Frustration Flashcards
Introduction
The doctrine of frustration potentially applies when, after conclusion but before complete performance of a contract, a change of circumstances renders a contract physically or legally impossible to perform or the changed circumstances transform the expected contract performance into something which is radically different from that which the parties intended when they entered the contract (Davis Contractors Ltd v Fareham Urban District Council [1956].
Once contractual obligations were regarded as absolute, and once a contract was made, subsequent event could not justify non-performance they would have to protect by making suitable provision. in Pardine v Jane (1647) claimant claiming money for rent but they argued been forced off the land by hostile army but still had to pay. This changed with Taylor v Caldwell (1863) when the modern frustration doctrine.
they entered into agreement concerning the use of the Surrey Gardens and Music Hall for serious of ‘grand concerts, and day and night fetes’. six days before the planned date, the building was in a fire making it impossible to have the music. the party planning to put on concert sued for breach of contract, and claiming the money it had wasted on advertisements. the action failed because performance by the owners had become impossible so the contract was finished. Blackburn J justified the decision by saying the existence of the music hall was essential the fulfilment of the contract. he thought there was an implied condition in the contract that the parties excused if performance became impossible not with their fault. also applied to existence or availability of people.
Frustrating Events - Unavailability of specific thing or person VITAL to the contract
CAN FRUSTRATE A CONTRACT - Taylor v Caldwell, claimant hired a musical hall for a few days for a concert. before, it was destroyed by fire and the contract was discharged by the frustration.
Morgan v Manser, Frustrated as a music hall artist called for military service
Candor v Barron Knights [1966] Frustrate drummer wasn’t capable of working only three of four nights when was then seven.
short periods in a long employment contract will not frustrate the contract, there is an express provision usually allowing this.
PERSON NOT BEING AVAILABLE - factos
- length of contract
- length of absence
- must the contract be performed by that particular individual or can substitute be utilised.
How a contract is frustrated
TEST - ‘radical change in obligation test’. is objective formulated by Davis Contractors v Fareham. they agreed to build number of houses for district council performance was delayed because of cost of labour and problems with the materials. They took longer than they had agreed and expended more money than they thoughts. They tried to recover by saying it was frustrated. It was NOT. It had been made more difficult as materials and labour was more expensive to perform the contract not IMPOSSIBLE.
may be frustrated if an unforeseen event occurs AFTER the contract has been formed which was
- not the fault of either party and
- makes the contract impossible to perform
- or makes the performance radically different.
Frustrating Events - Non-occurence of a fundamental event
CAN FRUSTRATE A CONTRACT - when an event is essential to the contract and is then cancelled. Whether it was a foundation of the contract.
Frustrated - Krell v Henry, defendant saw notice in the window of the claimants flat to see procession of Edward VII to be let. The deferent agreed to hire the flat for two days not nights when the procession was place the contract contained no express reference to the procession or any other purpose. They paid but the procession was cancelled and refused to pay. Vaughan Williams judgment which the rooms were hired for the purpose of seeing King, thought the coronation procession and position of the rooms were regarded by both parties as basis of the contract. if someone hires a cab to go to Epsom from Derby, did not think that the happening of the race was the foundation of the contract for the cab men (must be for both) his example, any cab could be used, contradicting Krell the rooms did have a special qualification. Neither party was in breach of contract as was frustrated as the foundation of the contract was not just to hire the rooms but to hire the rooms to view the procession.
not frustrated - Hernve Bay Steamboat Co v Hutton hire shop for 2 days to take out party for ‘the purpose of viewing the Naval Review and for a days cruise around the fleet’. this was cancelled so could not see the king, the CoA not frustrate. Vaughan Williams said purpose was to see the royal review and the cruise. the contract was not frustrated as the viewing was not foundation of the contract. distinguished from the Krell because the cancellation was the foundation or basis of contract the purpose was not just to hire rooms but to hire them to view the thing. Contrast, the motive into entering the contract MAY have been to see the review but was not the foundation. Stirling emphasised that a cruise around the fleet was still possible. Also, Roger Brownsword said in ‘Henry’s Lost Specatcle and Hutton’s Lost Peculation. A Classic Riddle Solved?’ (1985) Hutton was engaged in a business venture and Henry was not.
Frustrating Event Government INterventionts - Government Intervention
Not every form of government intervention will then frustrate any contract. it depends on the effect.
