Frustration

Question 1

When does frustration usually occur?

Answer 1

Usually either where performance would be illegal, physically impossible, or would require something of the contracting parties that is radically different from what they initially undertook to do

Question 2

Frustration and Mistake

Answer 2

Frustration and common mistake deal with same/similar problem: The facts in the world are radically different from what the parties imagined or assumed them to be when they entered into the contract. The difference is timing. Mistake is when the contract is entered, hence why those contracts are either void or voidable from the very beginning. Frustration occurs after the contract has been entered into. What the parties thought the world would be like in the future turns out to not be true, making the contract difficult to perform. Courts then bring the contract to an end, not at the time it is entered into, but later.
Very important consequences regarding remedies.

Question 3

Frustration and mistake

Facts change after contract entered case

Answer 3

Krell v Henry
Someone rented out a flat to view the King’s coronation procession. Later announced that the King was ill and the coronation procession would no longer take place
The court said that in these circumstances the contract was frustrated. Was entered into under the common assumption that the coronation would take place, which turned out to be untrue later. Therefore the contract became impossible and the assumption untrue after entry into the contract, so frustrated

Question 4

Frustration and mistake

Facts change before contract entered case

Answer 4

Griffith v Brymer (contract void for mistake because made upon a ‘missupposition of the state of facts’)
Same procession similar contract to rent the flat, but here the flat rented at 11, but procession cancelled at 10
Here, it was said by the court, there was no contract bc of mistake as there was a mistake of an important fact about the way the world was at the time when the contract was entered into. Therefore void on mistake

Question 5

History of Frustration

the ‘no excuses’ rule

Answer 5

Didn’t used to be the case that contracts could be set aside for frustration
Paradine v Jane (1647)
(the ‘no excuses’ rule)
Very rigoristic ratio saying that it doesn’t matter that the facts have changed still have to fulfill your contractual duties or pay up. In this case Jane could not pay rent bc he was driven out of his home by an enemy invasion
Court said you still have to pay rent
‘if the lessee covenants to repair a house, though it be burnt by lightening, or thrown down by enemies, yet he ought to repair it’.

Question 6

History of frustration

First successful case

Answer 6

Taylor v Caldwell (1863) 3 B&S 826
Rented a music hall and gardens for some concerts that were going to take place over 4 nights. Burnt down after 1st night. Should Caldwell have to pay cost of hire?
Court said no despite Paradine v Jane
‘in contracts in which the performance depends upon the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance’. In this case performance literally impossible. There will be cases where performance is possible, but extremely burdensome

Question 7

History of frustration

Impracticability case

Answer 7

Jackson v The Union Marine Insurance Co Ltd (1874-75)
Courts begin to say that even where performance is possible, conrtact can still be frustrated where performance difficult/burdensome. Jackson got a ship to sail from L’pool to San Fran, to be carrying a cargo of iron rails. That ship got stranded for 6 months
Court said that that fact, bc of how long it would have taken to repair the ship, essentially defeated the commercial intention of the transaction, so would have bee unfair to ask Jackson to pay for chartering the ship, as it was a different venture than it would have been 6 months ago
‘a voyage undertaken after the ship was sufficiently repaired would have been a different voyage… different as a different adventure…’

Question 8

History of frustration

Three stage test:

Answer 8

National Carriers Ltd v Panalpina (Northern) Ltd [1981]
- Courts laid down test for when a court may be frustrated
‘Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/ or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances’.
- An event that occurs that is not the fault of either party and had not been considered in the contract and a provision made in it
- So significantly change the nature of the contractual rights and duties contained in the contract it would be unjust to hold the parties to the literal sense of the stipulations under the new circumstances

Question 9

Theoretical Underpinnings
Reason for the doctrine
Implied terms

Answer 9

Taylor v Caldwell (1863) 3 B&S 826 (see above)
The intention of the parties
Implied
They both intended to excuse each other in such circumstances where the contract becomes impossible
The implied intention that if the music hall burnt down the Caldwell wouldn’t have to pay

