Contract Law

The Liability of Cab Aggregators in India vis-à-vis their Consumers

Leave a Comment / Contemporary Issues, Contract Law /

[By Suyash Tiwari and Prakul Khera] Suyash is a student at the Hidayatullah National Law University, Raipur, and Prakul is a student at the Institute of Law Nirma University, Ahmedabad. The reputation of ride-hailing platforms like Uber has been marred with a plethora of cases involving sexual assault and negligence of its drivers. The case in the Indian context is no less different. These platforms are operating under such a regulatory grey area that they easily evade liability for the acts of drivers. The Motor Vehicles (Amendment) Act, 2019 introduced the term aggregator for these platforms which defines them as “digital intermediary or marketplace for a passenger to connect with a driver for the purpose of transportation”. This provision brought such platforms under the purview of the Motor Vehicles Act, 1988. However, the only body of law that governs the employment status of drivers engaged with these platforms is the terms and conditions of these aggregators. These terms and conditions that a user agrees to avail the services of these platforms provide that the drivers are independent third-party contractors and not employees of the company. Since the principle of vicarious liability doesn’t apply to independent contractors,[i] such clauses exempt the liability of these aggregators in case of any mishap. In the current article, the authors advocate for the liability of such aggregators for the acts of drivers.  Control test obsolete in the modern economy Under the control test, the employment status is determined not only through the control of the employer in directing what work is to be done but also through the control exercised over the manner of doing work. [ii]However, In Silver Jubilee Tailoring House v. Chief Inspector of Shops, the Supreme Court of India held that the control test can’t be treated as an exclusive one for distinguishing a ‘contract of service’ from ‘contract for service’ and it would be more reasonable to examine all the factors that constitute the case in hand. It was further opined that it would be unrealistic to apply the test of control in many skilled employments for determining the existence of a master-servant relationship. Therefore this test can’t be treated as a precise one for ascertaining the employment status of the drivers. A progressive test was propounded in Stevenson Jordan and Harrison Ltd. v. Macdonald and Evens. It was held that a person is under a contract of service when the work performed by him is an integral part of the business, whereas the person is under a contract for service when the work is ancillary to the main business. The rationale for using this test is that the functions which constitute a contract of service are the sole source of revenue for a corporation. Since transportation is an integral part of the business and constitutes a major source of revenue, the drivers should be treated as employees of the aggregators Position in other jurisdictions In 2015 a United States District Court for the District of Columbia in Erik Search v. Uber, where the driver had stabbed a rider, made Uber liable to pay damages. The court relied on the apparent agency theory which stems from the so-called duck test. According to this test, “if it walks like a duck, swims like a duck, and quacks like a duck, it’s a duck.” The rationale that stems from this test is that liability can be imputed to the principal if he, through his words whether written or spoken or any other conduct makes a third party believe that he has consented to the acts done on his behalf by the apparent agent. Hence the perception of a third party with respect to the agent’s authority is significant in determining the liability. Therefore, taking into account the way Uber functions, the court held that the riders were under a reasonable belief that the drivers were indeed the employees. Similarly, in Doe v. Uber Techs., Inc., where the driver had raped a consumer, the District Court for the Northern District of California held that drivers were employees and Uber was vicariously liable for their conduct. While holding so, the Court relied on a set of the factual matrix. These include, inter alia, the fact that the drivers can’t negotiate the fares and the same are set by Uber without any input from the driver. Further Uber has the authority to alter the amount being charged from customers if the driver takes a circuitous route. Thirdly, control over customer contact information lies with Uber. The drivers have to accept all rides requests when logged into the application or else they have to face disciplinary actions. Lastly Uber retains the right to terminate drivers at will. In Uber France v. M. A. X, the Court of Cassation (the highest court in France) classified the drivers as employees and not self-employed. The Court laid down a three-limb test to categorize a person as self-employed. Under this test, if the person can build his own client base, fix the tariff to be charged on his own, and set the terms and conditions for providing the service, only then, one can be classified as self-employed. Further, according to the Court, as the drivers were following orders from Uber, there was a relationship of subordination between the Company and the drivers. The High Court of Australia in Hollis v. Vabu Pvt. Ltd. held that persons employed as bicycle couriers by Courier Company under a ‘contract for service’ who owned their bicycles and also bore the expenses of running them, were employees. The court relied on the fact that their uniforms bore the logo of the company which represented to the general public that they were employees. As Lord Peace stated in Imperial Chemical Industries Ltd v Shatwell “the law of vicarious liability has evolved from social convenience and rough justice and not from any clear logical or legal principle.” Therefore, the Indian courts must take into consideration the principles evolved by the foreign courts as they reflect an approach

The Liability of Cab Aggregators in India vis-à-vis their Consumers Read More »