Metropolitan Water Board v Dick Kerr and Company [1918] In July 1914 Dick entered contract to build reservoir. Had to be completed in 6 years. In Feburary 1916 ww1 the government ordered Dick to stop and men and equipment could be used in the war effort. The government order could last as long as the war lasted. A contract will be frustrated if a supervening event makes performance impossible or radically different and if the government intervention caused this then it will be frustration. Lord Finlay LC thought this was frustrated because
- it was not a short or temporary stoppable. 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 made.
- There was a clause dealing with the possibility of extension of tine in case of delay but court thought this was temporary del;ays and not an interruption of such character and duration that it fundamentally changed the conditions of the contract. such an interruption could not have been contemplated by the parties at the time of the contract. as a matter of construction, the delay clause did not cover the situation arisen.
Frustrating Events - Delay
More likely that it will NOT FRUSTRATE Also Metropolitan Water Board v Dick Kerr and Company [1918]. it delay means it is more likely that a party is in breach of contract. if a term states delivery and then doesn’t it’s a breach of express terms so frustration wouldn’t then.
Factors that are relevent
- Whether the contract provides for what should be the consequence 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 the contract the parties had originally made it.
Frustrating Events delay continued - Contracts that are more difficult or expensive
Whether the contract makes it more difficult to perform or less profitable such as the closure of Suez Canal led to many voyages being redirected which was longer and more expensive, this wasn’t frustrated unless
- the route had been specified in the contract
- or a precise delivery day was agreed,
- or the goods were perishable.
This was seen in Tsakiroglou & Co Ltd v Noblee Thorl [1962] seller agreed to ship groundnuts Port Sudan to Hamburg. At the time the parties assumed that the shipment would be via the Suez Canal although not specified. The closure meant they had to be shipped via the Cape of Good Hope the seller claimed that the contract was frustrated. The HoL found it was NOT as it had been more diff but the contract could still be performed (as no route had been specified) and had not become radically different.
the policy reason is that many contracts can become more difficult or expensive to perform. It would be unsatisfactory if this could bring a contract to an end. It would open the floodgates with claims that contracts had been frustrated and would lead to the uncertainty if a aprty could say the contract was at an end just because performance had become more difficult or less profitable for them. it would be unfair to the contracting party wou would never know when this argument was going to be there. Some contractors might underestimate the cost of the work and it would be unreasonable if they could say it could come to an end. Given that the cost of labour and the cost of materials go up a party who wishes to protect themselves should then forsee and make an express provisions in the contract.
Davis Contractors Ltd v Fareham Urban District Council [1956]. Davis agreed to build 78 houses within 8 months for Fareham. Davis experienced some diff mainly by labour and materials. The contract took over 22 months and argued that the contract had been frustrated and should be entitled to be paid a reasonable sum for the work after the frustrating event (wouldn’t be liable for breach of contract for taking longer than specified). Lord Radcliffe – ‘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…it is not hardship or inconvenience or material loss itself which calls the principle of frustration into plau. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for’.
- The hardship or inconvenience or material loss brings the principle of frustration.
- There must also be a change in significance of the obligation that the think undertaken be a different thing than from what contract for such as radically different. The other reason as to why the contract should not be then frustrate was the fact that the parties could have foreseen the cause of the delay. He said the possibility of enough labor and materials not being available was before their eyes and coild have been the subject of special contractual stipulation.
Frustrating Events - Illegality
Be legal impossible so will frustrate a contract. this can occur from change in the law also outbreak of war will frustrate the contract where the other party is in enemy-occuiped territory.
Fibroso Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] respondant (English company) to a manufacture machinery (Polish company) before had been completed the German army occupied Poland. The HoL held the contract was frustrated.
Summary of frustrating events
Unavailability of specific thing vital to contract Taylor v Caldwell
Unavailability of a specific person vital to the contract Morgan v Manser, Candor v Barron Knights
Non-Occurrence of a fundamentl events Krell v Henry, contrast to Herne Bay Steamboat Co v Hutton
Government Intervention Metropolitan Water Board v Dick Kerr and Company
Delay Metropolitan Water Board
Illegality Fibrosa.
