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Contract Law > Frustration > Flashcards

Frustration Flashcards

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1
Q

Definition of Frustration

A

“A contract is frustrated where, after the contract was concluded, events occur which make performance of the contract impossible, illegal or something radically different from that which was in the contemplation of the parties at the time they entered into the contract.” McKendrick, Contract Law, 7th edn 2007, para 14.8

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2
Q

If a contract is frustrated does non-performance amount to a breach?

A

No.

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3
Q

Grounds of frustration

A

(1) Impossibility of performance
- Destruction of essential thing
- “personal” contracts
- Unavailability
- Impossibility of Method
(2) Frustration of purpose (exceptionally)
(3) Supervening illegality
- Trading with the Enemy
- Other Prohibitions
- Partial and Temporary Illegality

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4
Q

Impossibility of performance: destruction of an essential thing: Taylor v Caldwell

A

27 May 1861 - music hall and gardens let for concert dates in June, July and August
11 June - hall destroyed by accidental fire
Case of partial destruction - frustrates contract if main purpose of contract defeated (concerts to take place in hall)

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5
Q

Impossibility of paying back loan does not frustrate the contract

A

National Carriers Ltd v Panalpina Ltd

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6
Q

Total annihilation of the thing is not required for impossibility of performance

A

Asfar & Co v Blundell

Cargo of dates destroyed. No longer edible but could use for distillation.
Contract discharged for frustration - no longer fit for what were supposed to be: edible.

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7
Q

The thing destroyed must be an essential part of the contract but not the very subject matter of the contract for impossibility of performance

A

Appleby v Myers

  • contract to install machinery in factory became frustrated by destruction of factory even though subject matter of contract was machinery
  • essential to have factory to install machinery
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8
Q

‘Personal contracts’ - where personal performance is required then frustration

A

Whincup v Hughes - death of master of apprentice, personal contract for training.

Condor v The Barron Knights Ltd - drummer ill, personal performance, frustration of contract.

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9
Q

Unavailability of the contract matter or something essential frustrates the contract

A

Re Shipton - war time requisition of wheat, could no longer sell, sufficient to frustrate

The Evia (No2) - charter of cargo ship from Cuba port to Middle East. Ship in gulf at contract time. War broke out and ship trapped. Even though not destroyed still frustrated as ship not available.

The Nema (No2) - cargo not loaded due to strike at port. Sufficient to frustrate.

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10
Q

Temporary unavailability will frustrate a contract where there is a specified time of performance and time is of the essence of the contract

A

Robinson v Davinson

-pianist ill, unable to perform, contract frustrated

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11
Q

Temporary unavailability will by frustrated dependent on the length of unavailability when no time of performance or time is not of the essence

A

Acetylene Co of Great Britain v Canada Carbide Co

  • shipment of goods delayed 3 yrs by war
  • during time transport of goods became significantly more expensive
  • held: seller no longer bound to deliver
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12
Q

Temporary unavailability in personal contracts depends on the relationship between period of unavailability and whole period of contract

A

Morgan v Manser

  • music hall artiste employed manager for 10 yrs in 1938
  • artiste called to army in 1940
  • demobilised in 1946
  • duration of impossibility (6 yrs) so long that frustrated

in contrast

Nordman v Rayner & Sturges
-July 1914: C became London agent of D
-Sept 1914: C was interned
-Oct 1914: C was released
Held: contract was not frustrated
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13
Q

If the sole method of performance allowed by contract becomes impossible then frustration

A

Nickoll & Knight v Ashton, Edridge & Co

  • Oct 1899 sale of cottonseed to be shipped by the steamship Orlando at Alexandria during the month of Jan 1900
  • Dec: Orlando went aground in Baltic Sea and could not get to Alexandria by Jan
  • contract frustrated (reliability of ship important, specific ship for reason)
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14
Q

If no method of performance is specified then frustration only occurs if the alternative is fundamentally different

A

Tsakiroglou & Co Ltd v Noblee Thorl GmbH
-Oct 1956: D agreed to ship groundnuts from Sudan to C in Hamburg in Nov/Dec 1956
both parties expected shipment via Suez Canal, but contract did not so provide
-2 Nov 1956: Suez Canal was closed. D refused to go via Cape of Good Hope
-Held: no frustration

