Part 1: Frustration Flashcards
How can a contract be discharged by frustration?
This is when, without fault of either party, the contract is incapable of being performed due to an unforeseen event.
The obligations under contract are impossible or illegal to perform.
As the failure of contract is no fault of either party - neither party can be sued for breach.
In relation to contracts discharged by frustration, what are frustrating events?
- Unavailability of person or subject matter
If a person dies, illness or absent (usually only if sufficiently prolonged or serious)
CASE: Drummer collapsed and could only perform limited days. Contract was frustrated.
- Cancellation of event (event must be sole reason of contract)
CASE: Claimant hired room to watch event which was cancelled and refused to pay. Contract frustrated.
In contrast..
CASE: Defendant hired boat to watch King reviewing fleet and to see fleet. King cancelled but contract not held frustrated because defendant could still have taken passengers to see fleet.
- Government interference (e.g requisitioning of plant materials)
- Supervening illegality (if it becomes illegal after contract formed)
CASE: contract formed but declaration of war had effect of making it illegal to trader with enemy. Contract frustrated.
- Delay
Depends on effect of delay and whether a clause covering delay is included in contract.
Important - contract must be rendered impossible to perform or result in an outcome that is radically different from that agreed by the parties.
CASE: Ship chartered but was seized which caused substantial delay to contract. Held frustrated.
In relation to contracts discharged by frustration, what are non-frustrating events?
Not all supervening events will frustrate contact:
- If parties anticipated and provided for event in terms of contract
CASE: Contract contained a clause - “unduly delay and impeded”. War broke out and government requisitioned plant. Held frustrated - irrespective of clause - as inter photon was serious.
- If it turns out to be more difficult or expensive than parties envisaged.
CASE: Bad weather and labour shortages meant building houses took longer and therefore, additional fees required. Held unforeseen events had not frustrated contract - simply made it more expensive and more difficult.
- If event is “self induced”
CASE: Defendant had two ships. Engaged one ship for contract and engaged the other elsewhere. The hip then sunk and defendant claimed contract frustrated. Held not to be frustrated as defendant chose to allocate the other ship elsewhere. If contract specified ship - outcome would have been different.
- Contract must not provide for the event which is argued to be frustrated. A frustrated event is unexpected and unforeseen.
How can pandemics affect frustration of contracts?
Events such as pandemics and other disasters (volcanic eruptions) can rely on frustration as long as it can be proved that event rendered the contract legal and physically impossible to perform.
What is the Force Majeure clause?
This clause an suspend and terminate performance of obligations under a contract where an event outside of a party’s control arises - “act of God”
It prevents a party from performing contractual obligations.
If clause relied on successful - non-performing party seeking to rely on FM clause will not be liable for its failure to perform.
What are the effects of frustration?
It brings the contract to an end automatically.
Neither party able to sue the other for breach of contract - although they may have suffered loss.
Any deposits paid in advance of the contract are refundable.
What is The Law Reform (Frustrated Contract) Act 1943?
The main provisions:
- s1(2) - money paid or money which has become payable before a frustrated event is recoverable
- s1(3) - valuable benefits obtained by either party.
Court may order the party who received the benefit to pay such sum as court considers just.
CASE: Concert cancelled at stadium due to safety. Held the contract frustrated. The claimant could recover costs paid in advance and defendant were entitled to claim “reasonable expenses”
