Frustration

Question 1

What is frustration?

Answer 1

A disrupted performance of a contract by events outside the control of the parties and their perfomance, where the parties have made no provision for the consequences of that event

Question 2

What is the general rule of breach in contract?

Answer 2

A party who fails to perform his contractual obligations, for whatever reason, is prima facie in breach of contract

Question 3

What is the doctrine of frustration?

Answer 3

Frustration brings the contract to an end without imposing any liabailty in damages on the party who failed to perform contractual obligations as a result of the supervening event

Question 4

What are the general principles of frustration?

Answer 4

Frustration arises as a matter of law where :
* Event must take place without fault of either party
* It changes outstanding obligations from that which they reasonably contemplated at the time of entering a contract
* Must be unjust to hold them to new obligations
* Parties discharged from further performance

Question 5

What was the first case of frustration but was not regarded as such during that time?

Answer 5

Paradine v Jane (1647)

• Plaintiff sued Defendant under a lease for years of unpaid rent
• Defendant pleaded that as a result of the invasion of an enemy of the King (Prince Rupert of Germany), he was forced out of possession of the property and unable to take profits
• Defendant refused to pay Plaintiff rent for the time he was forced out of possession by the army
  Held: Defendant was liable for the rent (the courts were not interested/did not have anything to do in/with the supervening event) - the rule was hard an uncompromising

Question 6

What cases show that courts were shifting in their thinking of supervening events?

Answer 6

Taylor v Caldwell (1863)

• Contract for the use of Surrey Gardens and music hall for four days
• Claimants agreed to take the gardens and hall on those days, and pay 100 pounds per day
• After agreement made, and before first day on which concert was to be given, hall was destroyed by fire

Held: Contract was discharged as it was impossible to perform, contract had to be frustrated because of the supervening event of the fire

Morgan v Manser (1948)

• Music hall entered into an agreement with artist where artist would be hall’s manager for a term of 10 years
• Artist agreed to work exclusively for the hall during this time unless hall gave consent to the contrary
• Artist was called up in June 1940, for service in the army, but was not demobilized until February 1946
• In October 1945, artist entered into a contract with agents (ie: not the hall, different agents) to appear in a theatrical performance because agreement with hall was frustrated and rendered impossible of performance

Held:

• Original contract, looked at as a whole, was invalid by the call up of the defendant
• There was such a change of circumstances to the officer and in general and for such a duration that original contract must be held to have been frustrated by that event, and the duration of it all, it was not reasonable to expect that things would be the same after what had happened

Question 7

What was one of the first cases that the courts concluded there was NO frustration? What defintion of frustration did Lord Reid give?

Answer 7

Davis Contractors v Fareham Urban District Council (1956)

• Appellants entered into contract with respondents to build 78 houses within period of 8 months
• Fixed price contract subject to certain adjustments
• For various reasons, including lack of skilled labour, building took 22 months to complete
• Claim was that due to long delay and scarcity of labour, contract had been frustrated

Held: Contract not frustrated

Lord Reid : “… the contractor.. takes the cost of the work being greater or less than he expected… the delay was greater in degree than was to be expected. It was not caused by any new and unforseeable event”

“…the job proved to be more onerous but it never became a job of a different kind”

Question 8

What have the courts realised with the relationship between common mistake and frustration?

Make sure to mention from textbook

Answer 8

Judges have recognised the boundary between common mistake and frustration to be very fine

Question 9

What is another case law example of what is not frustration?

Answer 9

National Carriers Ltd V Panalpina (1981)

• Warehouse was let to the Defendants for a period of 10 years from 1 January 1974
• Only vehicular access to warehouse was by a street which local authorities closed on 16 May 1979, due to dangerous condition of an opposite derelict Victorian warehouse
• Period between street closure and reopening after demolition of derelict warehouse was likely to be about 20 months (only 1/6th of the lease) , at that point the lease still had three more years to run (lease affected one third of the remainder of the term)
• During that period, Defendants’ warehouse was rendered useless for their purposes

Held: Having regard in particular to the likely length of continuance of the lease after the interruption of user - note 10 year lease – there was no frustration.
In relation to the Lord Reid the job was not changed fundamentally even though it is more onerous

Question 10

What considerations are observed to render a contract frustrated?

Answer 10

• What obligations were originally undertaken?
• Could the parties make provision in the circumatances (e.g. Force Majeuere, hardship clauses)
• Have the parties substatially lost the benefits of the contract or has the nature of the contract significantly changed?

Question 11

What is the definition given for frustrating events given by Lord Radcliffe? and in what case?

Answer 11

Davis Contractors Ltd v Fareham District Council (1956)

Lord Radcliffe: “ a contractual obligations has become incapable of being performed” “… circumstances [are] radically different”

Question 12

What are the cases of frustration that concern personal services?

