Chapter 9: Frustration Flashcards

Question

**Herne Bay Steam Boat Co. Hutton (1904)** ## Footnote Frustration of purpose

Answer 1

Facts 1. Boat hired for the purpose of 1) naval review and for a 2) day’s cruise around the fleet 2. Naval review cancelled due to king's illness Held 1. Contract **not frustrated** 2. On grounds that there were 2 purposes for the hiring of the boat Takeaway * It must be the sole purpose of the contract * If there are other purposes, it might not be valid frustrated

Answer 2

Introduction * Frustration due to **war** (which was the unforeseen event) Case * **Finelvet AG v Vinava Shipping Co. Ltd (1983)** * Fibrose Spolka v Fairbairn (1943) * FA Tamplin v Anglo-American Petroleum (1916)

Answer 3

Facts * War between Iraq and Iran trapped ships in the Gulf for a long period Held * Any contract related to any charter of these ships will be held **frustrated**

Answer 4

Introduction * Frustration due to any circumstances that the **government deems as illegal** to do so (e.g. illegal to kill sharks) Case * **Metropolitan Water Board v Dick Kerr (1918)** * **Gamerco SA v ICM/ Fair Warning Agency (1995)** - health & safety * Amalgamated Investment and Property Co Ltd v John Walker & Sons Ltd (1976)

Answer 5

Facts * requisitioning of property which had been allocated to a contract

Answer 6

Facts 1. Stadium had been booked for a pop concert was closed due to **health and safety reasons** Held * **Frustrated** Note * However, if government action was taken due to reasons by the defendant/claimant not complying with certain terms * Contract won’t be frustrated * As it was still their fault

Answer 7

1. Industrial actions – **The Nema (1981)** 2. Strikes 3. Lockdowns 4. Global pandemic 5. Running aground of a ship – **Jackson v Union Marine Insurance Co**

Answer 8

1. **Self induced frustration** 2. Foreseen or foreseeable events

Answer 9

Introduction * Party can’t plead frustration if the frustrating event was **brought about by his own conduct** or by the conduct of those that he is **responsible** for * Thus the D would not be able to rely on frustration and will be in breach of contract Definition * Hobhouse J in **The Super Servant Two (1989)** * Self Induced Frustration as a “**label**” which has been used by the courts to describe “those situations where one party has been held by the courts **not to be entitled** to treat himself as discharged from his contractual obligations”.

Answer 10

* **Maritime National Fish v Ocean Trawlers (1935)** * **The Super Servant Two (1990)**

Answer 11

Facts 1. D chartered a boat from claimants, but could only be used for otter trawl 2. An otter trawl could only be used by obtaining a license 3. D applied for 5 licences for 5 vessels that they operated 4. Given only 3 licenses 5. D elected/chose to **apply the licenses to the ships that they owned**, rather than the ones chartered from C 6. C sued under terms of the contract 7. D denied liability on grounds that the contract had been frustrated, due to failure to obtain the license (which was his own fault) Held 1. **Not frustrated** 2. It was the D’s choice to which boats they used the licenses for 3. ‘Frustration’ was held to be self-induced and ineffective to relieve D of liability Ratio (reason) * The fact that the **D elected/chose** to allocate the license to their own ships * The mere fact that the D had a **choice** to distribution of the license was sufficient to constitute SIF Takeaway * It was because he was the one that caused the outcome of the vessels of the C not being able to be used

Answer 12

Note * COA adopted this case to the 2 possible interpretations before it Facts 1. D agreed to transport the C’s oil rig - either using SS One or SS Two 2. Prior to the time of performance, D made a decision to **allocate SS Two to perform with the C**, and to allocate SS One to other concluded contracts 3. Before the fixed time for performance in the contract was concluded, SS Two sank while transporting another rig 4. Couldn’t use SS one (it was for other contracts) 5. C brought action for breach of contract 6. D denied liability on 2 grounds - 1) the sinking of SS Two; and 2) Force Majeure Clause in the contract Held 1. frustration - **rejected** - * COA held that the cause of non-performance of the contract was not the sinking, but the **decision of the D** to allocate SS One to performance for other contracts * Held to be sufficient SIF 2. ‘Force Majeure’ Clause - **effective defence** - * COA held that force majeure clause “perils or dangers and accidents of the sea”, was apt/able to cover the sinking of SS Two that its sinking was not attributable to negligence of the Takeaway * Rejected - **self induced** because the allocated the performance for other contracts * Allowed - But they escaped liability through the **force majeure clause**

Answer 13

Prof Treitel 1. An event is foreseeable if any person of **ordinary intelligence** would regard it as likely to occur 2. **Question of fact** - degree and extent depends on the facts of each individual case

Answer 14

* **Gold Corp Properties v BDW Trading Ltd (2010)** * Walton Harvey Ltd. V Walker & Homfrays Ltd (1931) * **The Sea Angel [2007]**

Answer 15

Facts 1. Company argued that the contract for development property was frustrated when there was a crash in property values Held * Not frustrated * On the basis that the risk was both **foreseen and provided by a clause** that permitted the renegotiation of minimum prices in such circumstances Note * ‘Force majeure’ and similar clauses may well replace the common law and statutory rules on frustration * Courts have tended to narrowly interpret these clauses (to keep them as it is)

