Frustration Flashcards
Define the doctrine of frustration?
Doctrine of frustration is used as a defence/judicial excuse for non-performance from breach of contract and it suspends the contractual obligations of both parties going forward whereby the parties are released from their contractual duties.
Remedy: If it applies it serves to release both parties from their mutual obligations. When the frustrating event arises, the frustration means that the contract is cancelled from that date forward. Doesn’t unwind completely. Can you recover from prior involvements? Yes but unjust enrichment law not contract law. Contract is cancelled from frustrating event going forward of the frustrating event.
- What is a frustrating event?
o After the contract is formed, but prior to performance of the contract there has been a change in circumstances of the landscape either to consideration itself or to something in the contract that is necessary. Now you are being called upon to do something radically different that originally agreed because the circumstances have changed so much. Now you have a claim for frustration.
o Supervening event post formation prior to performance but confounded mutual assumptions and made the performance radically different than original set out/impossible.
Davis Contractors Ltd v Fareham UDC, 1956
(Risk Case/Construction Approach to Frustration, Rejects Taylor v Caldwell) Construction = interpretation
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. Non haec in foedera veni. It was not this that I promised to do.
Court clearly rejects the fiction of implied terms analysis from Taylor.
o Its untrue and fictitious.
o Problem with implied terms approach: You are dealing with unforeseen circumstances that radically changes the landscape. You can’t turn your mind if its unforeseen, so it doesn’t make sense.
o It’s a judicial policy based on fairness, recognition that there is a judicial excuse
Creates the modern construction approach as the test to establish a claim for the doctrine frustration to apply. There is a two-phased approach:
(1) two preliminary requirements must be satisfied:
o (A) allocation of fault: the party who seek frustration cannot be at fault for that supervening event happening that changed the circumstances; and
o (B) allocation of risk: neither party has assumed the risk that the supervening event might happen at the time the contract was formed.
- Risk is allocated when a party either expressly or impliedly promises to perform their obligation if a supervening event radically changes the circumstances. AKA - agreeing to assume the risk of a supervening event.
- Factors that may indicate that one party has assumed the risk of the changed circumstances (supervening event):
· Commercial reality or industry norms
· idea of foreseeability or foreseeability of the supervening event. Frustration only deals with truly unforeseeable happenings.
· Fixed-term or fixed-price contract
· A penalty clause for failing to meet a deadline
(2) The doctrine of frustration will apply if performing the contract now calls for the party to do something radically different from that which they initially intended at the time the contract was formed. To establish the doctrine of frustration, one must ask:
o (A) construct the contract: what are the mutual promises here in the overall context of the venture at the time of the contract’s formation in light of the prevailing circumstances? What were the parties promising to do for another?
o (B) construct the supervening event: what was the supervening event?
o (C) compare the one to the other and ask: is a party now being called upon to perform a contract that is essentially different, radically different, different in kind, or different in nature, from that which you initially agreed to do because the landscape has changed so much because of the supervening event?
If yes, then the doctrine of frustration will apply
Capital Quality Homes Ltd v Colwyn Construction Ltd, 1975
(Applies Modern Construction Approach)
Serves as an example of the modern construction approach.
What does risk allocation mean??
* Was the supervening event foreseeable, such that he bore the risk and as a result, the doctrine of frustration would not be available
* Was it foreseen as represented in the contract (some kind of clause or something to show that they anticipated the supervening event like in Davis)
Edwinton Commercial Corporation v Tsavliris Russ, 2007
(Relationship Between Foreseeability & Risk)
Gives a few more points that clarify the doctrine in relation to risk & foreseeability.
Unpacks the underlying policy considerations.
- (1) What does foreseeability mean?
o Foreseeability here means likely as a real possibility to occur, meaning that the supervening event is one which an ordinary person of ordinary intelligence would regard as likely to occur.
o A foreseeable event entails that the contracting parties would be expected to turn their minds to the possibility, and thereby allocate the risk to one of the two parties.
o Generally, a successful claim, generally will require an unforeseeable event.
o Would the parties obj. at time of formation see this event as likely to occur as a real possibility? If yes, foreseeable and the court will say the risk of this thing happening has been allocated, thus the doctrine of frustration will not be available
- (2) court emphasizes some things in relation to the radically different test from (2)(C) of the test:
o (i) Frustration is not lightly invoked. The radically different test is very narrow and difficult to satisfy because it undermines freedom of contract and should only be done so out of fairness.
o (ii) Frustration will not be invoked if performing in light of the changed circumstances is still possible, but merely more onerous, time consuming, or expensive.
o In contrast, what you are looking for is that the nature of the obligation has changed. (ex: renting out a burned down dance hall; conveying 1 fee simple rather than 26 fee simples).
Maritime National Fish Ltd. v. Ocean Trawlers Ltd. (1935, privy council) | fault element. No self-induced frustration.
If you are at fault for the supervening event then you cannot claim the doctrine of frustration
Fault: there is no self-induced frustration.
Another illustration of risk: this event was not unforeseen, so he absorbed the risk
