Case study Japanese Firm vs. Indian Institute of Science, MBA, Study Material, Business Law.

1. Japanese Firm vs. Indian
Institute of Science

2. Background
• Japnese Company agrees to supply supercomputer to IIS, 18th October, 2013
• MoU stipulates the contract to be finished within a given time 7th October, 2014.
• Clause on the contract is strike days will be adjusted in the contract in case of it happening in Japanese
manufacturing plant
• During Transit, the Bombay Port went on strike, which resulted in non-performance of contract by the
Japanese firm
• IIS claim compensation for non-performance

3. Issue
• IIS asking for compensation for non-performance of the contract.
• Non-delivery of product which leads to no installation in the IIS
• IIS has to suffer as they couldn’t use the technology which must have hampered their operation.

4. Relevant Provision
• Contained a clause in the contract, “if a contracting party fails to discharge the contract within the stipulated time the party shall
compensate the other by paying the adequate amount to enable the other party to procure alternative service provided if there is a strike
in the plant of the Japanese contracting party, the number of days of the strike shall remain excluded from the period of calculation of
time. The Japanese party has to bear all the expenses of installing the super computer in the institute.
• No provision from IIS to include happening and events like strike and their relevant solutions in the contract.
• Discharge of contract from non-performance of the duty by breach of contract
• Commercial Impossibility has can be interpreted; closing of Bombay Port doesn't allow the Japanese firm to complete their part of
agreement.
• Walton Harvey Ltd v Walker & Homfrays Ltd [1931] 1 Ch 274 (A party cannot rely on an event which was, or should have been, foreseen by
him but not by the other party.)

5. Relevant Provision
• Where performance is impossible, the parties may be discharged from performing the contract.
• It is important to distinguish between impossibility and frustration (impracticability or commercial frustration – the duty would be possible
to perform but would be burdensome for party whose performance is due)
• The doctrines of impossibility and frustration are only applicable in cases where the risk of the events which render (=cause to become or
make) performance impossible or frustrated is not allocated (=assigned or allotted) by the parties themselves or held by the courts to
have been implicitly assumed by one of the parties. If a contract is rendered impossible or frustrated, then the parties are automatically
released from their obligations to perform.
• The contract will not be frustrated if the performance can be carried out in any other manner (Air shipment)
• Impossibility does not include commercial impossibility; for example, where the performance of the contract becomes onerous

6. Relevant Provision
• Brief Fact Summary. The Plaintiff, Transatlantic Financing Corporation (Plaintiff), sued the Defendant, the United States (Defendant), in
quantum meruit after it was forced to take the longer route from Texas to Iran around the Cape of Good Hope rather than the shorter
route through the Suez Canal.
• Held. No. The D.C. Circuit Court of Appeals sets forth a three-part test for impossibility:
(1) something unexpected must have occurred
(2) the risk of the unexpected occurrence must not have been allocated by contract or custom and
(3) the unexpected occurrence must have rendered performance commercially impracticable. Here, the first requirement is met.

7. Analysis
• No clause in the contract which includes the case of strike in India
• No mode of transport mentioned in the contract
• Japanese firm should have foreseen these events and entered the clause in the contract
• The situation is not commercial impossibility, but frustration, as even though the Bombay Port has been shut down, there are alternate
methods of shipment available to fulfil their part of the promise through air, although it may drive up the costs and other factors.

8. Conclusion
• Since there is time left in the contract, Japanese firm can either take a decision to fulfil their part of the promise by choosing an alternate
route.
• Or they will be liable to pay compensation to IIS, due to non-performance of the contract, and subsequent damage inflicted by not getting
to use the computer systems.

9. Thank You