Restrictions on Doctrine of Frustrations
EVENT MUST NOT BE FORSEEN BY THE PARTIES – RESTRICTION
The parties may have made express provision in the contract covering the event which has occurred and explained how any loss caused by the event will be borne by the parties. Alternatively, the court may feel that the parties foresaw or should have foreseen the event even though there is no express provision in the contract is implied.
Express provision – the force majeure clause inserted to cover events outside control of the parties, if the parties have made express provision covering event which has occurred, then this will be binding (a clause cannot prevent frustration in event if contract becoming illegal). Not being able to deliver for failure arising from circumstances outside seller’s control giving list of war, strikes, fire.
- Greater flexibility than relying on doctrine of frustration. The parties can include events which would not normally amount to frustrating events.
- Can specify what should happen if an event occurs and how loss.
- A force majeure clause can also provide greater degree of certainty but has to be made carefully to cover all events such as in Metropolitan covered delay but didn’t cover the event that occurred only temporary delays.
- Is subject to s 3 UCTA 1977 so will need to be reasonable to be upheld.
No express provision in the contract but the event is foreseen – the Davis took the view that if the event was foreseen then cannot be frustrated. However, in then The Eugenia [1964] Lord Denning MR in obiter said that the contract can be frustrated if the event was foreseen the only essential thing was that the parties should not have made provision for the event in the contract.
Restrictions on Frustration
EVENT MUST BE BEYOND CONTROL OF PARTIES
Event which makes contract impossible or radically different must be beyond the control of the parties. A party whose own act or elevtion cannot rely on the doctrine of frustration. It is called self-induced so will not come to finish. Will be in breach of contract if cannot perform contractual obligations. So self-induced frustration is not frustration. It would be unreasonable if party could cause the event to occur and then plead frustration.
Maritime Fish Ltd v Ocean Trawlers Ltd [1935] claimants had then hired trawler from Ocean. Both knew the trawler could only be used with otter trawl and a licence was needed. The claimant had four and applied for five licenses. There were only granted three. They could have used one for the trawler they had hired from the defendants but had not the court decided that the contract was not frustrated as it was the claimants own election which caused the problem.
J Lauritzen Ac v Wijsmuller BV, The Super Servant Two [1990] Self-Induced Frustration. The defendants agreed to transport drilling rig from Japan to Rotterdam. Said the rig was to be carried using a transportation unit. The defendants intended to use Super Servant Two but it sank before the date due for delivery. Had entered into two other contract they could only perform using Super Servant One and so two weeks after sinking the claiamnt they would not be able to transport the rig. Was not frustrated. The CoA Bingham ‘Mr Clarke submitted that the extraneous supervening event necessary to found a plea of frustration occurred when Super Servant Two sank…the contract was not, however, thereupon frustrated but remained alive until they decided a fortnight later that the contract could not be, or would not be performed. The doctrine of frustration depends on a comparison between circumstances as they are or are assumed to be when a contract is made and circu mstances as they are when a contract is, or would be, due to be performed. It is trite law that disappointed expectations do not of themselves give rise to frustrated contracts…had the contract provided fo carriage by Super Serant Two with no alternative, and that vessel had been lost before the time for performance, then assuming no negligence by the defendants, I feel sure the contract would have been frustrated. The doctrine must avail a party who contract to perform a contract of carriage with a vessel which, through no fault of his, no longer exists. But that is not the case. The contract did provide and alternative’.
- The defendants had contracted to transport the claimants drilling rig using either Super Servant one or two. They had intended to use Super Servant RTwo and entered into either contracts involving One. When it sank they claimed had been frustrated and court didn’t accept there was self-induced frustration because the decision to use Super Servant One for other contracts had made the performance of their contract impossible. The impossibility of performance from their own act. The decision of self-induced frustration could be criticsed that the defendant did not have a genuine choice about the allocation of Super Servant One. The sinking of the other left the defendant with one so could not be allocated. Performance of some of them had been made impossible by this. Bingham the
- contract would have been frustrated if the contract had provided for carriage only by Super Servant Two with no alterative vessel and Super Servant Two had been lost without fault.
Therefore, any act by a party which contributes to the event will prevent the contract from frustrated this shows narrow limits within the doctrine and advantage of inserting a force majeure clause.
- There was a clause the defendants argued as an alternative defence that if the contract was not frustrated the loss of the ship was covered by the force majeure allowing them to cancel. The clause referred to ‘perils or danger and accidents of the sea’. The court held the clause covered the sinking of Super Servant Two provided this was not caused by the negligence of the defendants.
