Frustration

Question 1

What is frustration?

Answer 1

• When something happens which renders the contract inherently different from that which was contracted the contract has been frustrated - and creates an excuse for non-performance
  
  • Very high threshold

Question 2

Davis Contractors Ltd v Fareham Urban DC [1956] principles

Answer 2

Modern test for frustration
“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.”
Per Lord Radcliffe, Davis Contractors Ltd v Fareham UDC (Endorsed in Codelfa)

1. Ascertain what the parties actually contracted for
2. Compare with the current situation
3. If they are radically or fundamentally different the contract will be frustrated
4. Something can be more onerous without being fundamentally different (frustration doesn't save form the consequences of making a bad bargain)

Question 3

Davis Contractors Ltd v Fareham Urban DC [1956] facts

Answer 3

Davis Contractors agreed to build 78 houses for Fareham Council within 8 months for an agreed price of £85,000. Due to a shortage in skilled labour and material the contract took 22 months to complete and was much more expensive than anticipated. Davis Contractors were paid the contractually agreed price but bought an action arguing for more money based on the fact that the contract had become frustrated and therefore they were entitled to further payment based on a quantum meruit basis.

Question 4

Davis Contractors Ltd v Fareham Urban DC [1956] decision

Answer 4

The contract was not frustrated. The fact that a contract becomes more difficult to perform or not so profitable is not sufficient to amount to frustration. It was still possible to perform the contract.

Question 5

Examples of frustration

Answer 5

• destruction of subject matter
• disappearance of the basis of the contract
• state of affairs essential to performance has changed
• Illegality

Question 6

Taylor v Caldwell 1863 principle

Answer 6

Contract matter being destroyed is a fundamental change to the contract and it is frustrated

Question 7

Taylor v Caldwell 1863 facts

Answer 7

• Contract for use of Surrey Gardens and music hall for 4 days in 1861, for a series of grand concerts and fates
  
  • After the contract was entered into the building was completely destroyed by fire
  • Plaintiff (who hired hall) wanted damages to compensate for not making the hall available
  • Reason it wasn’t available because the hall did not exist anymore

Question 8

Taylor v Caldwell 1863 decision

Answer 8

• At the root of the contract was an implied term that the hall would continue to exist for the duration of the contract
  
  • Because the hall didn’t exist the contract was frustrated

Question 9

Krell v Henry 1903 principle

Answer 9

• Frustration is not limited to cases where performance becomes impossible
  
  • Frustration can occur where it is possible to perform - ascertain the substance of the contract (from the terms and, if necessary, from the surrounding circumstances as well) and determine if that depends on the existence of a certain state of affairs

Question 10

Krell v Henry 1903 facts

Answer 10

• Contract to rent a room in Cornwall during the coronation procession
• Coronation procession was not going to take place as proclaimed due to the King’s illness
• Refused to pay the hiring of the rooms
• Contract had not expressly stated that the hire was contingent of the procession taking place
• Hirer of rooms in a general and unconditional manner
• Owner sued for payment

Question 11

Krell v Henry 1903 decision

Answer 11

• Purpose was to view the procession
  
  • Arrangement was licence to use the rooms for that purpose and not for any other
  • Taking place of those processions on those days and those routes was the foundation of the contract
  • Cannot reasonably be supposed to be in the contemplation of the parties that the procession would not occur on those days and that route
  • Likely influenced by high price due to procession
  • Frustrated

Question 12

Herne Bay Steamboat Co v Hutton 1903 principle

Answer 12

Frustration will only occur if the basis of the contract disappears - this requires an evaluation of what constitutes the basis of the contract

Question 13

Herne Bay Steamboat Co v Hutton 1903 facts

Answer 13

• Defendants contracted to hire boat to cruise around navel fleet during coronation proceedings
• Due to sickness the king couldn’t attend
• Fleet was assembled but the King wasn’t there
• What is the basis of the contract?
○ Hire a ship to sail around the fleet
○ Hire a ship to sail around the fleet while the king is reviewing it

Question 14

Herne Bay Steamboat Co v Hutton 1903 decision

Answer 14

• Basis of the contract was that the boat would be used to sail around the assembled fleet
  
  • No frustration - the king’s presence wasn’t the foundation of the contract
  • Performance was not radically or fundamentally different to what the parties had contracted for

Question 15

Criticism of Krell v Henry 1903

Answer 15

• Didn’t the parties implicitly contemplate the possibility of the coronation not taking place or the route changing?
• What is the alternative view of what the ‘basis of the contract’ was?