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15
Q

The mere fact that one party is now making lesser or no profit is no frustration (impossibility and impracticability)

A

Davis Contractors Ltd v Fareham Urban District Council

  • contract to build 78 houses for £94k within 8 months
  • due to labour shortages took 22 months, cost of £115k
  • held: no frustration
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16
Q

Frustration of purpose does not usually lead to frustration

A

Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd

  • Contract for purchase of property for redevelopment
  • Property then ‘listed’ as of special architectural / historical value
  • Redevelopment more expensive/impossible
  • Held: Not frustrated
17
Q

Herne Bay Steam Boat Co v Hutton [1903]

A
  • chartered ship 28 & 29 June 1902 for “purpose of viewing the naval review and for a day’s cruise round the fleet”
  • coronation did not take place so refused to pay
  • no frustration as contract not only for purpose of naval review but also for purpose of day’s cruise
18
Q

Krell v Henry [1903]

A
  • D hired flat from C in Pall Mall for 26 & 27 June (overlooking path of coronation)
  • contract held to be frustrated as purpose to view the procession was no longer achievable although the contract itself (the flat) was
19
Q

It is essential that the frustrated purpose must be the purpose of both parties

A

Congimex Companhia Geral de Comercio Importadora

Exportadora SARL v Tradax Export SA

20
Q

Supervening Illegality

A

A contract is discharged by supervening prohibition where the prohibition would have rendered the contract illegal had it been in force when the contract was made

The court has to consider not only the interests of the parties but also, and indeed primarily, the aim of the supervening law

21
Q

Types of supervening illegality

A

a) trading with the enemy
b) other prohibitions
c) partial and temporary illegality

22
Q

Trading with the enemy

A

Always leads to frustration

Re Badische - contract for sale of dyestuff by German co to British co frustrated by WWI

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] - contract for sale of machinery to be shipped to Gdynia/Poland frustrated by German invasion of Poland and Britain declaring war on Germany in Sept 1939

23
Q

Other prohibitions

A

Baily v De Crespigny (1869) - D agreed not to build on his land; a railway co. compulsorily acquired D’s land and built a station on it; D not liable for breach due to frustration

Nile Co for the Export of Agricultural Crops v H & J M Bennett (Commodities) Ltd [1986] - contract for sale of potatoes from Egypt to England provided for payment after delivery; contract frustrated by subsequent Egyptian law requiring advance payment for potato export as the method had become illegal

24
Q

Partial illegality leads to frustration if the MAIN purpose of the contract is defeated

A

Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944]

  • purchase of wood supplies. C buys all wood supply from D and let D a timber yard with option to purchase it/lease it if contract terminated by either
  • 1939 ban on trade in timber. Even though lease still legal the contract was frustrated as the main purpose (to trade in timber) was illegal

Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945]

  • 99 yr lease (began 1936) of land on which tenant to build shop. Erection of shops banned during WWII.
  • not frustrated purpose as tenant would have ample time war to amortise rent, only small proportion of contract.
25
Q

Temporary illegality is an excuse for non-performance as long as the prohibition lasts. Frustration only occurs if period of prohibition is longer than parties can reasonably wait

A

Andrew Millar & Co Ltd v Taylor & Co Ltd

  • June/ July 1914: C agreed to supply D with confectionery for export to Morocco
  • 4 Aug 1914: UK declared war on Germany
  • 5 Aug: law banned export of “food for man”
  • 10 Aug: it was clarified that “food for man” included confectionery
  • 20 Aug: export of confectionery was allowed
  • Held: no frustration. Delay was too short and did not materially affect the interests of the parties
26
Q

What are the limitations on frustration?

