CONTRACT - WEEK 7

Question 1

Fox v Mackareth [DISCLOSURE]

Answer 1

The law does not impose a duty to disclose in the absence of an obligation to do so

Question 2

Couturier v Hastie [COMMON MISTAKE]

Answer 2

FACTS:

RATIO

Question 3

Couturier v Hastie [COMMON MISTAKE]

Answer 3

FACTS:
C engaged D to sell corn in return for commission. The corn had already been sold off before the contract was entered into because it perished. C sued D for the price of corn, arguing that C attained title to the goods and bore the risk of the goods being lost, damaged or stolen.

RATIO
C’s claim failed as the contract of sale was void due to a total failure of consideration. Contrary to what the parties contemplated in the contract, there was not an “existing something to be sold and bought” because the corn did not exist at the time of the contract.

“In these cases I am inclined to think that the true analysis is that there is a contract, but that the one party is not able to supply the very thing, whether goods or services, that the other party contracted to take; and therefore the contract is unenforceable by the one if executory, while, if executed, the other can recover back money paid on the ground of failure of the consideration”.

DIFFERENCE INTERPRETATIONS:

Interpretation #1 - Sale of Goods Act: Seems to codify Couturier and say a mistake as to the existence of the subject matter renders a contract void. Mistake was not referred to in the judgment!
Interpretation #2 - Denning LJ, Solle v Butcher [1950]: The contract was void because there was an implied condition precedent that the contract was capable of performance. Says nothing about when the court will imply such a condition precedent.
Interpretation #3 - McRae v Commonwealth Disposals [1951], HCA: The question of whether or not a contract is void depends on construction. In this case, D purported to sell C a wreckage that did not exist; C succeeded for damages for breach of contract. D argued the contract was void due to common mistake as to the existence of subject matter: Couturier was distinguished because D here had promised the subject matter existed, assuming the risk of non-existence.

Question 4

Bell v Lever Bros [COMMON MISTAKE]

Answer 4

FACTS: D agreed with C that they would not make any profits as chairman, but they did. C wished to terminate to reorganise their business so entered into a severance agreement to pay off D to relieve them of their duties: at the time, D did not have their breaches in mind and C did not know of them. C sued D to recover the compensation money when they found out, as they could have terminated earlier and without paying compensation.

RATIO: The contract was not void - the common mistake was as to quality that did not render the severance agreements “essentially different from the thing it was believed to be”, as C still got exactly what he bargained for by paying for release. It is “immaterial” that C could have got release another way, or that if he had not been mistaken, he would not have entered into the bargain.

Key test - Bell v Lever Brothers: The mistake of the parties must relate to “an essential and integral element of the subject matter of the contract”.
The mistake must “relate to something which both parties must necessarily have accepted in their minds as an essential element of the subject matter”.
Three categories of mistake mentioned in the case:
i) Res sua: If A buys a house from B, forgetting A owns the house, the contract will be void, so it is an impossibility you can buy what you already own.
ii) Res extincta (a thing which no longer exists):
Couturier v Hastie: The grain was destroyed before the contract. You cannot contract for something no longer existing, so the contract is void.
iii) Quality: “In such a case mistake will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be”.
In the absence of a representation or warranty, it does not matter if A and B believe they are trading an original artwork, when it is a replica.

Types of common mistake (Lord Atkin):

Mistake as to the existence of goods sold: As per s6 Sale of Goods Act, a contract is void if the article perished before the date of sale and the seller did not know this.

Mistake as to title of goods sold: Where the buyer is already the owner of what the seller is selling, the sale is void as the buyer already owns the good (Cooper v Phibbs).
It is too wide to apply this generally. Where the seller has no title, but both parties think he has, there is a contract but the seller has committed a breach of warranty as to title or is not able to perform. The contract is unenforceable but not void.

Mistake as to an essential quality of goods sold: This will not void a contract unless it is “the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be”.
Lord Thankerton’s test: The mistake must “relate to something which both parties must necessarily have accepted in their minds as an essential [and integral] element of the subject matter”.
If A buys a picture from B and A and B are under the common mistake that it was painted by X, so a high price is paid, A has no remedy in the absence of representation or warranty. This is so whether B shared the mistake or not.

Obiter: Lord Atkin - implied terms as an “alternative mode” of viewing common mistake: There is an implied term based on the parties’ intentions that a certain condition does or does not exist. If the term is breached, the contract becomes void.
Views Krell v Henry this way.
The “common standard” for common mistake and implied conditions: “Does the state of the new facts destroy the identity of the subject-matter as it was in the original state of facts?”

Question 5

McRae v Commonwealth Disposals Commission [COMMON MISTAKE]

Answer 5

FACTS: D invited tenders for the purchase of a wrecked tanker (that did not exist) and C won. C incurred considerable expenses on the assumption that they had bought a tanker. C brought an action for breach of contract. D claimed the contract was void due to common mistake as to existence of subject matter.

RATIO: D’s argument that the contract was void was rejected. C succeeded in claiming damages for breach of contract - upon proper construction, a contract did exist between C and D for an oil tanker, and as the tanker did not exist, this was a breach of contract. Couturier did not force the court to hold the contract void for the two reasons below.

Couturier v Hastie can be distinguished on two grounds:

The ratio was not about voiding a contract due to non-existence of subject matter, but failure of consideration: Doubts whether there is a doctrine of common mistake!

Failure of consideration: Upon construction in Couturier, there was not an absolute obligation to pay the price on delivery of the shipping documents (as C contended), but an obligation to pay only if the documents represented contract goods in existence and capable of delivery. As the goods were non-existent, there was a failure of consideration.
“This language clearly imports the existence of a contract. If there were no contract, there could be no failure of consideration”.

