Co v Glendenning [1978] 83 DLR (3d) 400, 18 OR (2d) 601 (CA).

See in this respect, Gaunt v John Hancock Mut. Ins. Co. 160 F.2d 599 (2nd Cir., 1947).

Ibid., p. 609.

See the decision of the Supreme Court of Canada in Progressive Homes Ltd v Lombard General Insurance Co of Canada 2010 SCC 33.

See the decision of the Supreme Court of Canada in Jesuit Fathers of Upper Canada v Guardian Insurance Co of Canada 2006 SCC 21.

See, Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] AC 757.

See, Foundation Dev. Corp. v. Loehmann's 163 Ariz. 438 (1990).

[2018] 3 SCC 133, [67].

See the decisions of the Canadian courts in National Westminster Bank v Morgan [1985] 1 AC 686; Cain v Clarica 2005 ABCA 427; and Cope v Hill 2007 ABCA 32.

For a more detailed understanding on the structure of the UNIDROIT, see, Kropholler ( 1975 , pp. 7–15); and the UNIDROIT website,  www.unidroit.org/about-unidroit/overview  (accessed 16 August 2020).

The PICC is available at: https://www.unidroit.org/english/principles/contracts/principles2016/principles2016-e.pdf (accessed 14 February 2021).

See in this respect, Para 7 of the Preamble to the PICC.

See the decisions of the Delhi High Court in Sandvik Asia Pvt Ltd v Vardhman Promoters Pvt Ltd 2006 (2) CTLJ 305 Del; and Hansalaya Properties and Another v. Dalmia Cement (Bharat) Ltd RFA (OS) No.26/1986, Judgment pronounced on 20 Aug 2008. The court relied on Articles 4.1, 4.4 and 4.5, PICC to settle the parties’ claims.

See, Article 7.3.1, PICC.

See, Official Comment 2 to Article 7.3.1, PICC, p. 250.

Article 7.3.1(2)(a), PICC.

Ibid., Article 7.3.1(2)(c)-(d).

Ibid., Article 7.3.1(2)(e).

Huber ( 2015 , pp. 921, 923).

See, Article 7.3.1(2)(e), PICC.

See, Illustration 5 of the Official Comment to Article 7.3.1(2)(e), PICC; and Huber ( 2015 , p. 923).

See, Grebler ( 2007 , p. 410).

See, Fiona Cain, ‘Expert Opinion: London Remains No. 1 for Resolving International Commercial Disputes’ Law.Com International (24 August 2020), available at https://www.law.com/international-edition/2020/08/24/london-remains-no-1-for-resolving-international-commercial-disputes/?slreturn=20210314064208 .

See, Cuniberti ( 2014 , p. 473).

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Acknowledgments

The author would like to express her gratitude to Professor Stephan Vogenauer, Director of the Institute and Head of its Department: European and Comparative Legal History, Frankfurt for his their insights and comments on the doctrine of fundamental non-performance in the PICC.

The research has been funded by the Alexander von Humboldt Stiftung as per the Alexander von Humboldt Fellowship (Experienced Researcher) that was awarded to the author to conduct research at the Ludwig Maximilian University, Munich, Munich, Germany.

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Khanderia, S. The Ambivalent Notion of ‘Fundamental Breach’ in Indian Law of Contract: Towards a New Paradigm . Liverpool Law Rev 43 , 391–420 (2022). https://doi.org/10.1007/s10991-022-09300-y

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Accepted : 29 April 2022

Published : 02 June 2022

Issue Date : August 2022

DOI : https://doi.org/10.1007/s10991-022-09300-y

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