Question 16

Brisbane City Council v Group Projects 1979 principle

Answer 16

If the basis disappears a contract will be frustrated.

Question 17

Brisbane City Council v Group Projects 1979 facts

Answer 17

• Group projects had a piece of land they wanted to have zoned residential (rather than urban)
• Approached council about having land rezoned
• Council agreed to rezone in return for group projects doing some things in return: building footpaths, roads, etc.
• Council required Group Projects to hand over a $200,000 surety
• After they entered into the deal to rezone the land the parties were informed that all of the land was going to be compulsorily obtained to build a school
• Council asked if they wanted to continue rezoning - Group Projects agreed
• Group Projects objected to claiming land, but failed and Government claimed land
• Council rezoned land
• Claimed Group Projects needed to complete their obligations under the contract
• No houses could be built because it is now owned by the government

Question 18

Brisbane City Council v Group Projects 1979 decision

Answer 18

Held: Didn’t need to perform

1. Failure of contingent condition (to rezone - wasn't fulfilled because land had been acquired before rezoning occurred)
2. Frustration:  fundamentally different - properly regarded as having come to an end at the date of acquisition by the crown 
	a. Stephen acknowledge the test is uncertain - doesn't include degree - but he said that ind of uncertainty is inevitable when a broad principle is to be applied to an inevitable number of fact scenarios. Benefit: flexible. Down-side: uncertainty. 

• basis of contract was to be able to develop - land was claimed by government so this became impossible: basis disappeared

Question 19

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) CLR principle

Answer 19

If the state of affairs essential to performance is removed the contract has been frustrated
Distinguish between essential state of affairs and one which is simply desirable

Question 20

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) CLR facts

Answer 20

• Contract to build new railway line in Sydney
  
  • Codelfa envisaged three shifts per day working at full capacity
  • Injunction was unexpectedly granted to limit hours of work and noise/dust
  • Clause 11: Assured Codelfa they couldn’t be hampered by any injunctions. Codelfa accepted representation - could charge less and finish faster if it didn’t have to worry about complaints from residents.
  • Contract price was firm: no more would be payable if more work was needed, Codelfa had to provide all equipment, deemed to have reviewed all conditions
  • “The operation of all plant and construction equipment shall be such that it does not cause undue noise, pollution or nuisance. This may require the use of sound insulated compressors and air tools, silencers on ventilating fans and restrictions on the working hours of plant or such other measures as approved by the engineer. The contractor shall not be entitled to additional payment if the engineer requires that measures be taken to reduce noise and pollution.” Clause 8(2)©
  • Codelfa commenced work for 24 hours
  • Information received relating to s11 were incorrect - injunctions were applied
  • Commissioner refused
  • Codelfa completed work - sought declaration that contract had been frustrated at the time the contract had been formed (contract would have come to an end)
  • If successful - entitled to quantum meriut for completion of the work - determined without regard for the contract price

Question 21

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) CLR decision

Answer 21

• Grant of injunction did constitute a frustrating event
• Mason: performance of contract was radically or fundamentally different than original situation
○ Clear it anticipated the contract would be performed with 3 shifts a day
○ Clause 8(2)© didn’t suggest Codelfa undertook to perform the work even if the 30shifts were deemed be unlawful
Aitkin
○ Distinguished because the Sues Canal cases had no time fixed for performance but in Codelfa there was a very tight time frame - since it had become unlawful to complete work in the way that would comply with that time restriction the contract had been frustrated.

Question 22

Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] principle

Answer 22

Frustration will not be found where the contract is not performed due to the impossibility of a preferable state of affairs - only applies to essential state of affairs

Question 23

Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] facts

Answer 23

Contract for sale of peanuts. Sellers intended to ship via Sues Canal, but Canal was closed. Ships in Canal were seized or sunk. Crisis was resolved eventually but didn’t open until Apr 1957. Too late to ship nuts. Sellers didn’t sell nuts, Buyers sued for breach of contract. No term in contract saying they had to ship around the cape of good hope. No time restriction on delivery

Question 24

Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] decision

Answer 24

Just because the voyage would be more expensive and longer it is not enough for contract to be frustrated.
Significant that there was no time frame - the contract could have still been completed by going around the cape.

Question 25

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] principle

Answer 25

Where the performance is determined to be indefinitely impossible due to illegality the contract will be frustrated.

