Discharge of a contract-Frustration

Question 1

What is a frustrating event?

Answer 1

One which means completing the contract is impossible, illegal or pointless in a manner which is foreseeable to the parties and is not their fault.

Question 2

Case for a frustrating event.

Answer 2

Taylor v Caldwell (1863)

Question 3

Facts of Taylor.

Answer 3

C hired a music hall to hold 4 concerts and went to great expense organising them.
Before they took place, music hall was destroyed in an accidental fire.
C claimed damages for the expenses incurred.
C’s actions failed as the fire meant the contract was impossible to perform.

Question 4

3 types of frustration.

Answer 4

1. Impossibility
2. Subsequent illegalities
3. Radical changes in circumstances

Question 5

Impossibility

Answer 5

If the frustrating event makes performance of the contract impossible

Question 6

Case for impossibility

Answer 6

Taylor v Caldwell (1863)

Question 7

Subsequent illegailty

Answer 7

Where the frustrating event makes the contract illegal to perform

Question 8

Case for subsequent illegality.

Answer 8

Denny, Matt & Dickinson v James Fraser (1944)

Question 9

Facts of Denny, Matt & Dickinson.

Answer 9

Contract concerned sale of timber.
Before it took place, government banned sale of timber.

Question 10

Radical changes in circumstances

Answer 10

Where after the contract is made, changes in circumstances make the contract pointless.

Question 11

Cases for radical changes in circumstances.

Answer 11

Krell v Henry (1903)
Herne Bay Steam Boat v Hutton (1903)

Question 12

Facts of Krell.

Answer 12

D hired flat on Pall Mall for sole purpose of viewing King Edward VII’s coronation.
Price was £75 for 2 days.
D paid £25 deposit.
Due to King’s illness, coronation was cancelled and D did not use flat.
C sought the outstanding £50 but was unsuccessful as the contract was frustrated because cancellation of the procession deprived it of its commercial purpose.

Question 13

Facts of Herne Bay Steam Boat.

Answer 13

D hired C’s steamship to take out paying passengers for a day cruise and to view the Royal Naval Review.
Naval Review cancelled and D did not use steamship.
C brought an action for the agreed contract price.
D argued the contract had become frustrated due to Naval Review cancellation.
Held that contract was not frustrated as watchin the Review had not been the sole commercial purpose.
There was also the day cruise.

Question 14

4 situations when frustration may not apply.

Answer 14

1. Where the radical change in the circumstances is their fault.
2. Where the contract become less profitable
3. Where the ‘event’ was either a foreseeable risk or referred to in the contract itself
4. if there is a ‘force majeure’ statement in the contract

Question 15

Case for where radical change in circumstances is their fault.

Answer 15

Maritime National Fish v Ocean Trawlers (1935)

Question 16

Facts of Maritime National Fish.

Answer 16

C owned 5 fishing ships with otter trawler nets and chartered (hired) one to the D.
New legislation introduced requiring licences for otter trawl nets.
C applied for 5 but only granted 3.
Did not provide licence for D’s ship.
C sued D since he broke contract as he did not have licence.
C claimed he should still receive payment for the ship hire as the government’s decision that licenses were required was a frustrating event.
Court decided contract was not frustrated since C did have 3 licences but had chosen not to give on to the D.
So D did not need to pay ship hire as the C was in breach for not providing a licence.

Question 17

Case for where the contract become less profitable.

Answer 17

Davis Contractors v Fareham UDC (1956)

Question 18

Facts of Davis Contractors.

Answer 18

Davis Contractors agreed to build 78 houses for Fareham Council within 8 month for £85,000.
Due to shortages in skilled labour/material, the contract took 22 months to complete and was much more expensive than anticipated.
DC paid agreed price but bought an action arguing for more money based on the fact that the contract had become frustrated.
Held contract was not frustrated.

Question 19

Case for where the ‘event’ was either a foreseeable risk or referred to in the contract itself.

Answer 19

Amalgamated Investment and Property Co Ltd v John Walker & Sons Ltd (1977)

Question 20

Facts of Amalgamated Investment and Property Co Ltd.

Answer 20

JW Ltd sold AI a warehouse and bottling factory for £1.7 million.
£1,710,000 for either occupation or redevelopment.
AI asked whether the building was designated historic or of architectural interest.
JW said it was not historic.
Unfortunately, the Department of Environment listed the property shortly after the contract was signed.
Contract not frustrated as this was a foreseeable risk as shown by their pre-contractual enquiries.

Question 21

What is a ‘force majeure’ statement or clause?

Answer 21

A clause often found in commercial contracts.
It excludes liability for the parties for delay in performance or the non-performance if there are extraordinary events.

Question 22

WW2 led to many more cases of frustration so Parliament passed what?

Answer 22

Law Reform (Frustrated Contracts) Act 1943

Question 23

What 3 key points does s.1 (2) of the Law Reform (Frustrated Contracts) Act 1943 provide?

Answer 23

1. Money paid before the frustrating event occurs is recoverable.
2. Money payable before the frustrating event ceases to be payable, whether or not there has been a total failure of consideration.
3. If one party incurs expenses before the contract is frustrated, the court can order they be compensated up to the value of the contract.

Question 24

What section of the Law Reform (Frustrated Contracts) Act 1943 talks about money in cases of frustrated events?

Answer 24

s.1 (2)

Question 25

Which s.1 (3) of the Law Reform (Frustrated Contracts) Act 1943 provide?

Answer 25

If one party has obtained a valuable benefit from the contract before the frustrating event, the court may order him or her to pay a sum in respect of it.
That sum is what the court considers just, having taken into account all the circumstances of the case.

Question 26

What did Robert Goff J emphasis in BP Exploration v Hunt (No.2) (1979)?

Answer 26

The court’s aim is to ensure both parties are treated fairly and, as such, the court has discretion as to whether compensation should include lost interest on the sum.

Question 27

Which s.1 (4) of the Law Reform (Frustrated Contracts) Act 1943 provide?

Answer 27

In estimating the amount of any expenses incurred by any party to the contract, the court may include such sum as appears to be reasonable, in respect of:
Overhead expenses
Any work or services performed personally by a party to the contract.

Question 28

3 sections and sub-sections of the Law Reform (Frustrated Contracts) Act 1943 which provide how remedies work for frustrated events.

Answer 28

s.1 (2)
s.1 (3)
s.1 (4)