The question of whether the contract was void only would have arisen if C suffered loss through non-delivery and sued for damages. Then, the real question would be whether the contract was subject to an implied condition precedent that the goods existed.
The question is whether the seller promised to “perform his part at all events, or only subject to the mutually contemplated original or continued existence of a particular subject-matter”.

A party cannot rely on mutual mistake where the mistake consists of a belief which is i) entertained without any reasonable ground and ii) deliberately induced by him in the mind of the other party.

If the court was wrong and such a doctrine of common mistake does exist, Couturier can still be distinguished as, there, the parties shared the common assumption that the corn existed.

Here: i) D took “no steps to verify what they were asserting” and had “no reasonable ground” for their mistake (so cannot rely on it). ii) D had actually promised the tanker existed and assumed the risk that it did not, so they were responsible for the buyers relying upon their assertion (as the buyers did not have equal knowledge of the situation)
i) This is not a case where the parties proceeded on a common assumption of fact (having equal knowledge) to justify the correctness of the assumption becoming a condition precedent.
Even if Couturier was a mistake case, it still does not apply here.

Question 6

Associated Japanese Bank v Credit du Nord [COMMON MISTAKE]

Answer 6

FACTS: X (a fraudster) sold four packaging machines to C and obtained a lease-back of the machines. C paid D to guarantee payments from X with the machines. When X went bankrupt, it was discovered that the machines did not exist. C brought a claim to enforce the guarantee. D said the guarantee contract was void for common mistake.

RATIO: Outcome: The contract was void for common mistake as the machines did not exist. The fact that both parties acted on the assumption that the machines existed and would not have entered into the transaction had they known the truth is not determinative, but 2) and 3) are fulfilled as well.

Steps in considering common mistake

Before mistake can be considered, a court must first determine if there is an “express or implied condition precedent or otherwise [that] provides who bears the risk of the relevant mistake”. “Only if the contract is silent on the point, is there scope for invoking mistake”.
Applied: There was either an express condition, or, failing that, an implied condition that there was a lease over existing machines. This is determinative of this case, but the court still discussed mistake.

The mistake must render the subject matter “essentially and radically different from the subject matter which the parties believed to exist” (Bell).
Applied: The guarantee of obligations under a lease with non-existent machines was “essentially different” from a lease with existent machines.

D who has no reasonable grounds for his mistake cannot rely on his mistake (McRae).
An example is where a man makes a contract with “minimal knowledge of the facts to which the mistake relates but is content that it is a good speculative risk”.
Applied: D had reasonable grounds for believing the machines existed.

OBITER:
Mistake in equity: “A narrow doctrine of common law mistake (Bell), supplemented by the more flexible doctrine of mistake in equity (Solle), seems to me to be an entirely sensible and satisfactory state of the law”.

Policy behind common mistake: “The law ought to uphold rather than destroy apparent contracts”, so the rules relating to mistake as to quality of subject matter should cover “unexpected and exceptional circumstances” only.

Question 7

William Stidnall plc v Cambridgeshire CC [COMMON MISTAKE]

Answer 7

FACTS: C agreed to purchase land from D, who represented that they were not aware of any easements over the land. A private sewer was found under the site. The value of the property fell by £3 million due to unrelated reasons. C sought rescission for misrepresentation and for common

RATIO: D’s statements did not amount to a misrepresentation and therefore C was not entitled to rescind. There is also no ground for mistake because the contract allocates risk to C.

Before a mistake or frustration claim is considered: Does the contract deal with “the new situation which has arisen by reason of a change of circumstances (frustration) or the emergence of a factual situation different from that which was assumed (mutual mistake)”?
If yes, there is no room for frustration or mistake.

Applied: Here, the contract expressly says it is subject to all easements other than those of which the vendor knows or has the means of knowledge: “this allocates the risk of such incumbrances to the buyer and leaves no room for rescission on the ground of mistake”.
If the contract did not expressly say this, the general rule of caveat emptor would allocate the risk of an unknown defect to C.
The judge therefore wrongly held that there was no remedy at common law for common mistake but that equitable mistake could be available, implying the mistake was “fundamental”, yet not “essentially and radically different from what it was supposed to be”.

OBITER: imilarities to frustration: Common law common mistake must involve something “essentially and radically different” to that imagined; frustration must lead to performance being “radically different” from what was intended (Davis v Fareham).

Question 8

Green Peace Shipping Ltd v Tsacliris Salvage (international) Ltd [COMMON MISTAKE]

Answer 8

FACTS:
D agreed to provide salvage services to X, hiring C’s vessel. Both parties mistakenly believed C’s vessel was closer to X’s than it was (35 miles, not 410 miles away). When D found out, it purported to terminate the hire and enter into a contract with another ship, but C sued to recover the cancellation fee.

RATIO:

There was no common mistake to void the contract because the time delay of 22 hours between C’s and X’s vessel did not render performance “essentially different from those which the parties had envisaged when the contract was concluded”: the vessels being further apart than appreciated did not make it “impossible to perform the commercial adventure”. The fact that D did not cancel the agreement with C until they found a replacement ship shows D did not see the mistake as fundamental.

“There is no injustice in this result”.

Elements that must be fulfilled before common mistake can void a contract:

There must be a common assumption as to the existence of a state of affairs.
There must be no warranty by either party that the state of affairs exists.
The non-existence of the state of affairs must not be attributable to the fault of either party.
The non-existence of the state of affairs must render performance of the contract impossible.
Triple Seven MSN v Azman Air [2018]: Authority that performance does not have to be impossible (due to the analogy with frustration), just substantially different.
The state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance is to be possible.
OBTIER

–> there is no doctrine of equitable mistake (overruling Sole v Butcher) see Sarahs notes on this!!!!

