Frustration Flashcards
Structure for Answering Frustration Question? (4)
1) Is it Frustration?
o After contract is formed
o Beyond control of both parties
o Impossible, illegal or radically altered
2) Type of Frustration o Destruction of the subject matter o Personal services contracts o Subject matter no longer available o Gov’t intervention/subsequent illegality o Method of performance o Failure of source o Non-occurrence of event
3) Limitations: o Imprudent bargains o Foreseeable when contract was made o Actually foreseen but not in contract o Express provision in contract o Self-induced frustration
4) Effect
o Common Law
o Law Reform (Frustrated Contracts) Act 1943
o Ss. 1(2), 1(3)
Different from mistake how?
•Mistake happens before the contract is entered into
•Frustration is after the contract
o Something happens during the performance of the contract that ends the contract
•Mistake voids contract
o Rescind contract
o Place back in position before contract
•Frustration terminates contract
o End on day of frustration
What is Frustration?
Unforeseen/unforeseeable events which take place after contract made and which make contract impossible/illegal/something very different from what parties had in mind in making the contract may have effect of bringing the contract to an end by operation of law
What happens when things go wrong in the middle of the contract
• Something that the parties did not or could not foresee
Taylor v Caldwell (1863) Facts
• P entered into contract
• D allowed P to use music hall to give 4 concerts
• After contract, before first concert, music hall was destroyed by fire
• Fire was no one’s fault
• P brought a claim for breach of contract
• Question:
o If contract is still good, there is an obligation to pay
o If contract is frustrated, no obligations on either side
• Argued that if music hall no longer exist, should no longer have to provide it
• Held:
o Contract was frustrated
o Implied term theory of frustration
o Subject matter of the contract had been destroyed,
o When performance depends on existence of particular thing, if the thing no longer exists, contract is frustrated (no longer need be performed)
o Contract was terminated, not rescinded
Taylor v Caldwell (1863) Principle
- Beginning of modern doctrine of frustration
- Implied term theory of frustration
Contract became impossible to perform
Imprudent Bargains are not enough to frustrate
Davis Contractors Ltd v Fareham UDC Facts
• D contracted with F to build houses
• Unexpected circumstances, no one’s fault
• Could not get the labor necessary to build houses
• Cost around £115k rather than £95k projected
• Argued that the contract was frustrated
• Entitled to reasonable sum for work to be done
• Held:
• Not frustrated
• More difficult, but not impossible to perform
• Simply a bad deal
• Just because it is disadvantageous doesn’t mean it was frustrated
• Rejected implied term theory
o Neither party foresaw the difficulties
o No way to create a clause to cover this
• New theory
o Construction of the contract itself
Davis Contractors Ltd v Fareham UDC Principle
•This case nullifies the Implied term theory concept
•New theory
Construction of the contract itself
•“true meaning of the contract”
•X should happen, if it doesn’t, frustrated
- – Circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract
- Impracticality is not sufficient enough to frustrate a contract
National Carriers v Panalpina (Northern) Ltd Principle
- Favoured Construction theory
- Unjust to hold parties to literal sense of stipulation in the new circumstances
- If circumstances change
- Should be frustrated
Leases
Krell v. Henry (CA 1903) Facts
• H hired flat from K for 2 days
• K advertised that the flat had a window that overlooked the coronation processions on those days
• There was no express term in the contract regarding the coronation processions
• H entered into the contract after reading the advertisement
• The coronation processions were postponed and only one-third of the rent had been paid
• Held:
o K could not recover the rest
o The processions and position of the flat were at the foundation of the agreement
Krell v. Henry (CA 1903) Principle
Non-Occurrence of a Particular Event
- Common purpose of contract can no longer be performed
- Purpose in Krell was wholly frustrated
Rare
Contrasts Herne Bay Steamboat v Hutton case
• Impracticality is not sufficient to frustrate a contract
Herne Bay Steamboat Co. v. Hutton (1903) Facts
?
Herne Bay Steamboat Co. v. Hutton (1903) Principle
Frustrating event at common law
Non-Occurrence of a Particular Event
purpose only partially frustrated
Contrasts Krell Case
• Impracticality is not sufficient to frustrate a contract
Fibrosa v. Fairbairn (HL1943) Facts
•Held:
o £1,000 deposit should be returned
o If you get nothing from the expected result, you can get your money back
Fibrosa v. Fairbairn (HL1943) Principle
Frustrating event at common law
• It subsequently becomes illegal to perform contract
moneys paid recoverable on a restitutionary basis; total failure of consideration, if party who paid has had nothing of what he bargained for in return
Recipient could not set-off against money to be repaid to paying party on total fixed costs expenses he had incurred in performing contract:
Denny Mott & Dickson v James B. Fraser & Co [1944] Facts
?
Denny Mott & Dickson v James B. Fraser & Co [1944] Principle
?
Tatem v. Gamboa (1939) Facts
?
Tatem v. Gamboa (1939) Principle
• Event, though not foreseen by parties, would have been foreseeable (i.e. seen by ordinarily intelligent people as likely to occur) at time contract made
-Not enough to frustrate a contract
The Eugenia Facts
?
