Frustration

Question 1

Frustration

Answer 1

Occurs where circumstances beyond the control of the parties mean that the contract can no longer be performed. If a contract cannot be performed, it may be discharged by operation of law. Historically, no such doctrine. If you entered an absolute contract, if events turned against you, it was tough luck.

Question 2

Paradine v. Jane [1647]

Answer 2

• Highlights hard-line historical approach
• The plaintiff let lands to defendant under a lease which required the lessee to pay rent on a quarterly basis
• Subsequently, the English Civil War broke out, and the lessee is ejected from the land by the armed forces
• In an action for arrears of rent by the landlord, the lessee unsuccessfully pleaded that these circumstances excused his non-payment of the rent
• Even though the defendant lessee had been thrown off the lands, he was still obliged to pay rents due under the lease
• Court drew a distinction between a general duty imposed by law upon a lessee, and a duty undertaken by way of contract
• “When the party by his own contract, creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract”

Question 3

Gamble v The Accident Insurance Co [1869]

Answer 3

• Individual who has an insurance contract.
• Provision that if the insured is in an accident, within 7 days, the insured must notify the insurance office
• Insured in an accident, and drowned.
• Didn’t inform insurance company, couldn’t
• Claim brought on behalf of his family, insurance family refuse to pay out as they were not informed
• The plaintiff argued that, due to the sudden and fatal nature of the accident, notification was impossible within the terms of the contract
• Court applied PvJ, however, holding that notification was not impossible since the ] deceased could have made someone aware of the strict terms of the policy and thus ensured that if something were ever to happen to him, that person could give the notice required under the contract

Question 4

Principle of Freedom to Contract

Answer 4

• Parties are generally free to include any terms they wish in their agreement to deal with
  contingencies
• If the other party in a situation such as
  Gamble or Paradine, refuses to allow the insertion of a clause allowing a friend to give notice of the accident, the answer for the first party is not to sign the contract in the first
  place, rather than to sue anyway and seek to argue impossibility of performance.
• If he decides to go ahead and sign, voluntarily undertaking an unconditional obligation, he cannot later complain merely because events have turned out to disadvantage

Question 5

Unforeseen Contingencies

Answer 5

• Issue arises, cannot negotiate on the unknown
• Unfair to say that this unexpected event ought to have been covered in your contract
• Courts began to accepted that in these circumstances, contracts could be rendered impossible and outside the performers control
• Allowed for development of Frustration Doctrine

Question 6

Force Majeure Clauses

Answer 6

• Contractual provisions designed to deal with unforeseen difficulties
• Particularly common where the contract is of a kind where the parties can foresee that such problems are likely to occur but cannot foresee their nature or extent, such as in building or engineering contracts

Question 7

Taylor v Caldwell [1863]

Answer 7

• Hire of a hall four days, on a series on contracts for concerts
• Contract entered, not performed until future
• Between date of entrance and performance, there is a supervening event, a fire which destroys the hall, not at the fault of either party
• Performance was impossible
• Plaintiff sued owner of hall for damages and compensation for advertising expenditure
• Court argues here that the contract was frustrated, as it was subject to the implied condition that the building would continue to exist
• When entering into the contract, they must have contemplated the continuing existence of the Hall as the foundation of what was to be done

Question 8

Criticism of Implied Terms of Blackburn J

Answer 8

• Terms usually implied to see the intention of the parties, but can’t really be intention if it is unexpected and they did not contemplate it?
• The implied terms theory has been substantially replaced by the more realistic view that the court imposes upon the parties the just and reasonable solution that the new
  situation demands
• Modern test is often expressed as a radical change in obligations
• Lord Radcliffe “there must 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”
• This is not an easy thing to establish and it should not be assumed, simply because the harshness of the old rule
• The doctrine operates within strict limits and provides no easy means of escape for a bad bargain

Question 9

McGuill v. Aer Lingus & United Airlines [1983]: Principles of Claiming Frustration

Answer 9

(i) A party may bind himself by an absolute contract to perform something which subsequently becomes impossible.
(ii) Frustration occurs when, without default of either party, a contractual obligation has become incapable of being performed.
(iii) The circumstances alleged to occasion frustration should be strictly scrutinised and the doctrine is not to be lightly applied.
(iv) Where the circumstances alleged to cause the frustration have arisen from the act or default of one of the parties, that party cannot rely on the doctrine.
(v) All the circumstances of the contract should be strictly scrutinised.
(vi) The event must be an unexpected event.
(vii) If one party anticipated or should have anticipated the possibility of the event which is alleged to cause the frustration and did not incorporate a clause in the contract to deal with it, he should not be permitted to rely on the happening of the event as causing frustration.