Answer 12

Condor v Barron Nights (1966)
* Claimant was employed as drummer of a band, to work 7 nights a week
* Doctor said he must not work more than four nights a week or he would have a mental breakdown
* Band worked seven nights a week and changing the drummer from night to night was not, in a business sense, practical
* Contract provided for immediate dismissal on breach of its terms, so band dismissed claimant, who brought an action for wrongful dismissal

Held:Contract was considered to be frustrated because there was no wrongful dismissal, as claimant’s illness made it impossible for him to fulfil his contractual obligations, so contract was frustrated (by the illness)

Hart v Marhsall (1978)

• Hart was an employee of Marshall
• From April 1974 to January 1976, Hart was absent due to industrial dermatitis (skin condition caused from exposure from working)
• In August 1974 Marshall appointed a permanent replacement for Hart
• When Hart presented himself for work, he was told there was no work for him and was dismissed

Held:

• Contract was frustrated by Hart’s condition (and was thus impossible to perform)
• As the employers were justified in replacing the employee, industrial tribunal was correct in holding the contract was frustrated and the employee had not been dismissed - not unfairly dismissed

Question 13

What case established the multi factoral approach?

Answer 13

Edwinton v Tsavaliris (The Sea Angel) [2007]

• Tsavliris chartered a vessel from Edwinton to assist in salvage operations of a tanker with light crude oil, grounded in or near approaches to port of Karachi, causing a major pollution incident
• Although Tsavliris had given notice of re-delivery of the vessel to Edwinton, it was impossible to return the vessel, because port authorities in Karachi refused to issue a certificate stating that there was no outstanding port fees
• During this time, Tsavliris stopped paying hire fees for the vessel to Edwinton and submitted the delays, resulting from the actions of Pakistani port authorities, had frustrated their charter contract
• Edwinton commenced proceedings to recover the hire fees

Held: No frustration - the application of frustration requires a multi factoral approach as done by Rix LJ

• General risk of detention by port authorities was a foreseeable risk of the industry ( not uncommon in this industry), even though the way in which it occurred was unforseen and even unprecedented
• Under a time charter contract, the charter assumes the risk of delay and it would be inconsistent with legal principles and with industry expectations, to reverse this contractual riskNO frustration

Question 14

What is the multi factoral approach?

Answer 14

1. Terms of the contract
2. Context in which the contract was made (seasoned charters, they know what they are doing)
3. Parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk (dealing with international port authorities is not new to them, not unforeseen and not unlikely)
4. Nature of the supervening event (is it even a supervening event that is actually going to render the contract different from what had been agreed?)
5. Parties reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances (once they got the go ahead from Pakistani authorities would you then go ahead with the delivery)

Question 15

What does the multi-factoral approach demonsrate about the doctrine of frustration?

Answer 15

• in the context of the multifactoral approach the test of ‘radically different’ is important –> demonstrates that the doctrine not to be lightly invoked, mere expense, delay or onerusness is not enough - has to be a break in identity between the contract as provided for and contemplated and its performance in the new circumstances
• establishes frustration as a very narrow doctrine and sees very few contracts succeed

Question 16

In what scenario may the boundaries of the frustration be tested?

Answer 16

• The effects of Brexit and Covid-19
• BUT in these circumstances a commercial contract will not be deemed frustrated but rather more expensive (Canary Wharf 2019 case)
• Therefore presence or deliberate abscense of hardship or Force Mejure clause will be crucial

Question 17

What were the coronation cases and was there frustration present?

Answer 17

The coronation cases where contracts that were seen to be frustrated by the coronation being postponed but only one of them came to this judgment:

• Krell v Henry [1903]
  
  • Henry agreed to hire a flat (3rd floor of 56a Pall Mall) from Krell for 26 and 27 June 1902
  • Contract contained no reference to the coronation processions but they were to take place on those days and to pass the flat, it was therefore known that they would be for the coronation
  • Coronation of King Edward VII was postponed because of illness

Held: Court regarded the processions and the relative position of the flat (the coronation always goes through these areas) as being the foundation of the agreement, so held the contract was frustrated.

However this was not the case in : Herne Bay Steam Boat Co v Hutton

• Defendant entered into contract with Plaintiff steamship company in which Plaintiff agreed to place their ship at Defendant’s disposal on 28 June 1902, to take out a party ”…for the purpose of viewing the Naval Review and for a day’s cruise round the fleet; also on Sunday, 29 June 1902, for a similar purpose.”
• On 26 June 1902, the Naval Review was postponed because of the King’s illness, but the naval fleet was still there for the viewing
• Defendant repudiated the contract on the ground that it ceased to be binding

Held: Contract was not frustrated - contract was to see the fleet AND to the review Naval Review; was to see both things

Per Vaughan Williams LJ: “…the happening of the Naval Review was not the foundation of this contract.”