Question 9

Brennan v Bolt Burdon [COMMON MISTAKE]

Answer 9

FACTS: C claimed for personal injuries caused by D’s (a landlord) faulty boiler. C and D mistakenly believed the claim was time barred and entered into a contract of compromise. Was the contract void for common mistake?

RATIO: The contract was not void for common mistake because (per Maurice Kay LJ) the mistake must render performance impossible, but the compromise was not impossible due to the mistake and was at all times performable. The fact that the parties were in doubt as to the law does not amount to mistake: as the parties in the compromise took the risk that the law might change, the contract provided for the risk, so there can be no grounds for mistake.

Maurice Kay LJ: Contracts may be vitiated by a common mistake of fact or law (clear post Kleinwort-Benson). For a common mistake in either law or fact to vitiate a contract, it must render performance impossible (Great Peace followed in both cases).

Sedley LJ (different from the majority approach): The contract is not void for common mistake because it was entered into with knowledge of how the law then stood and that it might not remain so.
Test for mistake as to the existence of goods It must render performance impossible (Great Peace).
Test for mistake as to law: “Had the parties appreciated that the law as it is now known, there would still have been an intelligible basis for their agreement?”
Reason for not following Great Peace: The test of impossibility would only be satisfied if the mistake was as to the legality of the contract, so in a contract of compromise, it is difficult to see how impossibility would occur.
On implied terms: Would not imply a term that the settlement is to stand notwithstanding any future change in the understanding of the law.

On implied terms: If the compromise agreement does not expressly cover what is to happen if the law changes, a term should be implied that the change in law is not intended to unpick what was agreed.
It is up for C (who wants to reopen the compromise) to include the possibility in an express term. C could not have done so here as D would not have agreed.

OBTIER: Policy reasons behind the decision: It is important that contracts of compromise should be upheld, so the courts should not permit them to be reopened for mistake of law, “except where, for some truly exceptional reason, justice very clearly demands”, as otherwise there will be a large degree of “inconvenience, uncertainty and potential unfairness involved in reviving once-settled litigation”.

Question 10

Saunders v Anglia Building Society [NON EST FACTUM]

Answer 10

FACTS: C wanted to gift her house to L to allow him to sell it to raise funds for his business. L made C sign a document to sell the house to his business partner instead. C had broken her glasses and signed the document, thinking it was a deed to L. L took out a mortgage with D and defaulted, so D foreclosed the house. C brought an action claiming the sale was void and that the title should return to being in her name

RATIO: Outcome: The sale of the house was not void for non est factum. 3) was satisfied as C could not read without her glasses. 1) was not satisfied because C knew L was interested in using the house to raise money, so the transaction was not fundamentally different. 4) was not satisfied becauseC never asked for the document to be read or explained to her: she was content to trust L.

Requirements for non est factum to succeed:

There must be a “radical”, “fundamental”, “serious” or “very substantial” difference between what D signed and what D thought they were signing, such that “it can be said that it was never the signer’s [subjective] intention to execute the document”.
It will not suffice if D thought “in some respect” the document will have a different legal effect or if it “in some respects” departs from what he though it would contain.
D cannot have such a belief unless he had taken steps or been given information which would give him some grounds for his belief.

The person pleading must “for permanent or temporary reasons (not limited to blindness or illiteracy” not be capable of “both reading and sufficiently understanding” the document (understanding to the point of detecting a fundamental difference between the actual document and the document as the signer believed it to be).
The defence can be available to a man of full capacity, but only in “very exceptional circumstances”.

C must show they have not been negligent or at fault by having taken “all reasonable precautions in the circumstances”.
“The plea cannot be available to anyone who was content to sign without taking the trouble to find out at least the general effect of the document”.
A busy manager who signs documents without reading them may not be liable under the tort of negligence, but he is careless here so non est factum will not apply.
It is not the case that, in every case where a literate person fails to read a document, it amounts to carelessness. What is “reasonable care” will depend on the circumstances, including the age of D and whether the document is thought to be of an important character or not.

SEE SARAH NOTES FOR MORE

Question 11

Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [RECTIFICATION - COMMON MISTAKE]

Answer 11

FACTS: C was asked to buy horsebeans (feveroles). D says all horsebeans are the same, so D agrees to supply horsebeans (and this is written down). D supplied the wrong type of horsebeans, so C’s customer sued for damages because feveroles had not been provided.

C could not claim damages under the written contract because it was for horsebeans and they were given horsebeans. To bring a claim against D, C asked for rectification of “horsebeans” to say “feveroles”. Then, they could sue D for failing to provide feveroles.

RATIO:
Rectification refused. Although both parties were under a common mistake that was fundamental with regard to the subject matter, “the parties to all outward appearances were agreed” that the sale would be for “horsebeans”. The offer was for horsebeans and the written contract was also for horsebeans: “the written contract is in the same terms as the oral contract”. Where a contract is outwardly complete, common law common mistake cannot be relied upon.

Where rectification is available for common mistake: “It is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly”.
There was an erroneous assumption here (which might have enabled the contract to be set aside for common mistake in equity), but “that is very different from an erroneous expression of the contract, such as to give rise to rectification.”

Why rectification is not available here: If the contract between C and D were rectified to say “feveroles” over “horsebeans”, D would have stipulated with their suppliers for “feveroles” and C would have stipulated with their buyers to deliver “feveroles”.
“It would not be fair to rectify one of the contracts without rectifying all three, which is obviously impossible.”