If one party alleges that the other party caused frustrating even then it seems that burden of proving fault is on the party alleging it. Stated in Constantine Steamship Line Ltd v Imperial Smelting Corporating Ltd [1942] where Lord Simon LC said that it was up to the other party to prove he was not at fault, he would have to prove a negative and this would be diff to do.
Frustration and Lease of Land
Traditionally it has been argued that a lease could not be frustrated as it not only creates a contract but also an estate in land. If land is requisitioned by the government, for instance, the lessee would still be expected to pay the rent as the act of requisition has not affected the owner of the estate (Whitehall Court Ltd v Ettlinger [1920]. But there are two cases which have doubted that, as a matter of law, leases are incapable of being frustrated. First, in Cricklewood Property and Investment Trust Ltd v Leighton’s Investmnet Trust Ltd [1945] the Law Lords were divided equally on the matter (Lord Porter expressing no view) (appreaciation). Lords Simon and Wright argued persuasively that a special purpose lease (eg a building lease), in which that purpose could not be performed, m ight be capable of being frustrated. Secondly, in Nation Carriers Ltd the HoL expressed the opinion that frustration should ‘hardly ever’ apply to leases rather than discounting the possibility entirely. As DD have taken a lease exclusively for the mining of tungsten or (ie a special purpose lease), which may now be commercially redundant, it is arguable that the lease has been frustrated (BP), where an oil concession, similar in many ways to a mining lease, was capable of being frustrated.
An interest in land wasn’t perishable like goods and doesn’t accord to Taylor. This was seen in National Carriers Ltd v Panalpina (Northern) Ltd 1981 the appellants leased warehouse from the respondents for 10 years from 1 January 1974. In May 1979 local authority closed street giving access to the warehouse. This was because of the dangerous condition of a building opposite. It was envisaged that the street would be reopened in 1981. The closure of the street prevented the appellants from using. The appellant’s argued lease was frustrated by the closure of the street. The HoL said the doctrine of frustration would apply to lease of land so as to bring the lease to an end if a frustrating event occurred during the currency of the term. However, the circumstances which it would apply were rare. The factors
- Length of the lease
- How long the party is deprived of use of property.
In Panalpina access was restored they would have lost two out o ten years use and their business would have been disrupted, the close of access was not sufficiently large to amount to a frustrating event since there would be a further three years of the lease remaining after the access was re-established.
Effects of Frustration at Common Law
THE ORIGINAL POSITION AT COMMON LAW WHEN CONTRACT WAS FRUSTRATED
Originally if one party had paid money to the other before the frustrating event, it could not be recovered. Also, if any money was due and payable before the event it still had to be paid. Therefore it was necessary to examine the terms of the contract to decided when the money was due or payable.
In Krell v Henry the hire of rooms paid he agreed to £75 and paid deposit of £25. The event happened before he was due to pay the balance of £50. The defendant could not recover the £25 as this was money paid before the frustrating event. He did not have to pay the outstanding £50 as it arose after the frustrating event.
In Chandler v Webster [1904] claimaint agreed hire rooms for 141 to view coronation. The contract stipulated that the entire sum was payable immediately although the claimant had paid only 100. The claimant could not recover the 100 as it was paid before the frustrating event. The claimant did have to pay the outstanding as this was money due before the frustrating event occurred. The common law rules did not produce fair outcome in cases like Krell and Chandler. In each case, the party who had hired paid money but received nothin in return. The cancellation was not their fault.
- Cannot recover money paid before the frustrating event.
- Have to pay money that was due before the event occurred.
INJUSTICE addressed in the Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943].
- The HoL stated if there had been a total failure of consideration then money paid could be recovered. So if the payer had received absolutely no benefit he could recover money paid and did not have to pay money that was due before the event. However, if any benefit had been received could not be recovered
- The Vicount Simon LC thought that even after the decision in Fibr certain problems still remined. The decision did not address the problem of party who had incurred expenses carryoing out its contract also a party may have done all the work under the contract but will not be compensated. Though that it was up to Legislature to deal.
Legislature to deal with inequity at common law because
The common law did not deal with the problem of expenses at all, so it is an improvement. The common law did not deal with the provision of valuable benefit.
