Frustration Flashcards
Taylor v Caldwell
Taken to have introduced an express doctrine of frustration, however, its conceptual basis (implied tern theory) is no longer favoured.
Blackburn J: Roman law - since the subject matter had perished, the parties were discharged from their respective duties
Lords Reid and Radcliffe, Davis Contractors
Abandoned implied terms theory of Taylor and replaced it with “overall test” (McKendrick): “radically different” from what had been contracted for?
McKendrick on Davis Contractors
Reveals the courts’ reluctance to invoke doctrine of frustration
Prof Ibbetson on Taylor v Caldwell
Conceptual basis no longer favoured, 19th century judges were inventing/imposing intention which is essentially a legal fiction
McKendrick on foresight
A frustrating event is one that was not foreseen and was not foreseeable by the parties (subjective and objective elements)
The Super Servant Two
SELF-INDUCEMENT –> no frustration: if the contract had specifically provided for the Super Servant Two to be used, it would have been frustrated by her sinking
In D’s control to allocate the Super Servants, human choice –> frustration could not be pleaded
Denning vs. Treitel in The Eugenia
Denning (OBITER): There’s a presumption that any foreseeable risk of an event will be allocated to a party BUT that presumption is rebuttable. You construe the contract first to see whether the risk has been allocated , and more often than not you’ll find that it has been.
Treitel: ANY foreseeability means that frustration cannot be pleaded. suggestion - foreseeability (subjectively or objectively) will allow court to draw the interference that risk was allocated
The Eugenia
No frustration. additional time was not excessive enough, impact not serious enough, cargo not perishable, could have taken alternative route
Treitel on The Super Servant Two
Misapplication of doctrine to argue that it cannot be available to a party who has more than one contract to uphold - there should be a first come first serve rule (first upheld, last frustrated if necessary)
Two circumstances that will bar a plea of frustration
1) self-inducement
2) foresight
McKendrick (approving of Treitel) on Krell v Henry
common purpose: facilities to be provided for watching coronation
If the facts were different and Mr Henry had taken ill - no frustration because it would have only affected Mr Henry’s intention not Mr Krell’s as the coronation was still taking place
Lord Radcliffe, Davis Contractors
CONTRA implied terms theory
1) frustration happens outside of anything the parties knew/intended implied terms (implied by knowledge of parties)
2) Must be incapable of being performed because it would render a thing radically different from what was undertaken by contract
Lord Russel, dissenting in Panalpina
Lease should not be frustrated unless physical destruction of the land (coastal erosion) - bargain had passed with all its advantages and disadvantages!
Force majeure clauses (cover things like acts of god, natural disasters)
Rarely enough to exclude all possibility to rely on frustration but they can be relied upon as evidence that parties considered various possible outcomes (helpful giants party trying to plead frustration
Krell v Henry
Coronation of King Edward VII was postponed, but D had rented a room
ESSENTIAL: cancellation after contract executed
Common purpose frustrated - room hired for particular reason, advantage of that particular room’s view, advantage of that particular coronation - only one possible reason for contract: coronation
What is frustration?
A failure to contract - event occurs after formation (unlike mistake which is operative at the time the contract is concluded, has then already happened), that is outside of the control of the parties and renders the purpose of the contract impossible or radically different
Failure to contract rarely happens, most of the time, a duty can be traced back to one of the parties
Why are the courts reluctant to find frustration?
i) contracts are binding agreements, usually expected that someone pays if they don’t perform
ii) allows one party to walk away, leaving the other to bear the costs
iii) risk can always be traced back to one party
The Chrysalis
Dispute as to when frustration had arisen: when dispute between Iran and Iraq began OR when shipowners generally had confirmation of this
Held: at later date because then the parties had become aware of the fundamental different circumstances in which they were operating
When does frustration happen?
i) Impossibility (e.g. natural disaster)
ii) Illegality (e.g. you’re no longer allowed to sail down the route planned)
iii) frustration of common purpose
iv) other circumstances (e.g. death)
Beale in Chitty: bar to a plea of frustration
Someone either at fault or whose act was deliberate - how would they argue the event was outside their control?
Chandler v Webster
BEFORE Law Reform (Frustrated Contracts) Act 1943: THE LOSS MUST LIE WHERE IT FELL AT THE TIME OF FRUSTRATING EVENT - rights/liabilities frozen at that point
termination, unlike rescission, is not retroactive so a payment prior to discharge could not be gotten recovered and balance had to be paid
Facts similar to Krell.