OBITER:
On rescission for equitable common mistake:

The contract could have been rescinded for equitable common mistake if C had acted before it accepted the goods and treated themselves as owners of them (Leaf).
The mistake here was fundamental, so would have been voidable in equity.

How would this be decided today –> some debate see Sarahs notes

Question 12

FCHC group holdings Limited v Gas Trust Corporation Ltd [RECIFICATION - COMMON MISTKAE]

Answer 12

FACTS: C agreed to provide security for a transaction to D. C mistakenly failed to assign the security interest to D. When C discovered this mistake, it entered into two security deeds, where the parties understood these deeds to provide the same as the original security, but they were more onerous on C. C sought rectification.

D claimed Lord Hoffmann’s approach in Chartbrook that cases of rectification based on a prior binding agreement and common continuing attention must be assessed objectively should be applied.

RATIO: Rectification was granted as there was a common mistake based on the continuing common intention of the parties (assessed subjectively) that the second deed would provide the same security as the original deed. Even if Lord Hoffmann’s (wrong) objective approach were applied, a reasonable person would understand the same as the parties did.

When rectification for common mistake can be granted: Where either -
i) The document fails to give effect to a prior concluded contract or
ii) When they executed the document, the parties had a [subjective] common intention in respect of a particular matter which, by mistake, the document did not accurately record. There must be an [objective] “outward expression of accord” in such cases: as a result of communication between them, the parties understood each other to share that intention.
An outward expression of accord is needed because rectification cannot occur when each party “privately and independently had the same intention as the other”.

Role of rectification: It is “not a power to make an agreement for the parties; it is a power to correct mistakes in recording what the parties have actually agreed”.

Why chart brook was wrong and the reasons for rejection in Sarahs notes

Question 13

A Roberts & Co Ltd v Lietctershire CC [RECITIFICATION -UNILATERAL MISTAKE]

Answer 13

FACTS: A local authority (D) tendered for a construction contract for 18 months. D was successful, but when the contract was signed the duration was extended to 30 months. D knew the builder (C) was only entering into the contract in the belief that it was 18 months. C claimed rectification that the date for completion should be in 18 months’ time, not 30 months

RATIO: Rectification was granted on the ground of unilateral mistake. The council was proved beyond reasonable doubt (through the knowledge of their employee) to have known that C believed the period of completion to be 18 months.

When C can claim rectification for unilateral mistake: Where C believed a particular term to be included in the contract and the other party “concluded the contract with the omission or a variation of that term in the knowledge that the first party believed the term to be included”.

Question 14

Paradine v James [FRUSTRATION]

Answer 14

Why courts may not use frustration –> when there is a principle of absolute liability Where a party creates a duty or charge upon himself by virtue of a contract, he is bound to perform the duty or pay the charge, notwithstanding any accident because the party could have inserted a clause in the contract prescribing what is to be done in the case of an accident.

Question 15

Taylor v Caldwell [REASONS FOR RECESSION - IMPOSSIBILITY]

Answer 15

FACTS: D granted C a licence to use the Surrey Gardens and Music Hall for concerts, but the music hall was destroyed by fire not due to D’s fault. C argued D breached the contract and was liable to pay damages.

RATIO: The existence of the hall was essential for the performance of the contract, so the contract was frustrated. This brings to an end the parties’ obligations, so D had no obligation to provide the music hall and was not liable to pay damages.

General rule (where frustration does not apply): Where there is a contract to do something, D must perform or pay damages for not doing it, even if performance has become “unexpectedly burdensome or even impossible”.
This is only applicable where the contract is positive and absolute and not subject to express or implied conditions on this front (i.e. where there is no frustrating event).

Frustration: “In contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance”.
Such a condition is implied when the parties know from the beginning the contract could not be fulfilled without the continued existence of the thing, so, upon entry into the contract, they must have contemplated “such continued existence as the foundation of what was to be done” and where there is no express or implied warranty that the thing shall exist.
These contracts are not positive contracts.
This is where the perishing arises not due to the fault of D.

Question 16

Jackson v Union Marine Insurance CO Ltd [IMPOSSIBILITY/PURPOSE]

Answer 16

FACTS: C (a shipowner) chartered the ship to charterers to transport cargo. The ship was chartered for the spring, but it was not available (due to repairs being needed after the ship ran aground) until autumn. The charterer pulled out of the charterparty. C (the shipowner) brought a claim against its insurer (D) for the loss of freight by “a peril of the sea”. There could be no insurance claim if the charterer breached the contract, so C argued the contract was frustrated.

RATIO: C’s claim succeeded. The delay had been so long as to put an end to the commercial purpose of the obligations, so the charterers were not obliged to load the cargo and were not in breach. The loss therefore fell under the insurance policy.

“The voyage the parties had contemplated had become impossible” because a voyage undertaken after the ship was repaired would have been a “different voyage” - “a voyage for which at the time of the charter the plaintiff had not in intention engaged the ship, nor the charterers the cargo” - it would have been an autumn voyage, not a spring voyage.
There was an implied condition that the ship should arrive in time for spring (to pick up the cargo it needed to transport).
^Nothing in the charterparty defined the time in which the charterers were to supply the cargo.

Where a shipowner has not breached their contract, but has breached the condition precedent (the implied condition that the ship should arrive in time), the charterer is discharged.

Question 17

Krell v Henry [FRUSTRATION - PURPOSE]

Answer 17

FACTS: D rented a room to view the coronation for two days, but not the nights. The coronation was not mentioned in the contract. The coronation was cancelled before the contract was made.

RATIO: he contract was frustrated due to breach of the implied condition that the coronation would occur. The viewing of the procession was “regarded by both contracting parties as the foundation of the contract”, so the non-occurrence of the procession discharges both parties from their obligations.

