Discharge by frustration

Question 1

Definition of frustration

Answer 1

If a contract is frustrated there is NO BREACH OF CONTRACT. The contract will be frustrated if some supervening event occurs not covered by a provision in the contract. The event must be beyond the control of the parties.

Question 2

Types of frustrating events - Impossibility

Answer 2

Subject matter of the contract destroyed. Subject matter of contract becomes unavailable . Person required for performance of contract becomes unavailable. There is unavoidable excessive delay.

Question 3

Types of frustrating events - Radically different

Answer 3

If performance of the contract has been rendered radically different it will be frustrated

Question 4

Types of frustrating events - Unavailability of a person vital to the contract

Answer 4

Length of contract. Length of period of absence. Must the contract be performed by that individual or can a substitute do the work?

Question 5

Types of frustrating events - Illegality

Answer 5

There is a change in the law that makes the contract illegal to perform in the way that was anticipated in the contract

Question 6

Types of frustrating events - Gov. intervention

Answer 6

Depends on the effect the intervention has on the contract. Metropolitan Water Board - Dick Kerr entered into a contract to build a reservoir. The work had to be completed in 6 years. In Feb 1916 after outbreak WWI the gov. ordered Dick Kerr to stop work - contract frustrated as it was not a short and temporary stoppage.

Question 7

Types of frustrating events - non- occurrence of a fundamental event/change in circumstances

Answer 7

If a particular event taking place is essential to the contract (the contract depends on it) and the event is cancelled then this may frustrate the contract.

Question 8

Types of frustrating events - Delay

Answer 8

• Whether the contract provides for what should be the consequences of the delay
• The likely length of the delay
• Any time set in the contract for the obligations to be performed
• If the contract is resumed after the delay - whether it is radically different from contract the parties originally made - the performance of the contract must be radically different

Question 9

Frustration and leases of land

Answer 9

Rare. Can bring the lease to an end if a frustrating event occurred during the currency of the term. 2 factors:
- Length of the lease
- How long the party will be deprived of the use of the property
National Carriers Ltd - lease not frustrated because only 2 years had been lost out of a 10 year lease

Question 10

Limitations on frustration - Event must NOT be foreseen by the parties

Answer 10

The court may conclude that the parties foresaw or should have foreseen the event. Eventhough there is no express provision. The frustrating event was in the contemplation of the parties at the time that the contract was formed

Question 11

Limitations on frustration - Event must be beyond the control of the parties

Answer 11

A party whose act or election has given rise to the frustrating event cannot rely on the doctrine of frustration. Super servant II - it was man’s own fault for contracting out silver shadow so won’t be frustrated

Question 12

Limitations on frustration - Express provision in the contract covering event

Answer 12

‘Force majeure’ clause can be inserted to cover events outside the control of the parties. If the parties have made express provision in the contract covering event which occurred then this will be binding. Needs to pass reasonableness test

Question 13

Effect of frustration at common law

Answer 13

Fibrosa - A party could recover payments made prior to a frustrating event provided that there was a total failure of consideration. However if any benefit had been received the money could not be recovered or still had to be paid

Question 14

The law reform (frustrated contracts) Act - S. 1(2) work already complete

Answer 14

Discretion to reward a party who has already carried out work under or in preparation for the contract. Is discretionary and therefore does not automatically guarantee all expenses to be recoverable

Question 15

The law reform (frustrated contracts) Act - S. 1(2) Money paid in advance

Answer 15

Does not depend on there having been a total failure of consideration. Overrides Fibrosa.
a) payee must have incurred the expenses in or for the purpose of the contract
b) The expenses can be recovered only out of the total money paid and/or payable to the payee before the frustrating event
c) The court may allow the payee to retain or cover expenses incurred out of money paid or payable before event. Maximum the court can award is a sum equal to the money paid and payable before event. Money paid before event can be recoverable and money payable before event need not be paid

Question 16

The law reform (frustrated contracts) Act - S. 1(3) Valuable benefit

Answer 16

The court may order the party obtaining benefit to pay such sum as the court considers just but not exceeding value of the benefit. Expenses that the party who receives the benefit may have incurred before the event must be taken into account. If one party has received a valuable benefit before event because of something done by other party in performance of contract then court may order recipient to pay sum.

Question 17

Types of frustrating events - Economic circumstances

Answer 17

Change in economic circumstances is not necessarily an event which leads to frustration.