The Eugenia Principle
Frustrating event at common law
• Method of performance
• Event, though not foreseen by parties, would have been foreseeable (i.e. seen by ordinarily intelligent people as likely to occur) at time contract made
- Not enough to frustrate a contract
Constantine Steamship Co. v. Imperial Smelting (CA1942) Facts
?
Constantine Steamship Co. v. Imperial Smelting (CA1942) Principle
Parties made express provision in contract for what to do if this event happened
- Will not frustrate the contract
Walton Harvey v. Walker (1931) Facts
?
Walton Harvey v. Walker (1931) Principle
• Event was foreseen by parties pre-contract (though they did not provide for it in the contract):
- Will not frustrate the contract
Maritime National Fish Ltd. v. Ocean Trawlers (HL1935) Facts
?
Maritime National Fish Ltd. v. Ocean Trawlers (HL1935) Principle
Event was brought about by relevant party or by people under his control (“self- induced frustration”
- Will not frustrate the contract
The Super Servant 2 (1990) Facts
?
The Super Servant 2 (1990) Principle
Event was brought about by relevant party or by people under his control (“self- induced frustration”
- Will not frustrate the contract
Chandler v. Webster (1904) Facts
• C paid £100 pounds to watch coronation • King fell ill, was delayed • Held: o £100 did not have to be repaid o Effect: Loss laid where it fell
Chandler v. Webster (1904) Principle
Effect of frustration on claims for moneys paid under the contract before frustrating event
At common Law
Loss laid where it fell
Reversed by Fibrosa Case
Whincup v. Hughes (1871) Facts
• had to pay watch maker for sons apprenticeship
• Watchmaker died after 1 year
• Contract was frustrated
• Son only had 1 of the 6 promised years of apprenticeship
• Father wanted money back
• Held:
o Could not get money back
o If there was partial performance, cannot get money back
• Issue of the right set off
o Watchmaker spent the money on materials for the apprenticeship
o Wanted to off-set the expenses
o Held:
• No
• If you did not provide anything of value to F in the case, you cannot deduct your expenses from the amount you have to return
Whincup v. Hughes (1871) Principle
if he had had something in return (albeit not much), failure of consideration was not total => no recovery possible at common law
Appleby v. Myers (1867) Facts
• A contracted to construct machinery at D’s factory for 2 years
• Payment was due upon completion of work
• Before completion, there was a fire that destroyed everything
• Was the contract frustrated?
• Held:
• Yes
• Destruction of subject matter
• Both parties were discharged
• A should not be paid because there was no valuable benefit remaining
• Exception:
o Only when the other party has prevented you from completion
o Does not apply here
Appleby v. Myers (1867) Principle
Contract became impossible to perform
Quantum Marowit claim
-claim to recover goods or value of goods sold or services provided before frustrating event
• A should not be paid because there was no valuable benefit remaining
British Petroleum v. Hunt (1979) Facts
• BP entered into a contract to explore and develop an oil concession in Libya owned by H
• B was to make initial payments and transfer oil to H
• In return, BP received 50% share in the concession and ‘reimbursement oil’
• An oil field was discovered and oil was produced and transferred under the contract for four and a half years
• Contract was then frustrated when the Libyan Government expropriated both parties’ interests
• Libyan government paid some compensation to H
• BP claimed under s.1(3) under the LRA 1943
• Held:
o Just under $35 million was awarded
o Half of the compensation (total $85 million) was held to be a benefit obtained by H from BP’s exploration and development
o ‘jus sum’ took into account the cost to BP of the work done for H and the oil it initially transferred to H, reduced by the amount of reimbursement oil BP received.
British Petroleum v. Hunt (1979) Principle
LRA 1943 s.1(3)
“Valuable benefit”: (Robert Goff J.) but if any benefit has been destroyed by the frustrating event itself, no claim under s.1(3)
• May have provided valuable benefit, but if it is not longer there, you cannot make a claim
• Person must be enjoying the benefit
• Prevention of unjust enrichment
“Just sum”: CA: “what is just is what the trial judge thinks is just” and appeal court should not readily interfere
• Just is whatever the trial judge thinks is just
Operation of s1(2): restitution of money
• s.1(2) must work in connection with s.1(3)
Gamerco S.A. v I.C.M./Fair Warning (Agency) Ltd [1995] Facts
• Stadium was unsafe • Contract was frustrated • Spanish gov’t argued frustration • Issue: how money should be paid under s.1(2) • P had paid $412,000, tried to get it back • D had expenses of $50,000 • D argued they should be able to set off the amount • Held: o S.1(2) o No set-off is allowed o Exercised discretion under s.1(2) o Did not allow it o Created principles (below)
Gamerco S.A. v I.C.M./Fair Warning (Agency) Ltd [1995] Principle
Operation of s.1(2) to set-off money
Created principles
• (1) that the defendants incurred expenses paid or payable
• (2) before the discharge of the contract
• (3) in performance of the contract (which is not applicable)
• or (4) for the purposes of the performance of the contract,
• and (5) that it is just in all the circumstances to allow them to retain the whole or any part of the sums so paid or payable.