Steps to follow: 1) What was the foundation of the contract? 2) Was performance of the contract prevented? 3) Was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the parties’ contemplation on formation?

C’s argument: If frustration were allowed here, it would follow that a taxi driver hired to take someone to Epsom on a race day at an enhanced price could have the contract frustrated if the race was called off.
Response 1): The contract would not be frustrated as the happening of the race would not be the foundation of the contract. The purpose of the race attendee would be to see the Derby “and the price would be proportionately high, but the cab had no special qualifications for the purpose which led to the selection of the cab for this particular occasion. Any other cab would have done as well”.
Here, the room was chosen “by reason of their peculiar suitability” and view.
Response 2): C could ask D to drive him to Epsom for an agreed sum (saying the driver has nothing to do with the purpose of hire). If D refuses, he would be guilty of a breach of contract.
Seems to say there are two purposes: i) To get there to watch the Derby and ii) to go to Epsom. Therefore, ii) can still be fulfilled, so the contract is not frustrated.
Here, it was not just the hirer’s purpose to view the coronation, as the coronation was “the basis of the contract as much for the lessor as the hirer”. In the race example, viewing the Derby is the purpose of hire, but not the foundation of the contract.

Question 18

Herne Bay Steamboat Company v Hutton [FRUSTRATION - PURPOSE]

Answer 18

FACTS: D hired a ship from C “for the purpose of viewing the naval review and for a day’s cruise around the fleet”. The naval review was cancelled, so D refused to pay. C sued D for payment. D argued the contract had been frustrated, so D did not have to pay damages.

RATIO: The contract was not frustrated, so D had to pay damages for breach of contract.

Stirling LJ [better ground for distinguishing Krell]: The object of the voyage is not limited to the naval review, but also extends to a cruise round the fleet. “The fleet was there, and passengers might have been found willing to go round it’”.
The reference to the naval review in the contract was merely to “define more exactly the nature of the voyage”, not make it the foundation of the contract to entitle the parties to use the doctrine in Taylor v Caldwell.
Similar to 2) in Vaughan Williams LJ’s speech in Krell.

Romer LJ (Vaughan Williams LJ had similar reasoning) [weaker ground]: “The ship (as a ship) had nothing particular to do with the review or the fleet except as a convenient carrier of passengers to see it”. While it was D’s purpose to watch the review, the foundation of the contract (as between both parties) is simply the provision of the boat.
Similar to 1) in Vaughan Williams LJ’s speech in Krell.

Question 19

Davis Contractors Ltd v Farnham Urban District Council [FRUSTRATION - PURPOSE]

Answer 19

FACTS: C agreed to build at a set price for 8 months, but the work took 14 months to complete due to shortages of skilled labour, so cost C more money. C claimed for the extra money, so said the contract was frustrated so they do not need to bring a claim for the contract price but for unjust enrichment (the value of the services they had performed).

RATIO: The contract was not frustrated, so C was only entitled to claim for the contract price. An increase in labour costs was not “any new state of things which the parties could not reasonably be thought to have foreseen”: they would have foreseen it and it could have been covered by a clause allocating risk to D if C did not want to take the risk of it.

Quote this!: “Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract”.

When is a contract frustrated?: “It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must as well be such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for”.
It could be the case that the delay “could be of a character so different from anything contemplated that the contract was at an end”, but, here the delay was only greater in degree than expected. The job became more “onerous but it never became a job of a different kind from that contemplated in the contract.”

OBTIER:
A limited doctrine: “Frustration is not to be lightly invoked as the dissolvent of a contract” - if it were used here, there would be an “untold range of contractual obligations rendered uncertain and, possibly, unenforceable.”

Question 20

Metropolitan Water Board v Dick Kerr and Co [FRUSTRATION - ILLEGALITY]

Answer 20

FACTS: D agreed to construct a reservoir in 6 years. Condition 32 of the contract provided for the time extension in the event of delay, “whatsoever and howsoever occasioned”. C was required by a Government Order to stop work under its wartime powers. C sought an order that, after the war, the contract was still in existence, so D had to continue after the Order was lifted.

RATIO: The contract was terminated by frustration due to the illegality of continuing works and the indefinite delay caused.

It may also be the case that, like in Jackson, the “delay may render the adventure […] different from what it would have been if completed without interruption”, as post-war conditions might be “entirely changed” and the work done may be deteriorated by the delay.

On Clause 32: “Condition 32 does not cover the case in which the interruption is of such a character and duration that it vitally and fundamentally changes the conditions of the contract, and could not possibly have been in the contemplation of the parties to the contract when it was made.

Question 21

Ocean Tramp Tankers Corporation v V/O Sovrancht (The Eugenia) [FRUSTATION - PURPOSE]

Answer 21

FACTS: C chartered a ship to D to transport metal from the Black Sea to India. A “war clause” stated the ship was not to be brought to any war zone. Contrary to the clause, the ship was brought to the Suez Canal and was impounded by the Egyptian government. D abandoned the contract and claimed it was frustrated. C sued for breach of the war clause.

D’s argument: The contract is frustrated because i) it was implied in the contract that the customary route via the Suez Canal should be followed or ii) if the ship did not go to the Canal, it would have to go by the Cape of Good Hope, a substantially longer journey that is fundamentally different from what is contracted for.

RATIO:
Outcome: C’s claim for damages for breach of contract succeeded: the contract was not frustrated.

Addressing argument i): As charterer, the ship was under D’s control and D ordered the ship to the Suez Canal. Therefore, the ship was trapped due to D’s fault and they cannot rely on self-induced frustration.

