Frustration Flashcards
Lecture 5
When are contracts frustrated?
- After contract was concluded
- Unforeseen events occur making the performance of contract impossible, illegal, or something radically different from time of contract
- Discharged - no more obligations according to contract (neither party can bring action for breach of contract)
What is the main difference between mistakes and frustration?
- Mistake relates to mistaken beliefs occuring before parties enter into contract {Griffith v Brymer}
- Frustration relates to unforeseen events occuring after contract formed {Krell v Henry}
What is physical impossibility?
When the supervening event makes performance of the contract physically impossible
What can we learn from the case of Taylor v Caldwell? [destruction of subject-matter] [physical impossibility]
- Info: Music hall burnt after formation of contract where concerts were supposed to take place
- Held: Contract had been frustrated as a result of destruction of subject matter
What can we learn from the case of Jackson v Union Marine? [partial destruction or temporary unavailability of the subject-matter] [physical impossibility]
- Info: Ship ran aground before cargo could be collected and was repaired for seven months
- Held: Contract was frustrated as ship was not available for the voyage for which she had chartered (delay amounting to “practical commercial destruction”)
What can we learn from the case of Robinson v Davison (1871)? [death or incapacity in personal service contracts]
- Info: D’s wife promised to perform but was prevented from doing so by a dangerous illness
- Held: contract was discharged by D’s wife’s illness
What is legal impossibility?
Contractual performance becomes illegal due to a change in the law or a change of circumstances triggering the operation of pre-existing law
What can we learn from the case of Fibrosa Spolka Akcyjna v Fairbairn Lawson [1942] [outbreak of war]?
- Info: Manufacture machines to be delivered in Poland delayed due to WW2 (Poland occupied by German army)
- Held: Contract frustrated because in time of war, it is against the law to trade with the enemy
What case law can be applied regarding legal impossibility?
- Cricklewood Property [1945]: Contract will be frustrated only if the illegality affects the performance of the contract in substantial or fundamental way
- Islamic Republic of Iran Shipping Lines [2010]: public policy considerations - courts want to ensure that the law is observed
What is impossibility of purpose?
Where the parties make an agreement for a specific purpose which then turns out to be unachievable because of a supervening event.
What can we learn from the case of Krell v Henry? [non-occurence of an event] [IOP]
The contract was frustrated as cancellation of the procession deprived it of its commercial purpose. The claimant’s action for breach of contract was thus unsuccessful.
What can we learn from the case of Herne Bay Steam Boat Co v Hutton [1993]?
The defendant was liable to pay the hire fees as although he could not see the naval review (that’s cancelled), he could still use the boat for cruise.
What can we learn from both IOP cases?
- Judges discussed the “common foundation of the contract” - both parties must have the same purpose of entering that specific contract
- Extremely rare - courts do not wish to provide an escape route for the party for whom the contract has simply become a bad bargain
The courts came up with the “multi-factorial approach” to assess whether a contract has been frustrated. What are some of the requirements? {Edwington Commerical Corp case in 2007} {No Frustration}
1) Terms of contract itself
2) Matrix/context
3) Parties’ knowledge and expectations as at the time of the contract
4) Nature of supervening event
5) Parties’ calculations as to possibilities of future performance in new circumstances
Overall what is the effect of frustration?
- Contract automatically comes to an end
- Obligations arising from contract cease to exist
- Leads to question of what happens in the case of frustration if one party has already (partially) performed obligation
What are the other conditions for there to be no frustration?
- Express provision {Joseph Constantine}
- Increase expense {Davis Contractors Ltd}
- Hardship (value of goods deteriorated or performance is burdensome) {Amalgamated case}
- Self-induced frustration (party causing frustrating event barred from relying on it) {Super Servant Two case}
What about contracts where koney was paid before the frustrating event?
- Chandler v Webster: monies paid before event not recoverable
- Fibrosa v Fairbairn: overruled previous case, monies maid can be recovered at law in the case of total failure of consideration (when claimant has received nothing of performance he contracted for)
- Not total failure of consideration: what was paid cannot be be recoverable
Generally, what does the Law Reform (Frustrated Contracts) Act 1943 s.1(2) say?
At the time of discharge, sums paid should be recoverable from money that is recoverable (under specific circumstances)
What about goods delivered or services rendered before the frustrating event?
- Common law: no money can be claimed if payment has been promised for full performance
- Applyby case: Individual could recover nothing for the work already done since the payment only fell due on completion
Generally, what does the Law Reform (Frustrated Contracts) Act 1943 s.1(3) say?
Money can be claimed if payment has been promised for or full performance of the act (if partly performed, party has right to received partly benefit)
Overall what is value benefit?
- How much your own property is raised in value
- Identification and valuation of valuable benefit require clarification
What is the significance of exclusion of liability/express provisions in contract with frustration?
- Parties can expressly exclude/limit arising out of frustrating event:
1. Force majeure clauses (EP stipulate impact on unexpected events but clause must cover the event occured)
2. Hardship clauses (define what “hardship” is and set out procedure, usually interpreted narrowly)
What is the narrow scope of frustation? (provide evidence)
- Frustration is “not lightly to be involed to relieve the contracting parties from the normal consequences of imprudent bargains” {Lord Roskill in The Nema [1982]}
- Gold Group Properties case: frustration invoked only when supervening event fundamentally/radically changes nature of performance