Question 10

Theoretical Underpinnings
Reason for the doctrine
Implied terms disputed

Answer 10

James Scott & Sons Ltd v R & N Del Sel
‘[a] tiger has escaped from a travelling menagerie. The milkgirl fails to deliver the milk. Possibly the milkman may be exonerated from any breach of contract; but, even so, it would seem hardly reasonable to base that exoneration on the ground that “tiger days excepted” must be held as if written into the milk contract’.
The contract would say the contract was frustrated in such a circumstance but it is unrealistic to say that it is an implied term that if a tiger ate the milkgirl than the milkman is excused from his duties

Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd
If there is an implied term, the term could have included reservations or qualifications or compensations, not just ending the contract, which is the only solution of the court

Question 11

Theoretical Underpinnings
Reason for the doctrine
Implied terms disputed
Force majeure clauses

Answer 11

Force majeure clauses include possibility of such a thing happening, that court may disregard and frustrate the contract anyway. Therefore clear that there is something else beyond putting into effect the intention of the parties as they may directly contradict the parties’ intentions anyway in ending the contract where other provisions had been made for such circumstances
Ertel Bieber & Co v Rio Tinto Co Ltd
Contract frustrated where the law changed making completion illegal. Contract frustrated even though the contract specified that in a frustrating event the contract should only be postponed and not cancelled
Court set aside the contract anyway
Dahl v Nelson
‘the meaning of the contract must be taken to be, not what the parties did intend (for they had neither thought nor intention regarding to it), but that which the parties, as fair and reasonable men, would presumably have agreed upon’.
Court changed their stance on frustration to that, they will frustrate contracts based on what reasonable parties would have agreed rather than the actual parties’ intentions. Some other principle at work then, than what the intention of the parties’ were

Question 12

Theoretical underpinnings

Radical Change

Answer 12

Now frustration is not bc of implied terms but bc there has been a radical change that has made the contract too burdensome, and it is unfair toenforce it
Davis Contractors v Fareham Urban District Council
‘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’.
No mention of the intentions of the parties or what they would/should have intended as reasonable people
Only the unfairness of holding the paties to the contract under the changed circumstances

Question 13

Requirements for frustration

Answer 13

Have the parties themselves dealt with the risk, either expressly or impliedly?
Is the party seeking to be released at fault for the frustrating event? (if so they are in breach of contract)
Does the event make performance of the contract radically different to what it was at the time it was entered into?

Question 14

Frustrating Events

What are the 3 types of frustrating event that lead the court to set contracts aside

Answer 14

(i) Legal impossibility – becomes illegal to complete the contract
(ii) Physical impossibility – can no longer physically fulfil contractual duties
(iii) Impossibility of purpose – the point of the contract becomes impossible to meet/fulfil

Question 15

Legal impossibility case

Answer 15

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32

• Contract between English and Polish company
• WW2 broke out
• Illegal to be trade with enemy
• Frustrated contract

Question 16

Legal impossibility

Acquisition:

Answer 16

State may acquire certain things where necessary
Baily v De Crespigny (1868-1869) LR 4 QB 180 (land)
Bank Line Ltd v Arthur Capel & Co [1919] AC 435 (ships)
BP Exploration Co (Libya) Ltd v Hunt (No 2) [1983] 2 AC 352 (oil fields)
What are the effects of compulsory acquisition?
Must radically change the performance of the obligations under the contract

Question 17

Legal impossibility
Radical change?
Yes case

Answer 17

Metropolitan Water Board v Dick, Kerr & Co Ltd
In this case a contract to build a reservoir over 6 year period. Contract was halted as gvt ordered the builders to stop their work and remove and sell their plant. Contract did contain a term providing for extensions of time for builders to complete contract “whatsoever and howsoever the occasion” for whatever reason it can’t be completed it will be postponed until it can be completed
Court said that provision could not be applied as the interruption was of such a character and lasted so long that it fundamentally changed the nature of the duties under the contract. Would be unfair to require the builders to fulfill their contract

