frustration of contract 7 Flashcards
Frustration
when a supervening event beyond the control of the parties makes future performance of the contract impossible
Old rule before the doctrine of frustration
the law used to be very harsh, it held parties to their contractual obligations come what may : Paradine v Jane
Modern formulation of frustration
National Carriers Ltd v Panalpina Ltd - a frustrating event that radically changes the parties obligations and causes them to be discharged from further performance
relationship between frustration and contract interpretation
the starting point in any case in which it is alleged that the contract has been frustrated must be the terms of the contract itself.
Force majeure clause
parties can include a force majeure clause and thereby allocate the risk of a supervening event themselves.
>parties define the events covered by the clause. The event in question must fall within the list of events describe for the the clause to be triggered
>a clause will often include a reporting obligation
> a force majeure clause will often include the remedial consequence should a triggering event happen
STRUCTURE TO THE LAW OF FRUSTRATION
- Grounds to frustration
- limits to the operation of the law of frustration
- effects of frustration
Grounds of frustration
- frustration by illegality
- destruction of subject matter
- unavailability of subject matter
- impossibility: death and incapacity
- frustration of purpose
frustration by illegality
contract frustrated if performance of an obligation under the control becomes illegal
Metropolitan Water Board v Dick, Kerr and Co Ltd - company entered into a 6 year contract to undertake works. WW1 broke out and the government ordered the company to stop its work. This altered the conditions of the contract
Islamic republic of Iran Shipping Lines v Steamship Mutual Underwriting Association
destruction of subject matter
Taylor v Caldwell - contract for the hire of a concert hall, before the date of the concert the hall burned down. Claimants sued for damages for concert advertising costs as D could not provide the hall
CTI Group v Transclear - Contract to sell cement, but sellers own supplier let them down, held that the sellers undertook the risk
Asfar v Blundell - A cargo of dates sank and became contaminated. Dates no longer suitable for eating, but for making sprits.
SALE OF GOODS ACT, s7 ‘where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided’
unavailability of the subject matter
not complete destruction but have the parties obligations radically altered?
Jackson v Union Marine Insurance - Contract for an ocean voyage in the summer. By virtue of an unforeseen event, the ship was unavailable for 6 months. because of the delay ship was offered for autumn voyage. It was held that the contract was frustrated as the thing agreed transformed into something essentially and commercially different. Different from the initial purpose of the contract.
unavailability of subject matter, radical change in parties obligation
there needs to be a radical change in the parties obligation so that it would be unfair to be held by the obligation.
Davis contractors Ltd v Fareham Urban District council - Davis contracted to build houses for FDC, because of a labour shortage the costs were greatly increased. Davies argued that the original agreement was cancelled due to frustration, because they were seeking for an higher payment. HoL held that the contract was not frustrated
impossibility: death and incapacity
Graves v Cohen: contract between racehorse owner and jockey frustrated when owners die
Temporary incapacity may not be significant enough to frustrate the contract: Blankley v Central Manchester NHS
Frustration of purpose
Krell v Henry - Coronation of King Edward vii, contract for the hire of a room that overlooked the coronation procession. Cancellation of coronation frustrated the contract as the purpose of the contract (viewing the coronation) was no longer possible
Herne Bay Steam Boat co v Hutton - contract to hire a boat to see the naval review and to cruise around the fleet. Only the first purpose could not be performed as another purpose of the contract could be performed.
NEED TO IDENTIFY WHAT THE ESSENCE OF THE CONTRACT WAS
LIMITS ON THE DOCTRINE OF FRUSTRATION
self induced frustration - where one of the parties has control over the event that causes them to fail their obligation
- choice
-negligence
-event foreseeable or foreseen
A FRUSTRATING EVENT MUST BE SOME OUTSIDE EVENT OR EXTRANEOUS CHANGE OF SITUATION, AND IT MUST TAKE PLACE WITHOUT BLAME OR FAULT ON A SIDE OF A PARTY
self induced frustration - choice
Maritime National fish ltd v Ocean Trawlers- ocean trawler chartered trawlers(trawlers needed licences) . OT owned other trawlers,. Government granted insufficient licenses for all of them, OT allocated the licenses to the vessels they owned and not the chartered ones. Claimed frustration but it failed because they could have allocated the licenses to the chartered ones.
Lauritzen AS v Wijsmuller AV (SS2)
D owned two barges (SS1 AND SS2) and contracted to use a barge to transport a drill, D allocated SS2 to other jobs and SS1 to other jobs.the contract was not specific on which barge was to be used. SS2 sank and D claimed frustration. Unsuccessful as they had a choice of using SS1 or SS2
self induced frustration - negligence
careless
Super Servant Two: Fictional example given by Hobhouse J: Opera singer contracted and she carelessly overstrains her voice, she would not be able to claim for frustration on the ground of incapacity
Joseph Constantine Steamship Line v Imperial Smelting Corporation : explosion frustrated the charter, the other party must prove that the defendants negligence caused the change in the parties obligation
events foreseeable and foreseen
Edwinton commercial corp v Tsavliris - foreseeable when a person of normal intelligence would regard the supervening event as likely to occur. A SUPERVENING EVENT THAT GOES BEYOND WHAT THE PARTIES HAVE PROVIDED CAN AMOUNT TO FRUSTRATION
Bank Line v A Cap
effects of frustration
the common law effects of frustration is to cancel parties future obligations, so that they no longer have to perform.
harshness and unfairness of the effects of frustration
- money paid to the other party prior to the frustrating event could not be recovered
- if obligation to pay money arose before the frustrating event, it had to be paid
- expenses incurred before the frustrating even could not be recovered
- one party may have received a benefit from the other’s partial performance prior to frustration
LAW REFORMS (FRUSTRATED CONTRACTS) ACT 1943
Deal with the injustice of frustrated contracts
LAW REFORMS (FRUSTRATED CONTRACTS) ACT 1943 - Section 1(2)
- any money paid prior to the contract having been frustrated can be recovered
-money which fell due prior to frustration need not to be paid
Expenses: court given discretion to award expenses that a party has incurred, but only up to the amount paid or payable prior to the cancellation of the contract
Gamero SA v ICM/Fair Warning agency : rock concert cancelled
Promoter made advance payment of $400,000, which thy had to return (despite $50,000 they spent on expenses).
Garland J considered the expenses of the promoters, and decided that the band should not be permitted to deduct their expenses from the prepayments
LAW REFORMS (FRUSTRATED CONTRACTS) ACT 1943 - Section 1(3)
- where one party has obtained a valuable benefit(other than a payment of money) before the contract had been frustrated, the court has the discretion to award a just sum, not exceeding the value of the said benefit