Applicability of the Penalty Doctrine to Primary Obligations – an Indian Perspective

Leave a Comment / Contract Law /

[By Tvishi Pant and Alefiyah Shipchandler] Tvishi is a student at ILS Law College, Pune and Alefiyah is an associate at Keystone Partners, Mumbai. Introduction Contract law allows parties to stipulate a certain sum payable upon breach of a contract. Section 74 (“S. 74”) of the Indian Contract Act, 1872 (the “Act”) provides for the payment of liquidated damages by a defaulting party upon breach of contract. Although the law surrounding the parameters of S. 74 is largely settled, there remain slight uncertainties in the scope of its applicability to scenarios where there has been no breach of contract. Background – The Penalty Doctrine The ‘penalty doctrine’ has its origin in equity. Broadly stated, it suggests that a clause providing for payment of a sum of money upon breach of contract may be unenforceable if it goes so far beyond the measure of compensation that it appears to be a penalty. The basic understanding of this doctrine has its roots in the case of Dunlop Pneumatic. This judgment laid down that if a particular sum is payable upon the breach of a contract, it would be regarded as a penalty if it “exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach”. The penalty doctrine, thus, resulted in the formulation of a fundamental distinction between a ‘penalty’ and a ‘genuine and reasonable pre-estimate of damages’. Where an amount is named in a contract as liquidated damages, the party complaining of a breach will be entitled to receive a liquidated amount of reasonable compensation,      provided it is a genuine pre-estimate of damages. In other cases, only reasonable compensation will become payable which will not exceed the liquidated amount so stated. The Supreme Court of India has time and again interpreted S. 74 of the Act in line with the aforementioned formulation of the penalty doctrine, and hence has allowed liquidated sums to be taken into consideration as the measure of reasonable compensation, where it is not in the nature of a penalty. Application of S. 74 in Non- Breaches A pertinent question which has time and again arisen, and largely remains unanswered, is whether such relief against unreasonable penalty clauses will be available to parties even where the event triggering the penalty is not a breach of contract. Contractual clauses contemplating both scenarios, by way of illustration, are as under: Clause A – Occurrence of a breach “We agree to pay for ABC Ltd. a sum of Rs. 100/-. for each and every product, good or item sold or offered in breach of this agreement, as and by way of liquidated damages and not as a penalty.” Clause B – Occurrence of an event other than a breach “If you request a withdrawal or payment from your account which would overdraw your account, XYZ Bank may allow the withdrawal or payment to be made on the condition that  Rs. 50,000/- may be charged for XYZ Bank agreeing to honor the transaction which resulted in the overdrawn amount. This amount will be debited to your account.” As is evident from the heading of S. 74, it is certainly attracted to Clause A, which contemplates a breach. It is, thus, necessary to assess the viability of extending its scope to deal with events other than breaches as well, such as Clause B. Application of the Doctrine in Foreign Jurisdictions Australia Up until 2015, Australian Courts had held that the penalty doctrine was limited to stipulations that were triggered on breaches of contract. However, in 2015, the  Andrews case marked a significant departure from this law. The Court reasoned that historically, the “conditions” that triggered payment of a sum were not always breaches of existing contractual obligations. It was essentially held that the penalty doctrine was not limited in application to stipulations involving breaches of contract and that the event that triggered payment need not be restricted to a breach, in order to assess its position under the penalty doctrine. This judgment was affirmed by the Australian High Court in 2016, in Paciocco. It is arguable that such an approach opens doors to an uncontrollably wide jurisdiction over contractual freedom and autonomy, by which simple matters of commercial prudence (or even lack thereof) fall within the purview of judicial inspection. United Kingdom The position in the United Kingdom has largely remained unchanged. One of the first few cases dealing with this question was Export Credits, where it was held that it has never been for the Court to relieve a party from the consequences of what may prove to be an onerous or commercially imprudent bargain. In 2015, the Supreme Court’s judgment in Cavendish made a very important distinction between ‘primary obligations’ and ‘secondary/ accessory obligations’ for the purposes of determining whether the penalty doctrine applied where there has been no breach of contract. The Court held that, “The penalty rule regulates only the remedies available for breach of a party’s primary obligations, not the primary obligations themselves.”[i] While the Court did not categorically lay down the difference between such ‘primary’ and ‘secondary’ obligations, it appears to have proceeded on the assumption that a ‘primary’ obligation is one which is fundamental to the performance of a contract, and that the breach of such ‘primary’ obligation will give rise to a ‘secondary’ obligation to pay a certain amount to the innocent party as and by way of relief. The Court thus held that, “This means that in some cases the application of the penalty rule may depend on how the relevant obligation is framed in the instrument, i.e., whether it is mentioned as a conditional primary obligation or a secondary obligation providing a contractual alternative to damages at law. Thus, where a contract contains an obligation on one party to perform an act, and also provides that, if he does not perform it, he will pay the other party a specified sum of money, the obligation to pay the specified sum is a secondary obligation