Question 18

Legal impossibility
Radical change?
No case

Answer 18

Cricklewood Property & Investment Trust Ltd v Leighton’s Investment Trust Ltd
‘the length of the interruption so caused is presumably a small fraction of the whole term’
In this case the effects of the unforeseen event were not though to be sufficiently serious as to frustrate contract. 99 year lease frustrated when gvt issued restrictions on building. After the restrictions on building there were only 9 years left on the lease
In those circumstances the court said the unforeseen event of the restriction only affected a small fraction of the contract as there were only 9 years left

Question 19

What is meant by Physical Impossibility?

Answer 19

Death or Incapacity Of contracting party so as they can no longer to complete their obligations due to their physical

Question 20

Physical impossibility

Death case

Answer 20

Whincup v Hughes (death)

Made It clear that if the promisor dies that frustrated the contract

Question 21

Physical impossibility

Prison case

Answer 21

FC Shepherd & Co v Jerrom (imprisonment)
Was said that if being sent to prison affects the whole or a substantial portion of the contract then can be frustrated
But only the promisee can rely on the frustrating event. Can’t go to prison to get out of your contract

Question 22

Physical impossibility

Illness case

Answer 22

Notcutt v Universal Equipment Co (illness)
Employee had a heart attack. Never able to work again. Frustrating event
Test for whether an illness will or won’t frustrate a contract is extent to which it will affect their ability to perform the contract

Question 23

Physical impossibility

Death not sufficient case

Answer 23

Phillips v Alhambra Palace Co Ltd
Contract between some performers and proprietors of a music hall. One of the proprietors died
Did not frustrate the contract as the other proprietors could perform the contract

Question 24

Physical impossibility

Destruction of Subject Matter

Answer 24

Taylor v Caldwell
Music hall burnt down, see above
Appleby v Myers
Contract to supply and install machinery in a factory
Became impossible bc factory burnt down

Question 25

Physical impossibility
Destruction of Subject Matter
Partial destruction:

Answer 25

Asfar v Blundell
A cargo of dates became submerged for 2 days, water sewage had gotten onto it. For business purposes dates became something different. Could still be used for distillation of spirits. But that was not the purpose for which they were to be used in the contract
Contract frustrated
Jackson v The Union Marine Insurance Co Ltd (‘practical commercial destruction’)
Charter party becomes frustrated bc ship runs aground, not repaired for 7 month period, Court says that that delay amounted to the practical commercial destruction of the purpose of the contract. After 7 months the ship was of no purpose whatsoever to the charterer

Question 26

Physical impossibility

Delay and hardship

Answer 26

Contractual performance is delayed/becomes very difficult
Enough to frustrate contract?
Merely becoming commercially unreasonable generally not enough
Has to be radically different to original agreement
Many different causes e.g. ships may be delayed for many different reasons

Question 27

Physical impossibility
Delay and hardship
Not radical enough case

Answer 27

Davis Contractors v Fareham Urban District Council (‘any new and unforeseeable factor or event’?)
Davis a building firm contracted to build 78 houses for Fareham district council. Took them 3 tmes longer than it should have done and cost them 17k more than they expected to build them due to labour shortages and difficulties of obtaining supplies
Court said that was not sufficient. It’s well known that building contracts encounter delays/disruptions in supply of labour/materials. Should have been taken into account at creation of contract. Eminently foreseeable
‘the job proved to be more onerous but it never became a job of a different kind from that contemplated in the contract’.