Addressing argument ii): The blockage of the Canal did not bring about a “fundamentally different situation” so as to frustrate the venture because the only real difference with taking the Cape route was that it took longer and was more expensive, but this is not sufficient, especially as the difference was merely 30 days and the goods were not perishable.
Steps to take: 1) Construe the contract and see whether the parties have provided for the situation. If they have provided for it, there can be no frustration.
It is not an essential feature that the new situation be “unforeseen”, “unexpected” or “uncontemplated”: “the only thing that is essential is that the parties should have made no provision for it in their contract”.
If the parties did not foresee the event, then you can readily infer they made no provision for it. If they did foresee it, you can expect them to make provision for it.
But, as here, the parties foresaw the risk the Suez Canal might be closed but made no express clause on the matter.
2) If the parties have not provided for the event, you have to compare the new situation with the situation for which they did provide and see how different it is.

Question 22

Amalgamated Investment and Property Co Ltd v John Walker & Sons Ltd

Answer 22

FACTS: D sold property to C. C asked if the building was listed as one of special historical interest; D said no. Unknown to both parties, the building was included on the list one month before the contract signing and became listed one day after the signing, causing the property value to drop. There was no warranty in the contract that the building would not be listed. C brought claims based on common mistake and frustration.

RATIO: As the building did not become listed until after signing, the claim was for frustration. Frustration was not granted because i) C knew the risk that the building could become listed (as they asked about this and since it is a risk that all purchasers of property must know of and bear), so it was not an unforeseen event and ii) because the performance was not rendered different by the listing (but C received a house, as they expected to).

Question 23

National Carriers Ltd v Panalpina (northern) Ltd [IMPOSSIBILITY - ILLEGALITY]

Answer 23

FACT: C granted D a 10-year lease. The only road into the warehouse was later closed for 20 months. C sued for the withheld rent. D argued the lease had been frustrated. C argued that leases cannot be frustrated (the previously-assumed position).

RATIO: Leases can in principle be frustrated, but the delay did not frustrate the lease, as a delay for only ⅙ of the lease leading to “considerable expense and inconvenience […] does not approach the gravity of a frustrating event”. The parties could hardly have contemplated that the only possible source of interruption was the expressly-provided-for fire risk.

The approach that looks at the temporary impossibility in relation to the duration of the contract should be applied to temporary illegality cases also!

“The doctrine is principally concerned with the incidence of risk - who must take the risk of the happening of a particular event especially when the parties have not made any or any sufficient provision for the happening of that event?”

(see more Sarahs notes –> Lord Hailsham: competing theories for the basis of frustration)

Question 24

Edwinton v Tsavliris (The Sea Angel) [FRUSTRATION - PUPOSE]

Answer 24

FACTS: D chartered C’s ship to salvage a vessel. The vessel had to be returned by a certain date, but it was impossible to return the ship because the authorities refused to issue it with a certificate, so it was returned late. D did not pay any hire fees after the end of the hire date but during the delay. C sought to recover the hire fees. Was the contract frustrated by the delay?

RATIO: The contract was not frustrated by the delay, even if the delay made the charterparty more “onerous”. This is because the purpose of the charter had been performed, the “radical difference” test is not satisfied, the supervening event came at the very end of the charter and the risk of detention was foreseeable by parties in the industry.

A multifactorial approach must be considered:

These factors necessarily involve considering whether it is just to reverse the contractual allocation of risk - under a charter, the risk of delay is on the charterer, whereas frustration would make the risk fall on the owner.
Applied: It is not unjust to hold the risk remains with the charterer here.

The terms of the contract itself.
The matrix or context of the contract.
The parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as far as these can be ascribed mutually and objectively. [Consider foreseeability].
The test of “radical difference” is important here: The mere incidence of expense, delay or onerousness is not enough; “there has to be a break in identity” between the contract as agreed and its performance in the new circumstances.
The parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances.
The nature of the supervening event.
This involves considering how long the delay was.

Foreseeability of risk:

A contract can be frustrated even though the supervening event was foreseeable or contemplated (or provided for by an express provision).
“The less that an event, in its type and impact, is foreseeable, the more likely it is to be a factor” leading to frustration.
Here, it was relevant that the unreasonable detention of a vessel was foreseen and provided for in the terms of trade of salvage agreements (through compensation, protection and indemnity clauses).

Question 25

Canary Wharf Ltd v European Medicines Agency [FRUSTRATION - ILLEGALITY/PURPOSE]

Answer 25

FACTS: C (landlords) entered into an underlease with D, an EU agency. D said Brexit would frustrate the agreement due to i) illegality and ii) frustration of common purpose.

RATIO: The contract was not frustrated.

i) Rejection of frustration for illegality:

Although D’s privileges and immunities under EU treaties would be subject to a “materially adverse” change, it would still be able to use the property despite the UK having left the EU.

ii) Rejection of frustration of common purpose:

Applied here: Although the consequences of leaving the EU are adverse to D, they do not render performance under the lease “radically different”. There was no common purpose that goes beyond their agreement which was thwarted.
Outside the terms of the lease, the parties’ purposes were not common but divergent.

Consider what the parties actually provided for in terms of risk allocation in the lease. Look at the construction of the contract.
This can be significant where the contract is a sophisticated one that makes provision for many things.
Foreseeability is only relevant to the extent that, if a future event is sufficiently foreseeable, it should have informed the manner in which the parties allocated risk, so a court will be inclined to consider the parties have framed their agreement taking this into account.
Brexit here was foreseeable but there is no inference drawn from the parties’ failure to cater for it.
Consider if there has been frustration of the common purpose through the “radically different” test (which involves considering the factors in The Sea Angel).
The “radically different” test shows construction of the contract does not entirely determine whether the contract has been frustrated.
In this way, even sophisticated contracts allegedly providing for such events may be defeated by something truly unforeseen.
It is possible, notwithstanding the construction of a contract, that the contract can be held void if the common purpose of the bargain is frustrated (where 3) and 4) in the “radically different” test are not part of construction).