Question 18

What happened in Jackson v Union Marine Insurance 1874 and what was the interesting in the judgement?

Answer 18

• Jackson entered into a charterparty to transport cargo from Liverpool to Newport
• Ship ran aground in Carnarvon Bay the day after its departure. And although was refloated but needed repairs
• Charterers secured another ship to carry the cargo

Held:

• Charters were entitled to charter another ship because delays were so long, that original contractual obligations were ended
• It was the happening of the event and not the fact that the event was the result of a breach by one party of its contractual obligations that relieved the other party from further performance of its obligations - the time delay had become so long that the contractual obligations were different

Interesting judgment:
It was the happening of the event and not the fact that the event was a result of a breach by one party of its contractual obligations - the delay of the ship was so long that the contractual obligations were different

Question 19

What happened in the case of Blackburn Bobbin v TW Allen [1918] and why was there no frustration?

Timber case

Answer 19

• Timber merchants into a contract for sale of Finnish birch timber
  • Outbreak of war in August 1914, prevented the Defendants from importing the timber from Finland, so they could not perform their contract with the Plaintiffs
  • Defendants argued contract had been frustrated

Held:
* No frustration and defendants were in breach of the contract
* Not a shared, common assumption between the parties that the timber would need to be sourced from Finland; there was no point time where the defendants asked or said that the timber was going to be sourced from Finland; so to say there is frustration because you can’t get it from Finland was not frustration as it was not in the parties’ knowledge, expectations, assumptions and contemplations

Question 20

What was the war case that was concluded to be frustration?

selling machinery became illegal

Answer 20

Fibrosa v Fairburn (1943)

• Under a contract dated July 12, 1939, an English company agreed to sell machinery to a Polish company, with delivery to be 3 to 4 months from settlement of final details
• The contract stated: “Should dispatch be hindered or delayed …. by any cause whatsoever beyond our reasonable control, including …. war …. a reasonable extension of time shall be granted.” - a clause that contains the possibility for a supervening event
• On September 1, 1939, war broke out and after September 23 and Poland was occupied by German forces, it then became illegal to trade with Poland

Held: The contract was frustrated because it became illegal to trade with Poland because of the sanctions imposed on Poland to disable trade + war

Question 21

What is that Suez case that is really hard to pronounce?

Answer 21

Tsakiroglou v Noblee & Thori (1962)

• Contract for the sale of Sudanese groundnuts, made when customary route from Sudan to Hamburg was via Suez Canal
• Suez Canal was closed at date for shipment so sellers refused to ship delivery because to do so via alternate route would have cost sellers 100% increase in freight
• Contract was said to be frustrated as the Suez channel was closed at no fault of their own

Held:
* No frustration
* Contract was still capable of being performed, only via another route - although turning out to be a very bad deal for the sellers
* Goods were not so perishable that they would not have survived the alternate (longer) route ; (job may became more onerous but has not radically changed Davis contractors)
* The sellers had to perform it or pay damages

Question 22

What was the case that proved that if it was a forseeable event within the partie’s contemplation, the contract would not be frustrated?

Also a Suez case

Answer 22

The Eugenia [1964]
* Charterers took a vessel on charterparty “trip out to India via Black Sea”
* Contract included a war clause forbidding charterers to bring vessel within dangerous zones without owners’ consent
* Vessel was trapped in Suez Canal, a dangerous zone when she entered
* On vessel’s release, charterers claimed contract was frustrated, but owners treated this as repudiation and claimed damages
Held:
* Contract was not frustrated
* BOTH parties foresaw the possibility of the event (see war clause), but just failed to state what would happen if the event actually occurred. The war was already anticipated

Question 23

True or False:
It is important to look at the facts of cases to understand if Frustration really applies

Answer 23

True

Question 24

What happened in the case of Canary Wharf (BP4) T1 Ltd V European Medicines Agency [2019] and why was Brexit not seen as a supervening event?

Answer 24

• Claimants, the landlord and management company of commercial premises in London, sought declaration that lease granted to European Medicines Agency to use premises as its headquarters would not be frustrated by UK’s withdrawal from the EU
• EMA has a contract with Canary Wharf containing a 25 year lease and used Brexit as grounds for frustration - used some part of article 50 -arguing that this deprived them of significant benefits within the contract
• Two grounds were raised: supervening illegality and common purpose.

Brexit not seen as a supervening event because: it was seen as a “materially adverse change” “not one that rendered the continued occupation of the Premises as its headquarters impossible” - as stated by Justice Smith

Question 25

What are the three important Limitations on the doctrine of frustration?