Applicability of the Penalty Doctrine to Primary Obligations – an Indian Perspective Read More »

Substituted performance: A new perspective in Specific Relief (Amendment) Act, 2018

Leave a Comment / Contemporary Issues, Contract Law /

[ Sayak Banerjee ]   The author is a 2nd year student of NLU, Jodhpur. The Specific Relief (Amendment) Act, 2018( the Act), published in the official gazette on 1stAugust, 2018 amends the Principal Act, the Specific Relief Act, 1963. The Act came with multitude of changes relating to the enforcement of contracts in India. The said Act was passed without discussing the importance of its impact in both Houses of Parliament, disregarding the scope of this Amendment impacting not only contractual obligations of businesses but also of common people. The Amendment was passed without taking the opinions of other stakeholders, judges, advocates, businessmen, alike. With the amendment coming hastily, the objective sought to be achieved was preventing any hindrances to infrastructure projects. It can also be seen as a genuine effort by India to climb the ranks in World Bank’s Ease of Doing Business Index. But in achieving the said objectives, the Parliament forgot that the Act applicable to everyone personally also. The most important change has been brought in Chapter II of the Specific Relief Act, 1963, dealing with specific enforcement of contracts. Within the Chapter, the Act has introduced the concept of ‘substituted performance.’[[i]] This essentially means that on breach of contract, the party who has been affected by such breach, has the option of substituted performance through third parties or by his own agency, the cost of which is to be borne by the defaulting party. This cost cannot burden the party who has been affected by such breach gives a 30 day notice obligating the defaulting party to fulfil the obligations of the contract. If there is failure on part of the defaulting party to perform after receiving the said notice, then the affected party has the option of substituted performance. It needs to be noted that if the party exercises the option of substituted performance he forfeits the right to sue for specific performance, though the parties are not precluded from obtaining compensation from the defaulting party. Section 11 of the Act has removed the discretion of court by replacing “may, in the discretion of the court, be enforced” with “shall be enforced by the court,” thereby making specific performance a statutory remedy, subjected to preclusion due to the limited grounds mentioned in the statute.[ii] Prior to the amendment, Section 14 allowed specific performance wherein compensation was not provided as adequate relief. The amendment has done away with this requirement, ensuring the generality of specific performance as a remedy in the statute. One of the grounds mentioned now in Section 14, is substituted performance. In addition, specific performance is precluded from being granted as a relief to a person, if substituted performance has been availed, notwithstanding, that Section 20(3) already provided for preclusion to avail specific performance when substituted performance has been availed. A conundrum therefore, arises on considering substituted performance as option available to the parties, on one hand, the Court is implicitly enforcing the contract through substituted performance. And on the other hand, the substituted performance as a ground for contracts cannot be specifically enforced in Sections 14 and 16. This shows redundancy on the part of the lawmakers, but the main question remains unanswered whether substituted performance is equivalent to enforcing the contract, because if that is not the case, then why is the option under Section 20 available to the parties. A cross-jurisdictional analysis reveals that UK gives third parties the right to enforce contractual terms, and availability of specific performance as a remedy.[[iii]] The concept of substituted performance  as specific performance was introduced in UK through the case of Liberty Merican Ltd. v. Cuddy Civil Engineering Ltd., wherein in place of defaulting performance bonds, Court directed the defaulting party to deposit a sum of money as substituted performance.[[iv]] In Canada, as per Article 1602 of the Quebec Civil Code, a promisee can avail the right of substituted performance provided the promisor is notified, allowing the promisee to get the contract performed at the expense of the promisor.[[v]] When we consider contractual remedies, damages do not help in mitigating the losses that arise from expenses that are indirectly incurred in getting the contract performed. Moreover, injunctions are a way by which the status quo is protected, but specific performance in the form of substituted performance helps in bringing the changed relationship between the parties that was originally intended to be brought,  and allows the aggrieved party to restore to the position it would have been in had the breach not occurred. Therefore, it is the most effective alternative to the event of breach, in comparison to injunctions and compensations. [[i]]Specific Relief (Amendment) Act, 1963 No. 18 of 2018, s 20. [[ii]]Specific Relief (Amendment) Act, 1963 No.18 of 2018, s 11. [[iii]]Contracts (Rights of Third Parties) Act 1999, s 1(5). [[iv]]Liberty Merican Ltd. v. Cuddy Civil Engineering Ltd. [2013] EWHC 4110 (TCC). [[v]]Civil Code of Quebec CCQ-1991, Article 1602, Chapter VI.