Question 28

Physical impossibility
Delay and hardship
Radical enough case

Answer 28

Jackson v The Union Marine Insurance Co Ltd (1874-75) LR 10 CP
Contract itself said the ship had to sail with all possible dispatch. Time of the essence in this contract. Yet 7 month delay
Bc of that the court said the voyage became a different voyage to that contemplated in the contract. A crucial difference which had the effect of frustrating the contract

Question 29

Physical impossibility
Delay and hardship
Delay not sufficient case

Answer 29

Ocean Tramp Tankers Corp v V/O Sovfracht (The Eugenia)
cargo not affected by delay and ‘no evidence that the early arrival of the cargo in India was of particular importance’
Suez canal blocked during Suez crisis. Charter party cpuld no longer use intended route. Alternative route through cape canal or st. Would increase .Length of time from 108 days to 128 days. Court says that this would not affect the cargo. Early arrival of no particular importance
Was a delay but this did not make the contract pointless or too difficult to perform

Question 30

What is Impossibility of Purpose?

Answer 30

Controversial
Contract still physically possible no legal impediment, but the contract now has no pont bc of unforeseen event
In these cases purpose must be common
The intention of the contract which is now gone must be assumed to be the foundation/basis of the contract by both parties, and this intention is now thwarted for the parties to be released

Question 31

Impossibility of Purpose case

Answer 31

Krell v Henry [1903] 2 KB 740 (must be common purpose; ‘assumed by the parties to be the foundation or basis of the contract’)
Court held that the contract was frustrated
Hire of the room was for the purpose of seeing the procession, rather than for the room, as was understood by the parties
3 pieces of evidence (1) Flat position, for good view of procession (2) Flat owner had advertised it to view the procession (3) Unusual hire terms, enhanced price, and only for 2 days, excluding nights
All emphasised that the contract has become pointless and is therefore frustrated. Common purpose of the parties not met
Distinguished from hypothetical situation where you hire a cab to go to derby day, you pay cabbie more money to go, but the race gets cancelled. In that situation contract would not be frustrated bc: ‘the cab had no special qualifications for the purpose which led to the selection of the cab for this particular occasion. Any other cab would have done as well’. Claim being made here is that the purpose is that of the hirer alone. Cabbie not letting out the cab for the purpose of the cab to get to derby day, no different from any other cab, not something important to cab owner, he’s just getting you from A to B

Question 32

Failed Impossibility of Purpose case

Answer 32

Herne Bay Steamboat Co v Hutton [1903] 2 KB 683
Same procession situation. Contract to hire out a pleasure boat for purpose of viewing the naval review to be performed by King, and a cruise around the fleet. Naval review cancelled bc King ill
Didn’t frustrate bc: ‘Just as in the case of the hire of a cab or other vehicle, although the object of the hirer might be stated, that statement would not make the object any the less a matter for the hirer alone, and would not directly affect the person who was letting out the vehicle for hire’. i.e. boat owner not letting out his boat specifically for viewing the naval review or suggesting it had any special features. Purpose was hirer’s and hirer’s alone
Also, purpose in the contract was not sufficiently thwarted, could still see the fleet and cruise around, just no king reviewing the fleet

Question 33

Contractual Interpretation

Express Terms case

Answer 33

Metropolitan Water Board v Kerr (delay clause not apply because ‘delay was so abnormal, so pre-emptive, as to fall outside what the parties could possibly have contemplated’)
K agreed to build a reservoir for M. The contract said that K should apply to the engineer for an extension of time in the event of delay ‘whatsoever and howsoever occasioned’. K then required to stop work and sell their plant because of a Government Order.
Delay clause did not apply as change was too fundamental to contract’s nature

Question 34

Contractual Interpretation
Implied Allocation of Risk: Highly Foreseeable?
Case

Answer 34

WJ Tatem Ltd v Gamboa
Steamship chartered for 30 days to evacuate refugees from Spanish civil war. The charterer had to pay a higher daily rate due to risk. Halfway through charter period ship gets seized amongst hostilities in civil war. Not returned for 2 months
Seizure Did not constitute frustration, as it was highly foreseeable that this would happen given the purpose of hire. The length of the seizure was though, as the parties could not have foreseen how long it would be seized for