Question 26

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] facts

Answer 26

• Polish Company agreed to buy flax hackling machines for $4800 pounds
  
  • Deliver within 3months
  • £1000 deposit paid
  • English company started manufacturing
  • War started with Germany
  • Agent from Polish company asked for return of deposit because contract couldn’t be performed because of war
  • English refused to return
  • Polish sued for breach: for failure to provide machines

Question 27

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] decision

Answer 27

English argued contract had been frustrated because it was illegal to deliver it
Polish: no frustration because the contract expressly contemplated possibility of war
Clause 7: Reasonable extension of time would be granted…. War
Court said that clause 7 only covered clauses where an extension of time would be sufficient
Where the performance is determined to be indefinitely impossible and there has been no agreement to continue regardless the contract has been frustrated

Question 28

Cutter v Powell 1795 principle

Answer 28

Consequences of frustration under common law: losses lie where they fall.

Question 29

Cutter v Powell 1795 facts

Answer 29

• Contract between shipmaster and sailor
• Evidence in note:
○ Ten days after the ship, “Governor Parry’, myself master arrives at Liverpool, I promise to pay to Mr. T. Cutter the sum of thirty guineas, provided he proceeds, continues and does his duty as second mate in the said ship from hence to the port of Liverpool. Kingston, July 31st, 1793
• Sail from Jamaica on 2nd August
• Arrived in Liverpool 9th October.
Mr Cutter died on 20th September - thrown into ocean

Question 30

Cutter v Powell 1795 decision

Answer 30

Losses lie where they fall

• Sailor had to sail the remainder alone
• Sailor kept payment (family received no money)

Question 31

3 limitations to the doctrine of frustration

Answer 31

1. Parties must not have allocated the risk
2. The event must not have been foreseeable by the parties
3. The frustrating event must not have been the fault of the party seeking to rely on it

Question 32

When can inordinate delay amount to frustration?

Answer 32

When there has been ‘inordinate delay’

Identify the probable duration of the delay at the time it arises
Compare the relative proportion of the delay to the likely amount of time remaining on the contract.

Question 33

Chandler v Webster 1904 principle

Answer 33

Parties are released from all further obligations. and all money paid remains paid (does not need to be returned)

Question 34

Chandler v Webster 1904 facts

Answer 34

The plaintiff agreed with the defendant for the hire of a room for the purpose viewing the coronation procession. The price of the room was to be 141£ 15s. The defendant repeatedly wrote to the plaintiff asserting that by the agreement the price of the room was immediately payable, and demanding payment of it. The plaintiff in a letter written on May 29, in answer to one of the defendant’s letters, wrote:

“there was really no fixed arrangement that cash was to be paid down, except that it was understood between us that the money should be obtained as”.

On June 10, 1902, the plaintiff wrote a letter to the defendant in the following terms:

“I beg to confirm my purchase of the first-floor room of the Electric Lighting Board at 7, Pall Mall, to view the procession on Thursday, June 26, for the sum of 141£ 15s., which amount is now due. I shall be obliged if you will take the room on sale, and I authorize you to sell separate seats in the room, for which I will erect a stand. If the seats thus sold in the ordinary way of business do not realize the above amount by June 26, I agree to pay you the balance to make up such amount of 141£ 15s.”

The plaintiff paid 100£ before the date fixed for the procession, leaving a balance of 41£ 15s unpaid. The procession did not take place. The plaintiff thereupon brought an action to recover the 100£ which he had paid, and in that action the defendant counter-claimed for the unpaid balance of 41£ 15s.

Question 35

Chandler v Webster 1904 decision

Answer 35

The £100 was not recoverable because of the losses lie where they fall rule.

Question 36

Fibrosa principle on consequences of frustration

Answer 36

the total failure of consideration rule applies - and therefore when the contract is discharged due to frustration, the money should be repaid if no consideration has been provided.

Question 37

Fibrosa decision on consequences

Answer 37

Court held consideration was delivery machinery (big deposit - probably not just entry into contract)- machinery hadn’t been delivered so there was no consideration and had to pay back the deposit money

Question 38

Australian Consumer Law and Fair Trading Act 2012 s35-44

Answer 38

Division 1—Introductory

35 Contracts to which this Part applies

(1) This Part applies to a contract if the parties to the contract are discharged from the further performance of the contract because—
(a) performance of the contract becomes impossible; or
(b) the contract is otherwise frustrated; or
(c) the contract is avoided by the operation of section 12 of the Goods Act 1958.
(2) This Part applies to contracts made before or after 1 July 2008 if the time of discharge of the contract is after 29 September 1959.
(3) This Part does not apply to—
(a) any charter-party, except a time charter-party or a charter-party by way of demise; or
(b) any contract (other than a charter-party) for the carriage of goods by sea; or
(c) any contract of insurance except as provided for in section 40.