Answer 16

Held - **Rix LJ** * “ ‘the **less that an event**, in its type and its impact, is **foreseeable**, the more likely it is to be a factor which, depending on other factors in the case, may lead on to frustration’. * It would depend on the facts (individual cases)

Answer 17

1. Contract valid until **discharged/ended/terminated automatically** by Frustration by operation of law 2. Discharge occurs **regardless** of parties intentions and actions - **Hirji Mulji v Cheong Yeong Steamship Co Ltd (1926)** 3. Discharge **at the time of frustrating event** (after contract has been entered) 4. All **future obligations** come to an **end** 5. Parties **can’t be sued** for breach of contract if not performed 6. Courts would have to **distribute/allocate losses**

Answer 18

1) Common law - old law 2) Statute - **Law Reform (Frustrated Contracts) Act 1943** - new law * **Section 1(2)** - Money paid or payable prior to frustration * **Section 1(3)** - Compensation for ‘valuable benefit’

Answer 19

Introduction * Obligations incurred **before/prior** to frustrating event happening **must be fulfilled** Example * Any obligations before FE - **must be fulfilled** (e.g. X deposited £100 - can’t recover) * Any obligations after FE - **no need to perform** (e.g. X incurred £900 (after FE) - can recover)

Answer 20

* **Chandler v Webster (1904)** * **Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943)**

Answer 21

Facts 1. Made booking for hotel room to watch king perform 2. King fell ill Held 1. Can’t recover losses before FE 2. Contract stated that the **full obligation to pay** for the room to watch the procession arose **before the frustrating event** 3. Where the loss fell would therefore depend entirely on what the contract said about when payment was to be made, or when work was to be done Note * But this old law could lead to injustice (see Fibrosa case)

Answer 22

Note * Overruled Chandler v Webster (case above) Facts 1. £1,000 had been paid under a contract for the supply of machinery which was frustrated by the German invasion of Poland in 1939 Held 1. Allowed to recover the £1000 2. HOL held there has been a ‘**total failure of consideration**’, as the party that paid had received nothing at all in return 3. Then the money paid **could be recovered** Takeaway * If there was **no consideration** in return of the payment, may be able to recover

Answer 23

**Section 1(2)** * Money paid or payable prior to frustration **Section 1(3)** * Compensation for ‘valuable benefit’

Answer 24

Before FE * Any money **paid** - must be returned * Any money **payable** - ceased/no need to pay

Answer 25

**No need** to prove **total failure of consideration** * Even if the received some form of consideration, can still recover money Not all the money is recoverable by the payor - if there is **incurred expenses** by the payee for the performance of the contract, **some of the money can be recovered** (for the court to decide the amount) * Amount to recover can’t exceed the amount of expenses incurred * Amount to recover can’t exceed the amount paid or payable under the contract

Answer 26

**Gamerco SA v ICM/ Fair Warning Agency (1995)**

Answer 27

Facts 1. Contract to hold pop concert frustrated due to closure of stadium by grounds of safety 2. Plaintiffs sought to recover $412,500 which had been paid 3. Ds pointed to some expenses which they had incurred and wanted to recover some money Held 1. In this case, judge **did not allow** Ds to recover any money 2. The judge decided that the £412,500 was to be paid in full Takeaway * It doesn’t mean that there was incurred expenses meant there would automatically be able to recover some money * **Overall justice** must be considered - if the incurred expenses was **specifically** done for the performance of contract (then likely recoverable)

Answer 28

Introduction * If a party has received a **benefit other than money** prior to the FE Just sum * this section allows the party to recover from the other party ‘such sum...**as the courts consider just**, having regard to all the circumstances of the case.’ * Courts will take into account any **incurred expenses** by the benefitting party and ‘the **effect**, in relation to the said benefit, of the circumstances giving rise to the frustration to the contract’

Answer 29

1) **Court decides** - The valuable benefit that the party (D) has received (section 1(3) doesn’t define what is benefit) 1. Could be **value of services** performed 2. Could be the **end product** of the services 2) The **Just Sum** that should be given to the other party (C) (which can’t exceed the value of the benefit that was conferred)

Answer 30

* **Appleby v Myres (1867)** * **BP Exploration Co (Libya) Ltd v Hunt (No 2) (1979)**

Answer 31

In an appropriate case - it is the **end product** that is the benefit * **Services by its very nature** which does not result in an end product (e.g. transportation of goods) * Services which result in the end product having **no objective** value (e.g. decoration) If the FE had the effect of **destroying the benefit**, nothing is recoverable under **Section 1(3)** * This has been subject to much criticism - Treitel, Haycroft & Waksman However, the interpretation of valuable benefit has been adopted in **Parsons Bro Ltd. v Shea (1966)** - * The D’s benefit is not the value of the claimants performance/value of service

Answer 32

**Robert Goff J** 1. The **ceiling amount** is the valuable benefit obtained 2. The contract **allocation of risk** will be relevant 3. ‘The **prevention of the unjust enrichment** of the D at the (C) **Lawton LJ** - COA * ‘What is just is what the trial judge thinks is just’ * It is of the **discretion of the trial judge**