A

(1) self-induced frustration
(2) contractual provision for the event
(3) foreseen and foreseeable events

27
Q

Self-induced frustration cannot be relied upon when own negligence, breach or deliberate act contributed to supervening event

A

The Eugenia - ship owners’ negligent in leaving in gulf that unable to supply ship

Sumnall v Statt (1984) - Tenant’s 4-year imprisonment (for shooting his wife) no excuse for failing to perform the covenant “to reside constantly at the farmhouse”

28
Q

The other party affected by negligence, breach or deliberate can invoke frustration of contracted

A

Hare v Murphy

  • employee sentenced 12 months in prison
  • self-induced frustration and so could be dismissed

The party arguing for self-induced frustration must prove that

29
Q

There is no frustration where a party can perform some but not all of the contracts and is affected by a supervening event

A

Maritime National Fish Ltd v Ocean Trawlers Ltd

  • D owned 3 fishing trawlers, chartered 2 more from C
  • D secured licences for only 3 trawlers
  • had to decide which trawlers (2 of own and 1 of C)
  • no lawful use for C’s other trawler so refused to pay
  • no frustration as D had enough licences for all chartered trawlers so own choice of allocation led to this
30
Q

The Super Servant Two

A

No frustration where a party can perform some but not all of the contracts and is affected by a supervening event

  • D agreed to carry C’s oil rig in Super Servant One or Two
  • left at D’s election to choose
  • D decided No.2 and committed No.1 to other jobs
  • No.2 sank
  • no frustration as D could have used SS1 for contract with C,choice left to D and so should have left both free
31
Q

Contractual Provision limit

A

The parties are generally free to allocate the risk of supervening events in their contract but in cases of trading with the enemy: frustration obligatory.

Ertel Bieber & Co v Rio Tinto Co Ltd:

  • English co. agreed to deliver copper ore to 3 German cos. between 1911 and 191
  • Held: outbreak of WWI frustrated contracts even though they provided for suspension
32
Q

The limit of foreseen and foreseeable events

A

Generally no frustration if foreseeable event when the contract was made

Walton Harvey Ltd v Walker & Homfrays Ltd

  • D hotel owners grant C a 7yr right to display ad
  • Company is acquired and demolition by Local authority
  • no frustration as D knew of risk

Exception: trading with the enemy

33
Q

Effects of frustration

A

The parties are generally free to provide for effects of frustration in their contract. However, a default regime applies in the absence of such a provision.

(1) frustration automatically terminates the contract
(2) rights accrued:
- under common law remained enforceable
- now dealt with by Law Reform (Frustrated Contracts) Act 1943
(3) rights not yet accrued:
- under common law were unenforceable because of entire obligations rule
- now dealt with under (Frustrated Contracts) Act

34
Q

Rights accrued - under the Act

A

s1(3) - if obtained a valuable benefit before the time of discharge then this is a recoverable sum, not exceeding the value of the benefit, if the court sees it just having considered the circumstances of the case and:

a) any expenses incurred by the party before the time of discharge by the benefited party
b) the effect, in relation to the said benefit, of the circumstances giving rise to the frustration of the contract

35
Q

Illustration of s1(3) of act

A

BP Exploration Co (Libya) Ltd v Hunt (No 2)

  • contract for exploitation of D’s oil concession in Libya. BP was to do and finance all the work of exploration and make “farm in” payments in cash and oil, to get a half share in D’s concession.
  • BP was to get “reimbursement oil” (to be taken out of D’s share) as soon as the field began to produce oil. Oil began to flow in 1967
  • in 1971 Libyan government expropriated concession, BP had received only 1/3 of the “reimbursement oil”
  • Identification of D’s benefit and its value:amount of oil he had received plus compensation from Libyan government; half was due to BP’s work and half to D’s ownership.
  • value of this benefit was quantified at some $85m
  • Assessing the just sum to be awarded to C/BP for benefit derived by D : cost of BP’s work for D + the value of the “farm in” oil
  • resulting total was then reduced by the amount of reimbursement oil received already by BP out of D’s share;
  • resulting sum of $35m was lower than D’s benefit ($85m) and was awarded as just sum
36
Q

Relationship of s 1(2) & s 1(3)

A
  • in theory, court can make award under s 1(2) & s 1(3)
  • thus, if a party who has incurred expenses has also both stipulated for prepayment and conferred a benefit, this party can claim under both subsections
  • however, there will be no double recovery
37
Q

Severable Contracts: s 2(4)

A

If you can separate any part of the contract for the whole then it shall be and treated as not frustrated e.g. a part wholly performed before the time of discharge, or so performed except for the payment

38
Q

Excluded Contracts: s 2(5)

A
  • voyage charterparties and other contracts for the carriage of goods by sea
  • contracts of insurance
  • contracts for the sale of specific goods frustrated by the perishing of the goods

Contract Law (6 decks)

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