The Concept of No-Fault Liability in Contracts for the Sale of Goods

Abstract

The concept of no-fault liability has its roots in the law of torts. However, this concept has been intricately associated with the modern laws of contracts and sale of goods. It basically means that a party can be held liable irrespective of whether it was at fault or not when it fails to perform its obligations under the contract. The UN Convention on Contracts for the International Sale of Goods, 1980 (CISG) considers no-fault liability as an inherent principle under Article 79 which deals with exemption of a party. Similarly the Indian Contract Act, 1872 under Sections 56 and 65 lay down in express terms that a party need not be at fault for it to be held liable for non-performance of its obligations under the contract. Essentially having its origin in common law, no-fault liability is considered to be a vital part of compensation systems concerning sales contracts and is designed to overcome alleged deficiencies of fault based compensation systems prevalent in civil law systems. The purpose of this paper is to analyze the fairness and the rationale of no-fault liability in the context of sale of goods both in India as well as in the international context and its relevance as regards determining appropriate remedies during an event of force majeure or a frustration of the contract. Apart from presenting a picture of the common law and civil law systems on the question of fault analysis, this paper will also present an in depth analysis of the relevant provisions in the CISG and the Indian laws on the concept of no-fault liability.