Frustration

Question 1

Davis Contractors - 3 elements of frustration

Answer 1

i. W/o fault of either party
ii. A contractual obligation has become incapable of performance
iii. Because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. (as opposed to mere hardship, inconvenience or material loss in performance)

Question 2

Why did the court in Davis reject the proposition that the basis of frustration is an implied term providing for termination in case of the supervening event?

Answer 2

It is artificial to hold that the parties impliedly provided for something which ex hypothesi they did not foresee; moreover had they foreseen the supervening event they probably would not provide that performance should be excused, but instead seek to allocate the risk

Question 3

Will force majeure clauses always preclude the operation of frustration?

Answer 3

Dick Kerr – a force majeure clause providing for “delay whatsoever and howsoever occasioned” was held not to cover interruptions of such character and duration that they fundamentally change the conditions of the contract. Indeed force majeure clauses are primarily intended to cover events capable of swift resolution, not catastrophic events rendering further performance obviously impossible.

Question 4

What is the relevance of foreseeability?

Answer 4

While in Davis Contractors it was said that the frustrating event must be unforeseeable, the importance of the foreseeability requirement has been reduced.

In The Sea Angel it was noted that

(i) Even events made the subject of express contractual provision may lead to frustration - e.g. (The Nema)
(ii) Where the supervening event is foreseeable but not foreseen, or less foreseeable, it is less likely that frustration is excluded, but the question remains whether one party has assumed the risk of the event occurring, having regard to the extent the event was foreseeable.

Question 5

Where does the doctrine of “self-induced frustration” primarily operate?

Answer 5

Chitty notes that the doctrine primarily operates where the frustrating event was not something altogether outside the parties’ control, e.g.
• Frustrating event caused by breach or anticipatory breach of party alleging frustration
• The party alleging frustration broke the chain of causation between the alleged frustrating event and the event making performance impossible

Question 6

The Super Servant Two (2 points)

Answer 6

1. “It is actual and prospective delay which frustrates the contract, NOT a party’s election or decision to treat the delay as frustrating…inconsistent with the doctrine that its application should depend on any decision of the party seeking to rely on it”; here it was D’s decision not to carry C’s rig with its remaining ship that made performance impossible.
2. The interposition of human choice between the supervening event and frustration will preclude the application of frustration.

Question 7

The Sea Angel (2 points on “radical dfference” test”

Answer 7

2. There has to be a break in identity between the contract as provided for and contemplated and its performance in the new circumstances.
3. The test should not obscure the true function of the doctrine, which is to do justice.

Question 8

Taylor v Caldwell (impossibility)

Answer 8

A contract is frustrated where the subject matter of the contract is unavailable for use in the performance of the contract

Question 9

The Nema (impossibility)

Answer 9

2. Where the subject of the matter is only partially/temporarily unavailable, the greater the extent of the unavailability in relation to the time-scale of the contract, the more likely it is that the contract will be frustrated.

Question 10

The Nema (foreseeability)

Answer 10

As endorsed by Rix LJ in The Sea Angel, The Nema illustrates that even events not only foreseen, but actually made the subject of express contractual provision may frustrate if the event lasts for so long as to go beyond the risk assumed under the contract and to render performance radically different from that contracted for

Question 11

Fibrosa

Answer 11

A contract to sell machinery to buyers in Poland was frustrated when performance of the contract was rendered illegal because Poland was occupied by Germany in WW2 (illegal to trade with the enemy during war)

Question 12

Cricklewood

Answer 12

If the illegality affects only part of the contract and its impact is insubstantial the contract will not be frustrated.

Question 13

How may we reconcile Krell and Hutton?

Answer 13

Key question seems to be whether the “substance of the contract” involves one purpose that has been frustrated (Krell) or multiple non-trivial purposes at least one of which can still be achieved (Hutton).

Treitel suggests the crucial difference is that BOTH parties’ purposes must be frustrated; in Hutton the continued presence of the fleet provided a considerable and unusual attraction and one of the mutual purposes of the contract to give the hirer the opportunity to see the attraction (cf Krell where the contractual purpose for BOTH parties was to provide facilities to view the procession).

Question 14

Krell v Henry - how do we determine whether there has been frustration of purpose?

Answer 14

One must first ascertain from the surrounding circumstances the substance of the contract and then ask whether that substance needs for its foundation the assumption of the existence of a particular state of things.

Question 15

Hutton (Romer LJ)

Answer 15

There was no total destruction of the subject matter of the contract or a total failure of consideration, since the fleet remained available for viewing.

Question 16

What is the consequence of frustration at common law (3 points)?

Answer 16

(i) The Super Servant Two - The effect of frustration is to kill the contract “forthwith, w/o more and automatically”, but only prospectively.
(ii) Fibrosa - money paid pursuant to a frustrated contract is recoverable only in restitution and only upon a total failure of consideration
(iii) Cutter v Powell - where C has performed services prior to frustration, part-performance of entire obligations will not entitle C to any payment at all for services already rendered.

Question 17

Why is it difficult for suppliers of goods to show frustration? Is it impossible?

Answer 17

Transclear reiterates that a supplier of generic goods normally assumes liability to the buyer in respect of any inability to procure goods further up the supply chain; the fact that the supplier is himself denied supply will not exonerate him.

However if the sole supplier has stopped supplying the relevant good (e.g. due to an embargo on trade), this will qualify as frustration for supply contracts further down the supply chain (La Plata Cereal)

Question 18

Scruttons

Answer 18

The privity doctrine prevents T from taking advantage of an exclusion clause located in a contract between A and B.

Question 19

The Eurymedon (3 step route around Scrutton).

Answer 19

1. B acts as T’s agent by inserting a Himalaya clause into the A/B contract, which consists of an offer of a unilateral contract made by A to T, communicated to T by B.
2. T accepts the offer of and provides consideration for the unilateral contract by performing his contractual duty to B to unload the ship.
3. Thus there is no conflict with Scruttons; the Himalaya clause creates a contract between A and T under which T may benefit from the exemption clause.

Question 20

New York Star; criticism

Answer 20

Barwick CJ (Australia) adopted a bilateral contract analysis; Treitel notes this means T will be in breach of a separate contract with the cargo-owner if he has accepted a repudiation by the carrier and consequently refused to unload the goods”.