*FRUSTRATION AND CONTRACTUAL CERTAINTY*

Question 1

What does it mean when you say a contract is frustrated?

Answer 1

• an unforeseen event occurs after the contract has been formed
• which was not fault of either party
• makes contract impossible to perform
• or makes performance of contract radically different
• the contract will come to an end when frustrating event occurs

Question 2

What was the original common law rule surrounding frustrated contracts?

Answer 2

• the parties should’ve made suitable provisions to protect itself if an unforeseen even should occur
• didn’t protect them

Question 3

Taylor v Caldwell

Answer 3

• changed the rules on law of frustration
• Blackburn J thought that there was an implied condition in the contract that the parties would be excused if performance became impossible because, without the fault of the parties, the music hall perished.

Question 4

HOL in Davis Contractors Ltd Fareham Urban District Council disagreed with Taylor v Caldwell. What did they say?

Answer 4

• idea of frustration resting on implied term was dismissed
• should rest on what parties deem fair just and reasonable

Question 5

What kind of events will frustrate a contract?

Answer 5

• unavailability of a specific thing or person vital to the contract (Taylor v Caldwell)
• non occurrence of a fundamental event (Krell v Henry)
• government intervention (Metropolitan Water Board v Dick Herr)
• delay (Metropolitan v Dick Herr)
• illegality (Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd)

Question 6

What factors determine whether a person not being available leads to frustration of the contract?

Give an authority.

Answer 6

• length of the contract
• length of period of absence
• just the contract be performed by that particular individual or can a substitute do the work?
• Morgan v Manser

Question 7

Krell v Henry

Answer 7

• here the contract was frustrated
• Cs booked the room for the purpose of watching the coronation from the room
• due to it being postponed they asked for deposit back
• neither party in breach

Question 8

Herne Bay Steamboat Co v Hutton

Answer 8

• this contract was not frustrated as Cs main purpose/foundation for contract was not viewing coronation
• they also wanted to cruse round the fleet for a day

Question 9

Metropolitan Water board v Dick Kerr and Company

Answer 9

• if government intervention makes the performance of the contract impossible or radically different from what the parties originally envisaged then the contract will be frustrated
• here this was the case because it was not a short and temporary stoppage
• the whole character of the contract could be revolutionised by indefinite delay.
• the contract, if resumed, would be radically
  different from the contract the parties had originally made.

Question 10

When can a delay cause frustration?

Answer 10

• metropolitan Water Board v Dick is also an authority for delays causing frustration

Factors which are relevant when deciding if delay frustrates the contract include:
- whether the contract provides for what should be the consequences of the delay
- the likely length of the delay
- any time set in the contract for the obligations to be performed
- if the contract is resumed after the delay, whether it is radically different from the contract the parties had originally made.

Question 11

Can contracts become frustrated if they become more difficult or expensive to perform?

Answer 11

• if they could, this would open floodgates to litigation with many claims
• leads to uncertainty and instability of the contract
• seeing as increase in cost of materials can go up, party should foresee this event and include a price escalation clause
• eg Davis Contractors Ltd v Fareham Urban District Council

Question 12

Give an authority for when the performance of a contract becomes illegal?

Answer 12

• can occur due to change of law
• or when outbreak of war and it is against law to trade with enemy
• Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd
• the respondent (an English company) had agreed to manufacture machinery for the appellant (a Polish company) and to deliver to Poland.
• before the manufacture had been completed, the German army occupied Poland
• HOL held that the contract was frustrated

Question 13

What does the term ‘force majeure’ mean?

Answer 13

• this is a clause inserted to cover events outside of the parties control (doesn’t apply to illegality)

Question 14

Why include a force majeure?

Answer 14

• brings greater flexibility than relying on the doctrine of frustration
• Can include events that dont usually fall under doctrine of frustration
• can bring a sense of certainty as it can be difficult to determine whether a contract has been frustrated
• a well worded clause = no disputes

Question 15

Can there be frustration if the event is unforeseen? Name the two authorities that tackle this idea.

Answer 15

• Davis Contractors v Fareham UDC
• Lord Radcliffe said if foreseen then contract not frustrated
• The Eugenia
• Lord Denning said that contract could be frustrated even if event was foreseen, the only essential thing is that the parties shouldn’t have made provision for event in contract

Question 16

In who’s control must the event be in for the contract to be frustrated?

Answer 16

• it needs to be beyond the control of the parties
• cannot be due to the parties own act or ‘self induced’
• J Lauritzen AC v Wijsmuller BV, The Super Servant Two
• the contract needed to provide an alternative way to transport the rig

Question 17

Joseph Constantine Steamship Line ltd v Imperial Smelting Corporation

Answer 17

• if a party alleges that the other party has caused the frustrating event then the burden of proof lies on the party alleging it

Question 18

Can frustration apply to lease of land?

Answer 18

• considered in National Carriers ltd v Panalpina (Northern) ltd
• here lease was not frustrated
• depends on the length of the lease and how long the party will be deprived of the use of the property

Question 19

What was the original position at common law whether any money paid before the frustrating event can be recovered?

Answer 19

• could not be recovered
• if any money was due before frustrating event then it still had to be paid
• Krell v Henry
• Chandler v Webster

Question 20

What does the Law Reform (Frustrated Contracts) Act 1943 deal with?

Answer 20

• it deals with money paid/money payable by a party before the frustrating event
• expenses incurred by the payee
• valuable benefits obtained by either party

Question 21

Is a frustrated contract void?

Answer 21

• yes it becomes VOID (not voidable) at the time of the frustrating event
• it is terminated at time of frustrating event
• all future obligations of parties TERMINATED

Question 22

Under s1(2) of LR(FC) 1943, what is recoverable?

Answer 22

• money already paid before the frustrating event can be recovered
• no longer need to pay anything else which remains from before contract
• does not matter if there is total failure of consideration, its about what’s fair, just and reasonable
• it also says that expenses must have been incurred for the purpose of the performance of the contract
• the expenses can be recovered depending on
• it also states that a party may be able to recover money for any valuable benefit to a party, whatever the court considers just but not exceeding amount of the benefit

Question 23

Gamerco SA v ICM/Fair warning (Agency) Ltd

Answer 23

• s1(5) which says court will not take into account insurance payments unless there was an express term of the contract imposing an obligation to insure
• also no obligation to court to award total retention or equal division

Question 24

BP Exploration Co (Libya) 1979

Answer 24

• an award under s1(3) there are two distinct stages:
  1) the benefit has to be identified and valued and this then forms the upper limit of the award
  2) the court has to assess the just sum (may have to regard the consideration in the contract as evidence of the appropriate level of payment
• under this case it was also said that the benefit under s1(3) is the end product of what the claimant has provided and not the value of the work that has been done