Substituted performance: A new perspective in Specific Relief (Amendment) Act, 2018 Read More »

Specific Relief Amendment Bill, 2018: Importance of Discretionary Power of the Court with Relation to Specific Performance

Contract Law /

Specific Relief Amendment Bill, 2018: Importance of Discretionary Power of the Court with Relation to Specific Performance [Jennifer Maria D’Silva] The author is a 4th year BA LLB (Hons) student of School of law, Christ University, Bengaluru Introduction: The Specific Relief Amendment Bill, 2018[1] (henceforth referred to as the bill) which was passed by the Lok Sabha in 2018 had recommended several changes to the Specific Relief Act, 1963 (henceforth referred to as the Act). Some of the major changes that was seen in the Amendment Bill was the changes in certain provisions and words that gave the courts discretionary powers, the substitute performance, special courts, experts and so on. The main focus here would be on the provisions relating to the courts discretionary powers and the previous decisions of the courts regarding importance of the same. Though there are provisions mentioning the grounds under which specific performance under the Act could be denied but the discretion still lies in the court as to whether to award the same of not. Provisions to be changed in the Amendment Bill with regard to Specific Performance:- Under the Act specific performance of contracts is seen under Section 11 which states that ‘specific performance of a contract may be enforced according to the courts discretion’ is to be amended by the Bill and changed to ‘specific performance shall be enforced’, taking away the discretionary power of the court. Section 14, which lists the contracts that cannot be specifically enforced is also amended. The main provisions that were removed were: contracts where compensation is adequate (Section 14(1) (a))  – to be replaced by ‘where a party has receive substitute performance’. Substitute performance is when the party whose contract has not been performed can get the said performance done by a third party. Section 20 of the Act is also to be amended by the Bill, the present provision talks about discretion as to decreeing specific performance, this will be changed to provisions regarding substitute performance and the manner in which substitute performance could be done by the aggrieved party. Under Section 21 of the act compensation could be given ‘in substitution or in addition to specific performance’, the same is changed in the bill to ‘in addition to specific performance’ ensuring that specific performance be given and compensation would not be an alternative. Importance of Court Discretion in Specific performance cases Before compensation was the only means of redressal for breach of contract and it was noticed that many people were not satisfied with the monetary remedy they received and so specific performance was considered for those that preferred their contract be completed than receiving monetary compensation. Though at first it was not preferred as the courts did not have the power to enforce such orders but when the court were given the power for the same more people started claiming specific performance. The specific performance was first seen in the Court of Chancery where this was given in cases of property disputes. In the Indian scenario the Specific Relief Act was first enacted in the year 1877 on the lines of the New York Civil Code, 1867. This legislation had a lot to clarify and the same was replaced by the current Act.[2] The rule for a long time was considered to be compensation and specific relief the exception, when no other relief is available[3]. Specific Relief was only given in cases where the compensation could not be determined or the compensation would not suffice for the damages[4]. When giving specific performance the provisions were not solely considered, but the court was guided by the principles of equity[5].Specific performance was only granted by the courts when exercising its discretionary power because specific performance isn’t considered a matter of right[6]. It is because of the discretionary powers that the courts have found certain circumstances where specific performance could be substituted with compensation and cases where specific performance was considered better. It was considered by the courts that if a commodity is easily available then compensation would be adequate as the same commodity could be bought by the claiming party.[7] But in cases where the commodity is not easily available then specific performance could be granted.[8] It is also seen that the courts consider the interests of the parties when awarding specific performance, mainly such a relief is given when there is readiness and willingness to do by the party.[9] Hence specific performance is given on reasonable conditions and not for the advantage of the claimant and disadvantage of the respondent. Things like permission of an authority for specific performance would not bar the same[10].Also there were times when the disadvantage of the party was considered due to escalation of prices, yet the court held that mere escalation of prices would not amount to refusal of specific performance.[11] There are times when time is the essence of the contract and non completion of the same would make the claimant not want the performance done. In such cases if claim cannot be given after a certain time,[12] the damages are given instead of specific performance. The intentions of the claimant are very important when considering the decision of the courts. The court looks into the circumstances of both parties as well in order to determine whether the claims were just or not. Parties are not allowed to benefit from their own negligence and to seek relief as a result from it.[13] These are some of the circumstances where the court gives proper thought before granting specific performance. Conclusion: It is seen that the specific performance should be in the discretion of the court for various reasons mainly the circumstances stated above. The circumstances under which each party approach the court has to be taken into consideration when dealing with specific performance. The importance of the court giving specific performance in certain cases is to ensure that the best relief is given for both the parties and to ensure that proper compensation is received. The court looks into

Specific Relief Amendment Bill, 2018: Importance of Discretionary Power of the Court with Relation to Specific Performance Read More »

Scroll to Top