Edwinton v Tsavliris (The Sea Angel)[2007] Facts
• D charted the ship for 20 to tansport crude oil from a tanker
• Ship was detained for 108 days
• D argued frustration
• Looked at terms, context of the contract, party knowledge, assumptions, parties anticipated risk
• Held:
o No frustration
o There was a delay, but both parties knew what they were doing
Unlawful detention did not frustrate the contract
Edwinton v Tsavliris (The Sea Angel)[2007] Principle
Must look at the terms of the contract, its context, the parties’ knowledge and assumptions as to risk at the time of the contract, the nature of the supervening event and the parties’ reasonable calculations as to the possibilities of future performance in the new circumstances
s. 1(2) Law Reform (Frustrated Contracts) Acts 1943?
moneys paid before frustrating event recoverable;
•moneys payable before frustrating event no longer payable;
• Can get money back
•Future money is no longer payable
• If you want to set-off expenses, you can do that
o Court must decide if it is fair or not first
o Cannot fudge your expenses to be more than what actually occurred
o Court has discretion
s. 1(3) LR(FC)A 1943?
- If you provided a valuable benefit, you can be paid for it
* You do not need to return that part of the money
Cutter v Powell (1795) Facts
?
Cutter v Powell (1795) Principle
Personal service contract frustrated upon death of party involved
National Carriers Ltd v Panalpina (Northern) Ltd (1981) Facts
•1974, P let a warehouse to N for a period of 10 years
•N covenanted that it would not use the warehouse for other purposes than that of a warehouse for its business
•1979, local authority temporarily closed the street, which was the only vehicle access point to the warehouse
•Closure lasted 20 months
•N argued that the contract was frustrated
•Held:
o No frustration
o Still would have three years on the lease afterwards
o Case determined that the doctrine of frustration can apply to leases
• Lord Simon stated about the Radical Change in Obligation” test
o “Frustration of a contract takes place when there supervenes an event (without default of either party…) which so significantly changes the nature (not merely the expense or onerous) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution”
Lauritzen A.S. v Wijsmuller BV (1990) Facts
• W contracted with L to carry a drilling rig from Japan to a location near Rotterdam using, at its option, Super Servant One or Super Servant Two.
• W also contracted with two other parties contained similar provisions
o One before L and one after L
• W planned to use Super Servant two for L’s contract and Super Servant One for the other two
• Super Servant Two sank
• W informed L that it will not transport using either Super Servant One or Two
• Parties agreed that the drilling rig would be transported by another, more expensive, method
• L tried to claim losses suffered
• W counterclaimed that the sinking of Super Servant Two frustrated the contract
• Held:
o No frustration
o Sinking of Super Servant Two was not the cause of the inability to perform
o Real cause was W’s election not to use Super Servant One
o Would have been physically possible to do
Lauritzen A.S. v Wijsmuller BV (1990) Principle
Choosing between contracts
Tsakiroglou & Co v Noblee Thorl GmbH [1962] Facts
•During Anglo-French invasion of Egypt in 1956
oClose Suez Canal
•T agreed to sell groundnuts to NT
•To be shipped from Sudan to Hamburg
•After contract was made, Suez Canal closed for 5 months
•Price in contract reflected the shipment via the canal
•Contract contained no terms to this effect
•T refused to perform the contract because of the increase cost
•T argued frustration
•Held:
o No frustration
o Still possible to ship around the Cape of Good Hope
o Journey would not have been fundamentally different, merely more expensive
o If goods had been perishable or there was a specific delivery date in the contract, contracted may have been frustrated out of necessity
Tsakiroglou & Co v Noblee Thorl GmbH [1962] Principle
Sale and Carriage of Goods
No frustration
o Still possible to ship
The Nema [1982] case Facts
?
The Nema [1982] case Principle
Subject-matter of contract no longer available for the contract
Gamerco S.A. v I.C.M./Fair Warning (Agency) Ltd [1995] Test? (5)
s. 1(2) LR(FC)A 1943
s. 1(2) LR(FC)A 1943
o (1) that the defendants incurred expenses paid or payable o (2) before the discharge of the contract o (3) in performance of the contract (which is not applicable) o or (4) for the purposes of the performance of the contract, o and (5) that it is just in all the circumstances to allow them to retain the whole or any part of the sums so paid or payable.
British Petroleum v. Hunt (1979)
• Operation of s.1(3): three stages?
o 1) It has to be shown that the defendant has obtained a ‘valuable benefit’ from the claimant prior to the time of discharge
o 2) The benefit must be valued
o 3) The court must determine what would be a ‘just sum’ to award to the claimant, having regard to all the circumstances of the case, including in particular the matters specified in section 1 (3)(a) and (b)
Criticisms of the LR(FC)A 1943? (3)
• Act leaves too much discretion to the trial judge
– But, can include force majeure provision
- Act is ‘hopelessly muddled’
- Should replace the LR(FC)A 1943 with a new scheme, which allows for the full apportionment of losses between the parties?
