Frustration

Question 1

A contract may be frustrated if an unforeseen event occurs after the contract has been formed which was not the fault of either party and which makes the contract…

Answer 1

…impossible to perform, or which makes performance of the contract radically different.

Question 2

What is the effect if a contract is frustrated?

Answer 2

…it comes to an end automatically at the time of the frustrating event and the parties do not have to perform their future obligations.

As there is no breach of contract when a contract is frustrated, the remedies associated with breach of contract (eg damages) will not be available.

Question 3

What is the common law rule established in Paradine v Jane (1647)?

Answer 3

If a party assumed an absolute obligation in a contract (ie the obligation was not qualified or modified in any way), then if circumstances made performance of the obligation impossible he would still be liable.

Question 4

What case is the modern law of frustration often said to date from?

Answer 4

Taylor v Caldwell (1863)

Question 5

In Taylor v Caldwell, it was established that a frustrating event is one which is outside..

Answer 5

…the control of the parties to the contract.

Question 6

In Taylor v Caldwell, unavailability of a specific thing or person vital to the contract..

Answer 6

…can cause frustration.

Question 7

The doctrine of frustration cannot be used to escape from..

Answer 7

..a bad bargain.

Question 8

Morgan v Manser [1948] and Condor v Barron Knights [1966] illustrate what principle?

Answer 8

Unavailability of a person vital to the performance of the contract caused frustration.

Question 9

Krell v Henry [1903] illustrates the principle that..

Answer 9

..The non-occurrence of a fundamental event can frustrate a contract.

Question 10

Why was the contract in Herne Bay Steamboat Co v Hutton [1903] not frustrated?

Answer 10

The contract was not frustrated by the cancellation of the royal review because the happening of the royal review was not the foundation of the contract.

Question 11

Why was the contract of Metropolitan Water Board v Dick Kerr and Company [1918] found to be frustrated despite the clause around delay?

Answer 11

Lord Finlay LC thought that the contract was frustrated because it was not a short and temporary stoppage. The whole character of the contract could be revolutionised by indefinite delay. The contract, if resumed, would be radically different from the contract the parties had originally made.

The clause only covered temporary delay.

Question 12

What principle does Davis Contractors Ltd v Fareham Urban District Council illustrate?

Answer 12

It is not hardship or inconvenience or material loss which brings the principle of frustration into play.
There must also 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, ie the performance of the contract must become radically different.

Question 13

The performance of a contract may become legally impossible and this can frustrate the contract. This can occur as a…

Answer 13

…result of a change in the law. Also, the outbreak of war will frustrate a contract where the other party is in enemy occupied territory, as in time of war it is against the law to trade with the enemy. This principle is illustrated by Fibrosa.

Question 14

Frustration will not have occurred if…

Answer 14

…If the event was foreseen – no frustration
If there is an express provision in the contract (force majeure) – no frustration
A party whose own act gives rise to the frustrating event cannot rely on the doc of frustration.

Question 15

A force majeure clause limiting and/or excluding liability may be subject to…

Answer 15

…s 3 of UCTA 1977, in which case it will need to be reasonable in order to be upheld.

Question 16

Why was The Super Servant Two [1990] contract not frustrated?

Answer 16

Because the defendants’ decision to use Super Servant One for other contracts had made the performance of their contract with the claimant impossible. The impossibility of performance resulted from their own act and the choice they had made. They could not treat the contract as frustrated and at an end.

Question 17

If one party alleges that the other party has caused the frustrating event then it seems that the burden of proving fault is on the…

Answer 17

…party alleging it. This was stated in the case of Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942]

Question 18

The factors which are relevant in determining whether a lease has been frustrated are the…

Answer 18

…the length of the lease and how long the party will be deprived of the use of the property.

In Panalpina the House of Lords decided that the lease was not frustrated. Although by the time access to the warehouse was restored the appellants would have lost two out of ten years’ use of the warehouse and their business would have been severely disrupted, the closure of access to the warehouse was not sufficiently grave to amount to a frustrating event since there would be a further three years of the lease remaining after the access was re-established.

Question 19

Under the Law Reform (Frustrated Contracts) Act 1943 what does Section 1 (2) say?

Answer 19

Section 1(2) starts by providing that:
▪ money already paid before the frustrating event can be recovered; and
▪ money payable before the frustrating event ceases to be payable

Question 20

s 1(2) provides that the court may allow the payee to retain or recover expenses incurred by him in performing the contract before the frustrating event out of money which was paid and/or payable to him before the frustrating event if the court…

Answer 20

…considers it just to do so.

Question 21

Section 1(3) of the Act deals with the situation where one party has obtained a valuable..

Answer 21

…benefit because of something done by the other party in performance of the contract.

The court may order the party obtaining the benefit to pay such sum (if any) as the court considers just, but not exceeding the value of the benefit.

Question 22

In Gamerco, the court said there was no obligation on the court to award total retention or equal division. The court has a…

Answer 22

…broad discretion.

Question 23

In BP Exploration Co (Libya) Ltd v Hunt [1979] the court found that the benefit under s 1(3) is the end product of what the claimant has provided, taking into account the frustrating event, and not the..

Answer 23

…value of work that has been done.