Contract Law -> Frustration

Question 1

Explain how the courts decide whether a contract has been frustrated

Answer 1

A contract may be discharged by frustration if there exists a significant change in circumstances after the contract was made.

Question 2

Case law for Frustration

Answer 2

National Carriers Ltd v Panalpina Ltd (1881)

National Carriers Ltd granted Panalpina a 10-year lease of a warehouse. The sole access point to this warehouse was closed down for 20 months by local law enforcement due to a heath risk at a neighbours property. Panalpina could not use the property so therefore did not pay the rent.
Has the lease been frustrated?

Court ruled that the lease had not been frustrated. The doctrine of frustration was applicable to leases in exceptional circumstances. The interruption of 20 months in a 10-year lease was not significant enough to destroy the entire contract and, therefore, Panalpina were obliged to pay rent for the full term.

Question 3

Explain what is meant by force majeure

Answer 3

The force majeure clause allows parties to suspend or terminate their contractual obligations when faced with extraordinary events (i.e natural disasters). It acknowledges that circumstances beyond their control may prevent them from fulfilling their duties.

Question 4

Explain the effect of the Law Reform (Frustrated Contracts) Act 1943

Answer 4

The act amends previous common law rules on the complete or partial return of pre-payments, and ensures that the sums paid would become either partially or fully recoverable.

The act aims to prevent unjust enrichment of one party at the expense of the other.

Question 5

Examples of when a contract can be frustrated

Answer 5

Destruction of Subject Matter: If the subject matter of the contract is destroyed - Taylor v Caldwell

Personal Incapacity such as illness - Morgan v Manser

Illegality: If the contract becomes illegal to perform

Impossibility of Performance: If the contract cannot be performed as specified

Question 6

Examples of when a contract can not be frustrated

Answer 6

Increased Difficulty or Expense: A contract won’t be frustrated merely because it becomes more difficult or expensive to perform.

Fault of Either Party: If the impossibility of performance is the fault of either party, frustration won’t apply.

Force Majeure Clauses: If the contract contains a force majeure clause covering the event, that clause prevails over frustration.

Foreseeability: Frustration won’t exist if the frustrating event should have been foreseen.