Frustration Flashcards
Frustration
Contract can no longer be performed due to unforeseen events which are outside the contracting parties control.
Why do we need frustration
Without the doctrine of frustration the party under the obligation to perform X would still be under this obligation which is unfair
Difference between frustration and mistake
Mistake occurs at the time of entering a contract whereas frustration occurs occurs after. Formation v Performance, Void v Voidable
Paradine v Jane
Traditional rule
Strict approach
Unfair
“The justification for this somewhat harsh rule
was that a party to a contract can always guard against unforeseen contingencies by
express stipulation; but if that party voluntarily undertakes an absolute and unconditional
obligation he cannot complain merely because events turn out to his disadvantage.”
Risk/Promisee
In other words, the promisee is being penalised, not for failing to perform the impossible, but rather for bearing the risk that
the event would not occur
When does frustration occur
In circumstances performance of a contract in the manner envisaged by the parties is rendered impossible because of some supervening event
Previous decisions are not decisive
The conclusion reached will seldom be dictated by an earlier decision
Force Majeure clause
A clause included in a contract to protect parties in the event of natural and unavoidable catastrophes
The test for frustration: Facts to consider
(a) the terms of the contract itself;
* (b) its context;
* (c) the parties’ knowledge, expectations, assumptions
and contemplations, in particular as to risk, as at the
time of contract, at any rate so far as these can be
ascribed mutually and objectively;
* (d) the nature of the supervening event; and
* (e) the parties’ reasonable and objectively ascertainable
calculations as to the possibilities of future performance
in the new circumstances. [The Sea Angel]
The Test for Frustration
- (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.
The Test for Frustration
(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.
The test of radically different
it tells us that the doctrine is not to be lightly
invoked; that mere incidence of expense or delay or
onerousness is not sufficient, and that there has to be as it
were a breach in identity between the contract as provided for
Kearney v Saorstat Continental Shipping
- ‘When two parties contract on the basis that a
certain object will be in existence, and that object
comes to an end, then the contract must come to
an end.’ - In this case, the sinking of a ship the employee was
due to work on. [Kearney v Saorstat and Continental
Shipping]
Krell v Henry
Coronation case
An increase in expenses
Frustration does not occur because the contract
has become more expensive to complete due
to things like increased labour costs, costs of
raw materials etc.
Tsakiroglou v Noblee Thorl
Suez Canal Case