Question 35

Fault

Answer 35

Were they responsible for the frustrating event? If so they can’t be the one to set the contract aside
Burden of proof on claimant suing for breach of contract
When at fault? When conduct amounts

Question 36

Fault by breach case

Answer 36

Ocean Tramp Tankers Corp v V/O Sovfracht (The Eugenia) [1964] 2 QB 226
Charterer of boat ordered it into warzone where it was detained
Remained liable for hire of boat bc they acted in breach of contract in sending the ship into the warzone

Question 37

Fault by Anticipatory Breach defintion and case

Answer 37

A breach of contract whereby the claimant disables himself in some way from being able to perform the contract
J Lauritzen A/S v Wijsmuller BV (The Super Servant Two)
‘The possible varieties are infinite, and can range from the criminality of the scuttler who opens the sea cocks and sinks his ship, to the thoughtlessness of the prima donna who sits in a draught and loses her voice’.

Question 38

Fault by Election definition and cases

Answer 38

When D has entered into a umber of contracts and can only perform some but not all. Election between contracts does constitute self-induced frustration. Has been criticised

Maritime National Fish Ltd v Ocean Trawlers Ltd
A trawler chartered by Maritime National fish by M for otter trawling. Applied for 5 licenses to carry out otter trawling. Only received 3 licenses. Defendant allocated these 3 licenses to other trawlers including two of their own. Not to the trawler from Ocean trawlers
Decision to allocate the licenses to other trawlers constituted self-induced frustration as not using the license for that trawler was of their own choice/election

J Lauritzen A/S v Wijsmuller BV (The Super Servant Two)
Court said where it is impossible to perform all contracts, choice of which to perform does constitute self-induced frustration
Transporting drilling rigs using either Super Servant ! or Super Servant 2. Allocated SS2 to contract in this case and SS1 to another contract. Prior to performance of this contract, the SS2 sank
Sinking of the SS2 surprisingly did not amount to a frustrating event as the defendant chose to allocate the SS1 to another contract. Their choice and their fault to enter into so many contracts, they have the bear the risk of the SS2 sinking. Distinct from trawler case as there D could have performed all contracts, here it was impossible. Also, here SS1 had been allocated BEFORE frustrating event

Question 39

Consequences of Frustration

Contract Discharged

Answer 39

Contract comes to an end, both parties relieved of their obligations to perform that contract
Where a contract is executory (neither party has started to perform it yet)

Question 40

Consequences of Frustration
Partially Executed Contracts (Where one or both parties have already started to perform)
Common Law
(i) Money

Answer 40

Used to be any money paid before frustrating event was not recoverable and any money due before frustrating event was still payable after frustrating event
Why? Contract valid up to that date. Therefore obligation up to that date still valid, and still bind.

Question 41

Consequences of Frustration
Partially Executed Contracts (Where one or both parties have already started to perform)
Common Law
Attempts to recover money cases

Answer 41

Chandler v Webster [1904] 1 KB 493
Again, King and coronation. Chandler had paid £100 to hire a room to watch the coronation. Was also to pay another £41 later but before the coronation was cancelled. Chandler tries to get back his £100
Nope, contract was binding then so can’t get it back, and need to pay the £41 too as it was due before the FE took place. Looks unfair

Fibrosa Spolka Ackcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 (recovery where total failure of consideration)
Position softened, money was recoverable where there was a total failure of consideration – i.e. didn’t receive any benefit under the contract
Fibrosa had pre-paid £1000 to defendant for manufacture of machinery. War broke out and contract was frustrated. D refused to return the money bc they had already incurred expenses in manufacturing the machinery.
Court permitted recovery as Fibrosa did not receive any benefit under the contract therefore total failure of consideration. Basis of the claim was quasi-contractual. Doesn’t matter that contract was valid up until that point as the claim was an unjust enrichment based claim. Even if claimant had received a trivial benefit they would not be able to get back any of their money