Question 10

Ringsend Property Ltd v. Donatex Ltd [2009]

Answer 10

• Kelly J explained that the doctrine of frustration is “one of limited application and narrowness” and arises “in circumstances where performance of a contract in the manner
  envisaged by the parties is rendered impossible because of some supervening event not within the contemplation of the parties”

Question 11

Destruction of the Subject Matter

Answer 11

Taylor v Caldwell

Question 12

Unavailability of the Subject Matter

Answer 12

• SM still exists, but it is unavailable to perform the contract
• Unavailability due to illness in the context of a contract for personal would frustrate a contract. The duration of unavailability may be key here: a short period of unavailability may not frustrate the contract, but the longer the period, the less predictable the result
• Often in shipping cases; if a war breaks out etc. Cannot travel through a war zone. Ship is not destroyed but it is unavailable to the performance of the contract

Question 13

Unavailability: Tamplin Steamship Co. v. Anglo
Mexican Petroleum Products [1916]

Answer 13

• Ship chartered in December 1912 for 5 years
• Outbreak of WWI, requisitioned for use as a troop ship
• Is this contract frustrated? In deciding this issue one must factor in the uncertain element, of how long the ship will be unavailable for
• Hard to predict how long a war will last. Few weeks and months is different to years
• Court held that the contract was not frustrated. At the time of the requisitioning, it appeared that the ship would still be able to perform a substantial portion of its contractual obligation after the war ended. This turned out to be incorrect

Question 14

Krell v Henry [1903], Coronation Cases

Answer 14

• Defendant decides he wishes the view the coronation, and well in advance, books some rooms overlooking Pall Mall to the defendant for 2 days, so he could view the procession
• When entered, perfectly lawful and valid.
• Cancellation of the Coronation
  processions of Edward VII due to illness
• A £25 deposit was paid, and a further £50 was to be paid on the morning the ceremony was
  cancelled.
• When sued for the £50, the defendant claimed
  frustration.
• His problem was that performance had not been rendered physically or legally impossible: the room was still there to stay in, even if it was no longer of any interest to the defendant
• Vaughan Williams LJ; he use of the rooms was let and taken for the purpose of seeing the Royal procession. It was not a demise of the rooms or even an agreement to let and take the room, it was a licence to use the rooms for a particular purpose, reflected by the price of the defendant

Question 15

Hearne Bay Steam Boat Co v. Hutton [1903]

Answer 15

• The defendant had chartered a steamboat so that he could be a spectator at a Naval Review due to take place over 2 specified days, sailing
  around the fleet.
• The Naval Review was cancelled when Edward VII fell ill, but the fleet remained at anchor.
• The Court of Appeal rejected the defendant’s claim of frustration when he was sued for the balance due on the charter.
• The Naval Review was not the foundation of the contract. Could still take out the boat, enjoy the cruise, etc.
• Sterling LJ observed that there remained the opportunity to view the fleet and enjoy the cruise: “The ship (as a ship) had nothing particular to do with the review or the fleet except as a convenient carrier of passengers to see it: any other ship suitable for carrying passengers would have done equally as we.”
• Just because Courts will now frustrate contracts, it is not easy. Bar is quite high

Question 16

Increase of Burden/Difficulty

Answer 16

• If the contract entered will not be performed until some point in the future, this can go against you
• Delivery of goods to coffee shop, manufacturing food
• Over course of the contract, things can change. Energy crisis, cost of petrol, cost of living. More expensive to put delivery vans on the road, than anticipated at performance of the contract
• Generally, the rule is that frustration cannot be claimed simply because the contract becomes more expensive for one party to perform

Question 17

IBD: Revell v Husey

Answer 17

“Suppose a case that very frequently occurs of a colliery, where the company has contracted to supply iron works, at a price agreed on; surely it can be no ground to rescind it that subsequent circumstances have occurred to render it very prejudicial; that the coals may have greatly increased in price; that the expenses of working the mine may have been considerably raised.”

Question 18

IBD: Zuphen v Kelly Technical Services [2000]

Answer 18

“It is not hardship or inconvenience or a material loss
itself which calls the principle of frustration into play.
There must have been such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.”