No frustration for bad bargain: The coronation cases show there will be no frustration when all the supervening event has done is reveal to one party they made a bad bargain (where the only effect of the supervening event is to make the price paid too high).

Question 26

On other cases!!! Canary Wharf Ltd v European Medicines Agency [FRUSTRATION - ILLEGALITY/PURPOSE]

Answer 26

On the factors in The Sea Angel: 1) and 2) are to do with the construction theory of frustration, although 3) and 4), which involve looking at declarations of subjective intent and pre-contractual negotiations, are not (this evidence is not admissible in construction).
In this way, the test “encapsulated the difference between the construction theory of frustration and the ‘radically different’ theory of frustration”.

–> Doctrinal basis of frustration: Frustration evolved to “mitigate the rigour of the common law’s insistence on literal performance of absolute promises” to be used to avoid injustice resulting from “enforcement of a contract in its literal terms after a significant change in circumstances”. As frustration voids the contract, it must “not be lightly invoked and must be kept within very narrow limits”.

On the coronation cases and frustration of purpose:

On Krell: The parties were buying and selling “a room with a view”: this was their common purpose. Matters would have been different if the room had been a hotel room charging a higher rate due to higher demand for rooms due to the coronation.
On the cab driver example in Krell: The cancellation of the race would not be a frustrating event because “the cab driver’s price was simply a reflection of an excess of demand for cabs over their supply”, with the cab driver being “entirely indifferent” as to the purpose of the journey and destination. It is irrelevant, therefore, whether the passenger’s underlying purpose was cancelled: the high price has nothing to do with common purpose.
On Herne Bay: D paid more for hiring the vessel due to the coronation, but he could have been able to charge passengers more for this. “But the venture was always possible: it is simply that one factor adversely affecting demand arose”.

Question 27

Metropolitan Water Board v Dick Kerr and Co [XCL OF FRUSTRATION - XPRESS PROV]

Answer 27

FACTS: D agreed to construct a reservoir in 6 years. Condition 32 of the contract provided for the time extension in the event of delay, “whatsoever and howsoever occasioned”. C was required by a Government Order to stop work under its wartime powers. C sought an order that, after the war the contract was still in existence, so D had to continue after the Order was lifted.

RATIO: The contract was terminated by frustration due to the illegality of continuing works and the indefinite delay caused.

It may also be the case that, like in Jackson, the “delay may render the adventure […] different from what it would have been if completed without interruption”, as post-war conditions might be “entirely changed” and the work done may be deteriorated by the delay.

On Clause 32: “Condition 32 does not cover the case in which the interruption is of such a character and duration that it vitally and fundamentally changes the conditions of the contract, and could not possibly have been in the contemplation of the parties to the contract when it was made.”
Express provision did not exclude the operation of frustration here as the clause was not wide enough.

Question 28

Ocean Tramp Tankers Corporation v V/O (The Eugenia) [XCLUS OF FRUSTRATION - XPRESS PROV]

Answer 28

FACTS: C chartered a ship to D to transport metal from the Black Sea to India. A “war clause” stated the ship was not to be brought to any war zone. Contrary to the clause, the ship was brought to the Suez Canal and was impounded by the Egyptian government. D abandoned the contract and claimed it was frustrated. C sued for breach of the war clause.

D’s argument: The contract is frustrated because i) it was implied in the contract that the customary route via the Suez Canal should be followed or ii) if the ship did not go to the Canal, it would have to go by the Cape of Good Hope, a substantially longer journey that is fundamentally different from what is contracted for.

RATIO: C’s claim for damages for breach of contract succeeded: the contract was not frustrated.

Steps to take: 1) Construe the contract and see whether the parties have provided for the situation. If they have provided for it, there can be no frustration.

It is not an essential feature that the new situation be “unforeseen”, “unexpected” or “uncontemplated”: “the only thing that is essential is that the parties should have made no provision for it in their contract”.
If the parties did not foresee the event, then you can readily infer they made no provision for it. If they did foresee it, you can expect them to make provision for it (i.e. we more readily interpret the contract as providing that, in that event, the contract is to remain in effect).
But, as here, the parties foresaw the risk the Suez Canal might be closed but made no express clause on the matter.
2) If the parties have not provided for the event, you have to compare the new situation with the situation for which they did provide and see how different it is.

Question 29

Maritime National Fish Ltd v Ocean Trawlers

Answer 29

FACTS: D chartered a ship from C, but the ship could only be used if it had an otter trawl, which D did not have enough licences for. D applied the trawls to their vessels, not C’s. C sued for the hire due but D said the contract had been frustrated due to their failure to get a licence.

RATIO:
D was liable for breach of contract because the contract was not frustrated - this was self-induced frustration.

Self-induced frustration: As performance of the contract was dependent on a licence being granted, it was D’s “act and election” to give the licence to their vessels, not C’s, which prevented performance - it was D’s “own default which frustrated the adventure” and D cannot rely on their own default to escape liability.

Question 30

J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [XCLUS OF FRUSTRATION - SELF INDUCED]

Answer 30

FACTS: D allocated SS2 to C in hire and SS1 to another company. SS2 sank and the contract could not be performed by SS1. C sued for breach of contract. D argued the contract was frustrated by SS2 sinking. There was a force majeure clause in the contract that allowed the parties to terminate due to “perils or dangers or accidents of the sea”.

