Unit 6 - Frustration and Contractual Certainty

Question 1

what constitutes frustration ?

Answer 1

a supervening event which
- makes performance impossible or radically different
- is beyond ordinary risks (something unexpected)
- beyond control of either party

Question 2

the common law rule - explain this progression with cases

Answer 2

Paradine v Jane (1647)
- claiming areaas when def had been forced off land by hostile army - court held was liable to pay - ABSOLOUTE OBLIGATION

Taylor v Caldwell (1863)
- music hall for few dates, fire before - neither was at fault - was discharges - court justified saying the hall was ESSENTIAL to the contract - said this was because there was an IMPLIED TERM for this

Davis Contractors Ltd v Fareham Urban District Council [1956] - dismissed the IMPLIED TERM THEORY - Lord Radcliffe said: it is about what fair, reasonable men would presumably have agreed upon CONSTRUCTION THEORY

Question 3

list some events and the cases for them, which cause frustration

Answer 3

• Unavailability of a specific thing vital to the contract (Taylor v Caldwell).
• Unavailability of a specific person vital to the contract (Morgan v Manser, Condor v Barron Knights).
• Non-occurrence of a fundamental event (Krell v Henry, contrast Herne Bay Steamboat Co v Hutton).
• Government intervention (Metropolitan Water Board v Dick Kerr).
• Illegality (Fibrosa).

Question 4

what are the exceptions to the doctrine of frustration and the authorities ?

Answer 4

Event Must be Beyond the Control of the Parties (not self inducing) - The Super Servant Two [1990]

The Event Must Not Be Foreseen By the Parties.
- can be there was a provision that doesn’t cover the event Metropolitan Water Board v Dick Kerr
OR - no clause The Eugenia [1964]

Question 5

what is the authority showing that leases of land can be frustrated ?

Answer 5

National Carriers Ltd v Panalpina (Northern) Ltd [1981]

• leased warehouse for 10 year - local authority closed the street - couldn’t access the warehouse for almost 2 years.

○ HoL said that doctrine of frustration was capable of applying to a lease, so as to bring a lease to the end - BUT the circumstances in which they could do this were rare - on the facts of this case, the HoL decided this wasn’t frustrated.

Question 6

explain the original common law position on the effects of frustration ?

Answer 6

• Originally at common law, if one party had pain money to the other - it could not be recovered AND if any money was due and payable before the frustrating event, the money still had to be paid. (Krell v Henry [1903] ) this was the first coronation case - had to pay the before and not the after
  (Chandler v Webster [1904] ) second coronation case - was all payable immediately, couldn’t get back the amount paid but didn’t have to pay rest

this didn’t produce a fair outcome and the injustice was addressed to some regard in

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] - HoL stated that if there had been a TOTAL FAILURE OF CONSIDERATION then money already paid could be recovered and money due and payable before the event need not be paid.

Question 7

describe what is in the LAW REFORM (FRUSTRATED CONTRACTS) ACT 1943

Answer 7

• S1(2) contains three key points:
  
  • Money paid before the event can be recovered.
  • Money that should have been paid before the event need not be paid.
  • At the court’s discretion, expenses incurred by the payee in performance of the contract can be recovered out of the total sums paid/payable before the event.
• S1(2) deals with payments already made, or payments that should have been made
• Very wide discretion afforded to the courts to allow a payee to recover expenses out of the total money paid and payable before the frustrating event.
  • Two maximum sums a court can award the payee under the proviso for expenses incurred.
    
    1. If the expenses incurred are less than the total pot, the most a payee can recover is the amount of expenses incurred.
    2. Otherwise, the mas is the total um paid and payable before the event.
  • S1(3) applies where one party has conferred a valuable benefit on the other party before the frustrating event - court may order the party obtaining the benefit to pay such sum - not exceeding the value of the benefit.
  • All circumstances must be taken into account.
  • Court considered S1(3) in BP Exploration Co (Libya) Ltd v Hunt [1979] - Goff J said in the case of a SS3 award there were 2 distinct stages
    
    1. Benefit has to be identified and valued and this forms the upper limit of the award. Any expenses incurred by the party obtaining the benefit must be deducted (including any money ordered to be paid under S1(2))
    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 renumeration.
  • S2 (3) allows the parties to put a clause in the contract excluding the act and making their own provisions about the effects. - ALLOWS FORCE MAJURE CLAUSES
  • S2 (5) lists contracts to which the Act does not apply - E.g.
    a) certain inurance contracts or
    b) charterparties,
    c) contracts where section 7 of the Sale of Goods Act 1979](which avoids contracts for the sale of specific goods which perish before the risk has passed to the buyer, applies
  • INSURANCE S1(5) specifically provides the court shall not take into account insurance payments unless there was an express term of the contract imposing an obligation to insure.

Question 8

what kinds of things do courts use to find a contract where there has been VAGUENESS?

Answer 8

customs, trade usage, and the previous dealings of the parties

Hillas v Arcos (1932) - Customs or Trade usage

Objective standards:
○ Similarly, in Lee-Parker v Izzet [1972], where a purchase was “subject to satisfactory mortgage”, the court decided this meant “satisfactory to the mortgagee” and not to the court - or anyone else for that matter.
§ As a result, there was no mechanism by which the court could decide whether the mortgage was satisfactory – it was up to the mortgagee whether they thought it was.

Arbitration - the courts cannot force parties to use this to workout the exact meaning UNLESS there is an Arbitration Clause meant to cover the issue in question. (this is about the construction of the contract)

The law generally won’t use each party’s subjective intentions - Scammell v Ouston [1941], the agreement “on hire purchase terms” could not be enforced.

Question 9

In what cases will a term be implied where there has been INCOMPLETENESS ?

Answer 9

• A term will be implied by custom if the custom is notorious, certain and reasonable, and generally regarded as binding in the trade to which the custom relates.
• Term will also be implied in fact if it is necessary to give the contract business efficacy
  ○ This is the test from the well known case of The Moorcock.
  ○ It provides a useful way of concluding that the contract is not void for uncertainty - If the parties have left something out, without which the contract would be unworkable, we may be able to fill in the gap.
  ○ May argue that the apparent incompleteness of the deal is no bar to its enforceability, because it is not really “incomplete” at all: the parties “must” have intended the gap to be filled with the implied term, because they cannot have intended to conclude an unworkable contract.
• Term will be implied in law if it’s what the nature of the contract itself implicitly requires.
  – where the term to be implied in law is settled law as a result of decided cases.