Question 19

Tsakiroglou v. Nobleee and Throl [1961]

Answer 19

• Sellers of ground nuts contracted to ship the goods
  c.i.f.2 from Port Sudan to Hamburg.
• Via the Suez Canal, freight charges would be £7 10s per ton.
• When the Canal was closed to shipping due to the war, the ship’s next option was to sail via the Cape of Good Hope, which would cost £15 per ton.
• The House of Lords found no frustration. There was no basis for an implied term that the Suez Canal was the only permissible route.
• The extra time involved would not cause any degeneration of the goods to be shipped.
• There was no seasonal market which would be lost by the delay and no specific delivery date in Hamburg had been stipulated in the
  contract.
• Certainly, freight costs (as well as insurance) would
  increase, but their Lordships held that extra expense did not per se justify a finding of frustration.
• Since no particular route had been agreed to, the sellers were bound to choose one that was practicable in the circumstances

Question 20

Kelly v Callinan [2012]

Answer 20

• An agreement was entered into by the parties which was intended to bring an end to their personal
  and business/employment relationship, and involved the proposed sale of a property, out of the proceeds of which the plaintiff was to be paid €120,000.
  -It was argued, inter alia, that a failure to sell the house the subject-matter of the proceedings was a frustrating event.
• However, clause 6 of the contract between the parties provided an absolute reserve price of €1.8m, below which price the house could under no
  circumstances be sold.
• Peart J held that this meant a failure to
  sell, or even the impossibility of selling, the house could not be taken to be “such a supervening event beyond the contemplation of the parties at the time that the agreement was executed as to justify a finding that the contract … has been frustrated”

Question 21

Failure to Provide for Ordinary Commercial Risks: Zuphen v. Kelly Technical Services

Answer 21

• Recruitment company for Eircom, providing phones to homes and business, needed skilled staff for installation
• Labour Shortage at the time of skilled staff in Ireland
• Sep 1999 recruit a number of South African workers. enter contracts of employment to work in Ireland
• Require SA workers to be physically present in Dublin in Sep 1999, with a valid work permit
• Difficulty, in the contracts, the offer of employment is not conditional on there being work to do when they arrive in Dublin. Oversight? Deliberate?
• In December 1999 Eircom notified the defendants that it no longer required the defendants to perform any work.
• In January 2000 the defendants informed the plaintiffs that there was no further work available and that they should return to South Africa.
• In response to the plaintiffs’ claim for a declaration that this purported termination of their contracts of employment was null and void, the defendants claimed frustration on the basis of the loss of the eircom contract without any fault on their
  part.
• They argued that at all times it was the understanding of the parties that the retention of the plaintiffs by the defendants was only ever in the context of works being conducted for eircom.
• Murphy J held that the contract had not been frustrated by the loss of the specific eircom contract. - He observed that a carefully drafted employment contract would have contained a condition as to the availability of work.
• Unfortunate but not a frustrating event
• “It is not hardship or inconvenience or a material loss itself which calls the principle of frustration into play. There must have been such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.”

Question 22

Foreseen of Unforeseen?

Answer 22

• It has been said that, to establish frustration, the supervening event making performance impossible must have been “unforeseen” or “unexpected”
• Ringsend Property (supra) confirms that the doctrine may apply where performance is
  rendered impossible by “some supervening event not within the contemplation of the parties”

Question 23

McGuill v. Aer Lingus & United Airlines (supra)

Answer 23

• Aer Lingus had issued tickets for United Airlines
  flights to the plaintiff.
• Employees of United Airlines engaged in industrial action and that airline was, as a result, unable to
  carry the plaintiff’s party.
• United Airlines issued tickets even being aware of strike notice
• Strike takes place
• The plaintiff was required to organise alternative travel arrangements at increased cost and he sued the defendant
• United Airlines claimed frustration on the basis of the strike.
• The High Court experienced difficulty in identifying the precise moment in time when it was claimed that the contract had terminated.
• McWilliam J refused to imply into the contract a term that, once the parties became aware of the
  strike, the contract should continue until it was clear that the strike would not be settled in time to allow United Airlines perform its obligations.
• Since United Airlines had been aware of the possibility of a strike from January 1979 onwards it
  could not rely on frustration.

Question 24

Self-Induced Frustration

Answer 24

• Essential to the doctrine of frustration is that the supervening event is beyond the control of either party
• If the event is deliberately brought about yourself, it is not frustration