Question 42

Consequences of Frustration
Partially Executed Contracts (Where one or both parties have already started to perform)
Common Law
(ii) Non-Money Benefits

Answer 42

Similar to money
Appleby v Myers (no recovery because payment fell due on completion)
Contract for machinery. Contract frustrated bc of a fire which destroyed the factory and machinery
Claimant could receive nothing for machinery as it had not been fully installed and the obligation to pay came once it had been
Obligation to pay after frustrating event so couldn’t get the money

Question 43

Consequences of Frustration
Partially Executed Contracts
To mitigate these unfair results introduced:
Law Reform (Frustrated Contracts) Act 1943

Answer 43

S 2(3) (Act regulates the consequences of frustration, unless express provision in contract) 
(i)	Money 
S 1(2):
Reverse common law stance. Any money paid before is recoverable, any obligations before cease to be payablet, but subject to whether the defendant had incurred expenses. If they have they are entitled to offset costs incurred in their performance with the sums paid or payable before frustration. Caps amount that can be recovered by defendant at the amount paid or obligated to pay before frustration.

Question 44

Consequences of Frustration
Partially Executed Contracts
To mitigate these unfair results introduced:
Law Reform (Frustrated Contracts) Act 1943
Money case

Answer 44

Gamerco SA v ICM/ Fair Warning (Agency) Ltd
$775,000 payable by concert promoters under a contract they had wth GnR. $412,000 was already payed. Venue deemed unsafe, frustrating the contract. Promoters wanted to recover the money they paid and no longer be due to pay remaining money. Act seems clear, can recover that money, not required to pay other obligations.
Expenses? GnR had incurrd $50,000 in preparing for the concert and the promoters themselves had already suffered considerable expenses in preparation of $450,000. Question for the court as to what can be deducted as just expenses
Justice Garland said that the onus is on the payee (GnR) to show why their restitutionary liability should be reduced
3 possible ways of calculating the just expenses
Total retention – allowed to offset all of their expenses
Equal apportionment – allow them to offset half of their expenses
Broad discretion on courts to decide what to do. Total retention or equal apportionment would take no account of the payor’s far larger expenses
Court therefore allowed the promoter’s to recover all, GnR alowwed to offset none of their expenses

Question 45

Consequences of Frustration
Partially Executed Contracts
To mitigate these unfair results introduced:
Law Reform (Frustrated Contracts) Act 1943
(ii) Non-Money Benefits

Answer 45

S 1(3) Where any party to the contract has obtained a valuable benefit before the time of discharge, the other party can recover up to the value of the benefit, with regard to;
(a) the expenses of the other party and (b) the effect, in relation to the said benefit, of the circumstances giving rise to the frustration of the contract.

Question 46

Consequences of Frustration
Partially Executed Contracts
To mitigate these unfair results introduced:
Law Reform (Frustrated Contracts) Act 1943
(ii) Non-Money Benefits case

Answer 46

BP Exploration v Hunt
BP agreed to explore and develop an oil concession that Hunt had in Libya. As part of that BP had made initial payments of cash and oil to hunt in exchange for a 50% share in his concession. Oil field was discovered and successfully worked between 1967 and 1971. In 1971 Libyan government expropriated the concession, frustrating the contract. As a result BP only received part of the oil to which they were entitled under the contract. So, made a S1(3) claim on Hunt
Court had to determine what benefit was conferred on Hunt. Measured by end product of BP’s work. The value of the enhancement of the concession rather than the costs of BP’s work. That enhancement, however, was substantially reduced by Libyan gvt expropriation
BP’s benefit conferred onto Hunt was worth $85,000,000
What would be a just sum to be paid by Hunt then? I’v no idea