RATIO:
The contract was not frustrated by SS2 sinking. This is a case of self-induced frustration - the cause of non-performance was not the SS2 sinking but D’s choice to allocate SS1 to another party (D could have chosen to breach their contract with the other party). However, the force majeure clause applied (as D was not negligent in SS2’s sinking), so D the contract was terminated.

Key consideration: The frustrating event must be one that is “truly an outside event or extraneous change of situation” as frustration will only occur where the event takes place “without blame or fault on the side of the party seeking to rely on it”.

Way #1 to bring about a self-induced frustration - fault: D did something blameworthy, which caused performance to be impossible, even though D did not choose impossibility of performance themselves.
The test is whether D had “the means and opportunity to prevent but nevertheless caused or permitted to come about”: frustration would be self-induced if D was negligent in the sinking of the ship.
Way #2 to bring about a self-induced frustration - election: Where D’s election caused the frustrating event, regardless of how reasonable D’s response was.
Applied here: Even if the choice was not a real one (as it would involve breaking D’s other contracts), it should still be imputed to D as a choice as D controls how many contracts it will enter into. It is fair to allocate the risk to D: if D has over-exposed himself, he should bear the consequences of this position.
A contract is not frustrated if performance is still possible.
Had the contract provided for carriage by SS2 with no alternative, without negligence by D, the contract would have been frustrated, but here, there was an election.

Question 31

Appleby v Myers [EFFECTS OF FRUSTRATION]

Answer 31

FACTS: C contracted to construct machinery for D, where C would be paid upon completion of the work. A fire burnt the machines. C sued for payment for the portion of work it had completed.

RATIO:Outcome: C’s claim was rejected. The contract had been frustrated because the machine was destroyed. At common law, restitution is not applicable for work done but destroyed by a supervening event as no benefit was conferred to the other party.

C, “having contracted to do an entire work for a specific sum, can recover nothing unless the work Ube done”.

Question 32

Fibrosa Spolka Akyjna v Fairbairn Lawson Combe Barbous Ltd [EFFECTS OF FRUSTRATION]

Answer 32

FACTS: D agreed to manufacture machines for C and deliver them to Poland. However, the area then became occupied by the German army. C sued for a refund of the £1,000.

RATIO: The contract was frustrated due to illegality. C’s claim succeeded: there was a total failure of consideration (where there has been no part performance in return for the payment given) since none of the machines had been delivered.

The law provides remedies for unjust enrichment “to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep”.
D has C’s money and there was no intention on C’s part to enrich him. “No doubt, when money is paid under a contract it can only be claimed back as for failure of consideration where the contract is terminated as to the future”.

HOWEVER –> The Law Reform (Frustrated Contracts) Act 1943 was enacted immediately after this decision to deal with the situation here.
This decision did not let D keep any expenses they incurred; the Act changes this

Question 33

BP Exploration v Hunt [EFFECTS OF FRUSTRATION]

Answer 33

FACTS: D entered into an arrangement with C to extract oil on their behalf under a concession. The new government took back the concession from C before D. C said the contract was frustrated when their concession was taken, but wanted a “just sum” for the work they had completed.

The below (unless specified) is taken from Robert Goff J’s judgment in the High Court, which was approved by the CA.

RATIO:
Per stage 1), the value of the benefit conferred included the oil from the oil field and the value of the concession. Per stage 2), the just sum was calculated by the costs and expenses C had incurred minus the oil C received. The value of the benefit was above the just sum figure, so the just sum figure should be awarded.

Two-stage test for benefits conferred:

Valuing the benefit: The value is determined at the date of the frustrating event.

Cases where there is an end product

Where services create a financially valuable end product: The benefit must be the financial uplift (prospecting and finding a valuable mineral).
Where services produce a financially disadvantageous outcome: The work “must be treated as a benefit to the defendant, since he requested it” (C redecorates D’s house to D’s “execrable taste”).
Value is subjective to D: a small service may confer a big benefit.

In some cases, there is no definite end product: Contracts like the transportation of goods. Here, it is necessary to ask what benefit D obtained by reason of C’s performance (financial uplift).
Prospecting example: C finds minerals on D’s land. The benefit is the result of prospecting (finding the minerals), rather than the service of prospecting. The benefit is not necessarily the value of minerals, but the end product of prospecting is knowledge (so there can be a benefit if nothing has been found: a benefit of knowing your land is worthless).
Fire example: C builds a house on D’s land which is destroyed by fire before completion. There is no benefit, as s1(3)(b) requires the court to consider the effect of circumstances giving rise to frustration on the benefit - the circumstance of the house being burnt down means there is no benefit.
Where the end product is destroyed by the frustrating event, there is no s1(3) claim as the value of the benefit is zero.
The Act would not apply to Appleby.

The terms of the contract are relevant in determining the just sum:

Assessing the just sum

The actual value of the benefit is the ceiling amount of total award.
It would be unjust in many cases to award a sum higher than the contract price, even if the value of the benefit is much higher.
Where the just sum minus the set off is less than the value of the benefit: The award should be the just sum.
Where the just sum minus the set off is greater than the value of the benefit: The award should be the actual value of the benefit.
The terms of the contract are relevant in determining the just sum:
If the contract makes a large award when completed but nothing if it is not performed, the risk taken by C might enhance the just sum.
The consideration provides evidence of what is a reasonable sum.
If the consideration is below market rate as D could not afford to pay more, it can act as a limit on the just sum.
Lawton LJ: “What is just is what the trial judge thinks is just” - an appellate court cannot interfere unless “it is so plainly wrong that it cannot be just”.