Division 2—Consequences of frustrated contract

36 Adjustment of amounts paid or payable to parties to discharged contracts

(1) All amounts paid to any party under a discharged contract before the time of discharge are recoverable.
(2) All amounts payable to any party under a discharged contract before the time of discharge cease to be payable.

37 Court may allow amounts paid or payable to be recovered or paid
Despite section 36, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow a party to a discharged contract—
(a) to whom amounts were paid or are payable under that contract before the time of discharge; and
(b) who has incurred expenses before the time of discharge in or for the purpose of the performance of that contract—
to retain or recover (as the case may be) the whole or any part of the amounts paid or payable to that party under the contract in an amount not exceeding the expenses incurred.

38 Parties to pay an amount for valuable benefits obtained

(1) This section applies if a party to a discharged contract obtained a valuable benefit (other than a payment of money to which section 36 or 37 applies) before the time of discharge because of anything done by another party in or for the purpose of the performance of the contract.
(2) Despite section 36, the benefited party is liable to pay to that other party any amount (not exceeding the value of the benefit obtained) that the court considers just having regard to all the circumstances of the case.
(3) For the purpose of subsection (2), the court may have regard to—
(a) the amount of any expenses the benefited party incurred before the time of discharge in or for the purpose of the performance of the contract, including any amount paid or payable by the benefited party to any other party under the contract and retained or recoverable by that party under section 36 or37; or
(b) the effect, in relation to the benefit obtained, of the circumstances giving rise to the frustration or avoidance of the contract.
(4) For the purpose of this section, if a party to the contract has assumed obligations under the contract in consideration of the conferral of a benefit by another party to the contract on any other person (whether or not that person is a party to the contract), the court may, if in all the circumstances of the case it considers it just to do so, treat any benefit conferred on that other person as a benefit obtained by the party who has assumed those obligations.

39 Calculation of expenses incurred
In estimating, for the purposes of this Division, the amount of any expenses incurred by any party to a discharged contract, the court may include an amount that appears reasonable for—
(a) overhead expenses; and
(b) work or services performed personally by the party.

40 Circumstances in which amounts payable under contract of insurance excluded
In considering whether any amount is to be retained or recovered by any party to a discharged contract, the court must not take into account any amounts payable to a party under a contract of insurance because of the circumstances giving rise to the frustration or avoidance of the contract unless an obligation to insure is imposed—
(a) by an express provision in the frustrated or avoided contract; or
(b) by or under any enactment.

Division 3—General
41 Circumstances in which contract provisions continue to have effect despite frustration
If any contract to which this Part applies contains a provision that on the true construction of the contract—
(a) is intended to continue to have effect in circumstances that operate or would, but for that provision, operate to frustrate or avoid the contract; or
(b) is intended to have effect whether or not circumstances that operate or would, but for that provision, operate to frustrate or avoid the contract arise—
the court must give effect to that provision and must only give effect to Division 2 to the extent that the court is satisfied that it is consistent with the provision of the contract.

42 Performed part of contract not frustrated
If it appears to the court that part of a contract to which this Part applies—
(a) is wholly performed before the time of discharge; or
(b) is wholly performed before the time of discharge except for payment in respect of that part of the contract of amounts that are or can be ascertained under the contract—
the court must treat that part of the contract as if it were a separate contract that had not been frustrated or avoided and Division 2 will only apply to the remainder of that contract.
43 Nature of action
All actions and proceedings to recover amounts under this Part are taken to be founded on simple contract.
44 Limitation period
Subject to Part II of the Limitation of Actions Act 1958, a cause of action under this Part is taken to have first accrued at the time of discharge.

Question 39

Australian Consumer Law and Fair Trading Act 2012 s 36

Answer 39

Money that was paid before the contract was frustrated must be repaid, and money that was owing before the contract was frustrated need not be paid.

Question 40

Australian Consumer Law and Fair Trading Act 2012 s 37

Answer 40

However, if the recipient incurred expenses related to the contract, and the court considers it “just” in the circumstances, it can allow retention or recovery in whole or part up to the total amount that was paid or owing.

Question 41

Australian Consumer Law and Fair Trading Act 2012 s 38

Answer 41

If one of the parties has received a non-monetary but nonetheless valuable benefit before the contract was frustrated, the other party will recover an amount that the court considers “just” having regard to all the circumstances of the case.