Contract had required hirer to pay before the date of the precession –> risk passed to him
Frustration merely releases parties from obligations of future performance
Consideration for benefit of promise, simply a bad bargain
Bank Line v Arthur Capel and Co
When both parties share an interest in an commercial adventure, one cannot protest that the other is still obliged to pay for services which cannot meaningfully be rendered
Difference (charter April-April became September-September) fundamental in business terms: freight rates had risen
Paradine v Jane
Old position: frustration was not available
Where a duty was assumed by contract (here pay lease for farm), it was to be performed notwithstanding any accident by inevitable necessity (here, being expelled by Prince Rupert).
The opportunity to take account of such risks had been at the time of contracting.
OBITER: even if the land is gained by sea, made barren by wildfire…
Hardship clauses (adjust contract when certain events take place)
Can also be used to show events being planned for by parties –> increasingly less scope for frustration to apply
Davis Contractors v Farnham Urban District Council
RADICALLY DIFFERENT not simply more onerous.
No frustration, because performance was only delayed and not impossible. Labour shortage was foreseeable to certain extend –> risk lay with contractors
Blackburn Bobbin v T.W. Allen and Sons
Outbreak of WWI made sipping impossible, but the means by which D were to obtain timber was wholly immaterial to P and did not have to be in P’s contemplation - D was responsible for transport –> no frustration
McKendrick on Fibrosa
Improved law on frustration in cases of failure of consideration but only applied to total failure of consideration. What about part performance?
Law Reform (Frustrated Contracts) Acts 1943 [passed to deal with the numerous frustration cases arising from WWII]
- goes beyond Fibrosa and allows recovery of a sum paid before frustration even if there has been no total failure of consideration
- allows party who has done work for the other’s benefit before frustration without any accrued right to payment nevertheless to claim compensation
- Act does not alter circumstances in which frustration will/will not be found
National Carriers v Panalpina
Approved Davis Contractors.
However, theoretically frustration could apply to leases (doubted before - lease = interest in land which endures notwithstanding events which deprive lessee of land’s usefulness) - Majority thought a rigid distinction between leases and other contracts would lead to anomalies
HERE: interruption of two years of a 10 year lease was not sufficient!
Joseph Constantine Steamship Line v Imperial Smelting Corporation
HoL overruled CoA: Unfair to party who had been victim to an unpredictable event - very difficult to prove negligence had NOT cause explosion
Party countering with allegation of self-inducement of frustration must bear the burden of proof
Bank Line vs. Blackburn Bobbin
BB: deal was the same, no prejudice to one party or fundamental alteration of deal by delay
BL: difference in timing and in vessel had led to a completely different deal with an extreme effect on one party
Herling: nonsense, courts just <3 shipping
“not the other side’s problem” vs. “common object” found in exchange of services for payment –> any interruption of exchange of services (thus affecting common interest) = frustration?
Herne Bay Steam Boat v Hutton
No frustration because no particular connection between the Cynthia and the purpose of the contract - other ships would have done as well
Multiplicity of contractual purposes: there could (realistically) have been only one reason for hiring that room with a view during coronation, whereas many reasons for chartering the Cynthia to simply sail around
Effect of frustration
Contract is immediately TERMINATED.
NOT void
NOT voidable
This means all future obligations are discharged
Fibrosa SA v Fairbairn Lawson Combe Barbour
Overruled Chandler.
Lord Simon’s 2 types of consideration:
1) for the purposes of contract formation (i.e. exchange of promise
2) total failure of consideration (i.e. when actual consideration has not been provided)
Polish company never received their consideration so they could recover £1000 (they couldn’t deliver because Germany had invaded Poland)
Section 1(2) Law Reform (Frustrated Contracts) Act 1943
Provides that money paid prior to a frustrating event can be recovered. This is subject to the proviso that if the party to whom the payment was made has incurred expenses, such amount as the courts consider just may be retained to cover these.
Section 1(3) Law Reform (Frustrated Contracts) Act 1943
UNJUST ENRICHMENT PREVENTION
Covers instances where one party has obtained a “valuable benefit” prior to frustration and the party providing the benefit has to right to payment
BP Exploration v Hunt
Government intervention can lead to frustration
When frustration was not available as a doctrine
Paradine v Jane
Frustration of common purpose cases
Bank Line v Arthur Capel and Co
Krell v Henry
Herne Bay Steam Boat Co v Hutton
Self-induced frustration cases
The Super Servant Two
Joseph Constantine Steamship Line v Imperial Smelting Corporation
Foresight case
The Eugenia
Delay (“radically different”) cases
Bank Line v Arthur Capel
The Chrysalis
Effect of frustration
Chandler v Webster
Fibrosa SA v Fairbairn Lawson Combe Barbour
Law Reform (Frustrated Contracts) Act 1943