Answer 25

1. The frustrating event cannot be the fault of the party claiming frustration (or by any of them)
2. The frustrating event must not have been provided for by the parties in their contract
3. The event must not be forseeable by the parties at the time of the contract

Question 26

What is a case law example of the limitation that states : the frustrating event cannot be self induced?

Answer 26

The Super Servant Two (1990)

• Contract to transport a rig had an option for the use of two freighters
• The one chosen sank during the performance of the contract
• Contract had force majeure clause but courts found clause only valid if sinking of the ship was not because of owner’s negligence.

Held:
* Contract was not frustrated

• There were two ships that could be used to perform the contract and defendants’ liability to perform the contract was because of their own choice, which proved to the wrong one. (self induced), have to look at the context it was made and the knowledge of the respective parties - lack of due diligence and checks to see if it was effective or working

Question 27

What are the characteristics outlined by Lord Bingham in The Super Servant Two 1990?

Answer 27

1. The doctrine of frustration evolved to mitigate the rigour of the common law’s insistence on literal performance of all absolute promises under the contract. The object is to give effect to the demands of justice, to avoid an injustice which would result if the contract is enforced in its literal terms following a significant change in circumstances
   2. The effect of frustration is to kill the contract and discharge the parties from further liability under it. The doctrine is not to be lightly invoked, must be kept within narrow limits and ought not to be extendedFrustration brings the contract to an end forthwith and automatically
   3. The essence of frustration is that it should not be due to the act or election of the party seeking to rely on it. The frustrating event must be some outside event, or extraneous change of situation

A frustrating event must take place without blame or fault on the side of the party seeking to rely on it.

Question 28

Frustration can only operate where…

Answer 28

… there is a gap in the contractual allocation of risk

Question 29

What is a clause that represents the parties have provided for what shall happen if a specified event occurs and covers the gap in the contractual allocation of risk?

Answer 29

Force Majeure

Question 30

Outline what a Force Majeure clause is

Answer 30

• It is an express risk (must be expressly made) allocation clause.

If ,on proper construction, such cause deals with the event that has occured, then the court will NOT find that the contract has been frustrated

They also

• provide a list of events AND
• makes provision for what happens when a particular event occurs
• allow contracting parties to avoid the difficult and uncertain law of frustration, especially the consequences of frustration- prevents the consequences of contract being discharged by Frustration

fills in the gap that frustration operates in

Question 31

What case exemplifies how the courts will be slow to interpret a FM clause such that it excludes the doctrine of frustration?

The doctrine of frustration may still apply

Answer 31

Metropolitan Water Board v Dicker Kerr and Co ltd (1918)

• The defendant contracted with the claimant to build a reservoir in six years, beginning in July 1914. In 1916, the Ministry of Munitions exercised its wartime powers to force the defendant to stop the work and to sell its plant.
• There was a clause in the contract that said that, in the event of any difficulties ‘whatsoever and howsoever occasioned’, the defendant should apply for an extension of time.
• This very broad clause may reasonably be thought to have covered the situation in which the defendant found itself, but the House of Lords interpreted the clause in a narrow manner.
• Their Lordships held that the clause was only intended to cover temporary obstacles in the construction of the reservoir.
• On the facts of the case, the delay was substantial and more than temporary, and was not covered by the clause.
• The prohibition created an interruption of such character and duration that when the contract resumed, it became a different contract and the original contract ceased to be operative

The House of Lords held that the contract was frustrated.

Question 32

What are the case examples that show that the frustrated event must not be forseeable in order for a contract to be frustrated?

Answer 32

The Eugenia (1964)

Question 33

What are the three areas that outline the consequences of frustration?

Answer 33

1. Discharge of the contract - Hirji Mulji v Cheong Yue Steamship 1926 “the legal effect of frustration is the immediate termination of the contract”
2. Common law financial consequences - has developed from Chandler v Webster (1904) the loss lies where it falls to Fibrosa v Fairbairn (1943) money paid under the contract can only be claimed back if there is a total failure of consideration- per Lord Wright
3. Statutory rules - Law Reform (frustrated Contracts) Act 1943

Question 34

Where do the Statutory Rules apply?

Answer 34

Deals with the consequences of frustration only and not whether the contract has been frustrated or not

Question 35

What is the legislation for the statutory rules?

Answer 35

Law reform (Frustrated Contracts) Act 1943

Question 36

Where do the statutory rules not apply and where is it stated?

Answer 36

In Section 2 , ss 2(5) of the Frustrated Contracts Act 1943
1. To any charterparty
2. To any contract of insurance
3. To any contract which S7 Sale of Good Act 1979 applies

Question 37

What circumstance questioned the scope of force majeure clauses and whether they are sufficiently broad to cover the events that transpired?

Answer 37

Covid-19