Contract: Frustration

What type of impossibility does 'frustration' involve?

A 'subsequent impossibility' which arises after the formation of the contract.

What are the facts of Asfar & Co v Blundell [1896]?

A cargo of dates which sunk was recovered. They were still of value for the purpose of distillation but were in such a condition of fermentation that they were no longer merchantable as dates.

What is the legal principle in Fibrosa [1943]?

A contract can be frustrated if, following a declaration of war, one of the parties to the contract has become an enemy alien.

What is the legal principle in Davis Contractors Ltd v Fareham Urban District Council [1956]?

A contract has not been frustrated if it has just become more difficult to perform.

How does Treitel define frustration?

A contract may be discharged if, after its formation, events occur making its performance impossible or illegal in certain similar situations.

Why is the contract not frustrated in Joseph Constantine [1942]?

A frustrating event is a supervening, unforeseen event; it is not an event which has been anticipated in the contract itself. A contract is not frustrated where the parties have made express provisions for the occurrence of the alleged frustrated event in their contract.

What is the legal principle in Jackson v Union Marine Insurance Co (1874)?

A ship was chartered in November 1871 to go from Liverpool to Newport and load a cargo of iron rails to take to San Francisco. In January 1872, the ship ran aground on the way to Newport, taking 8 months to repair. The D repudiated the charter and chartered another ship to carry the rails.

What are the facts in Atwal v Rochester [2010]?

A sole trader had contracted to renovate a house. The sole trader had a heart attack which meant that he could not complete the work, he was advised by the doctor to end his work career. It was a personal contract, as the C chose the D as the sole trader because he was known to the family and had built up a personal relationship of trust. His price was substantially lower than market price, with the D, the C was getting almost twice as much work down for the same price had they engaged other constructors.

What are frustrating events?

After the formation of the contract something occurs which renders performance of the contract: - impossible - illegal - radically different

What type of impossibility does 'mistake' involve?

An 'initial impossibility' arising prior to the formation of the contract.

When does Treitel say that an event is foreseeable?

An event is foreseeable and will prevent frustration of the contract only where it is one which 'any person of ordinary intelligence would regard as likely to occur'.

In what case and by who was the 'new implied term' theory of frustration created?

Blackburn J in Taylor v Caldwell (1863)

What are the facts of Taylor v Caldwell (1863)?

C meant to use the D's hall for 4 concerts. Before the 1st day of the concert, the hall burnt down.

What are the advantages of using hardship and force majeure clauses?

Certainty Frustration has narrow limits - it can widen the scope of it for the parties. Parties can make provisions for consequences

What is the difference between the remedies of mistake and frustration?

Common mistake appears to render the contract void ab initio, from the beginning, whereas frustration merely discharges the parties from their obligations, a contract did exist in the first place.

What are the facts of Krell v Henry [1903]?

D agree to rent a flat from the C to watch the procession in London. Due to the ill health of the king the procession never took place.

What is the changing obligation' theory of frustration?

Davis [1956] Lord Radcliffe The change in the significance of an obligation is so huge that if performed, it would be a different thing to what was contracted for.

What is the legal principle in Metropolitan Water Board [1918]?

Even the widest of clauses may be held not to encompass a particularly catastrophic event.

What is the legal principal in Hirji Mulji [1926]

Frustrated contracts are automatically discharged by the frustrating event.

What is the legal principle in Gold Group Properties v BDW Trading Ltd [2010]?

Frustration can only be invoked where the supervening event radically or fundamentally changes the nature or purpose of performance: it cannot be invoked simply because performance has become more onerous.

When does frustration occur?

Frustration occurs after the contract was concluded, events have occurred making performance impossible, illegal or something radically different from the aims of the parties when they entered into the contract.

In Davis Contractors Ltd v Fareham Urban District Council [1956] when does Lord Radcliffe say that frustration is called into play to void a contract?

Hardship, inconvenience, nor material loss call the principle of frustration into play. • There must be such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.

What case does the ruling in Krell v Henry [1903] conflict with?

Herne Bay v Hutton [1903]

What is the outcome of frustration?

Hirji Mulji [1926] A contract is discharged on the ground of frustration is brought to an end automatically by the operation of the rule of law - irrespective of the wishes of the parties.

What is the effect of a frustrated contract at common law?

Hirji Mulji [1926] The contract is automatically discharged by the frustrating event. Accordingly, affirmation of the contract was not possible.

When will a sellers obligation to get the delivery of goods be discharged by frustration?

If a supervening event not contemplated by the contract renders that performance impossible or fundamentally different from what was originally envisaged.

What is the legal principle in The Mary Nour [2008]?

If it had been in the minds of the parties = not frustration.

What does s2(4) LRFCA 1943 state?

If parts of the contract that have been wholly performed can properly be served from the remainder of the contract, they are to be treated as a separate contract, which has not been frustrated.

When will death not frustrate a contract?

If performance does need not be performed by any particular person because death would then not prevent actual performance of the contract

What is the legal principle in Tamplin Steamship [1916]?

If property is requisitioned by the government, this has the effect of frustrating the contract if the intervention radically alters the nature of the contract. In this case he owners had failed to demonstrate that 'substantially the whole contract' had become 'impossible of performance'. - The contract will not be frustrated merely because government intervention has made it more difficult or costly to perform.

What is the legal principle in Whincup v Hughes (1871) ?

If the other party has provided any part of the bargained-for performance, no matter how small, recovery will not be possible.

What was the motivation behind the ruling in Krell v Henry [1903]?

If they let the contract stand; the owner would get the money for the apartment; and then assuming the procession is to be rescheduled; the owner would be able to cash in twice.

What is the legal principle about specifying the source, in Blackburn Bobbin [1918]?

If we can construct a contract to say that somewhere is the source of it and that source fails there is frustration. But, if you don't specify the source the courts hold that to essentially mean the seller is guaranteeing getting the product to the buyer even if that source fails. The question needing to be asked is, is the seller guaranteeing that he can get the product to the buyer or is the source a term in the contract?

What are the frustrating events?

Impossibility Partial impossibility

What is the difference between frustration and breach?

In a breach the contract comes to an end because it never even came into existence. Whereas for frustration, the contract did exist; but the parties are now released from their obligations.

What does Treitel say is the difference between partial impossibility and partial frustration of purpose?

In cases of PI, a contract can be discharged if its main purpose can no longer be achieved. But in cases of PFoP the courts have applied a more vigorous test of asking whether any part of the contractual purpose could still be achieved; - If so, they refuse to apply the doctrine of discharge.

What is a hardship clause?

It defines what constitutes 'hardship' and will lay down a procedure to be adopted by the parties in the event of such a hardship occurring. It may impose an obligation on both parties to use best endeavours to renegotiate the contract in good faith in an attempt to alleviate the hardship which has arisen.

What is an intervener clause?

It gives a 3rd party, such as an arbitrator, the authority to resolve the dispute which has arisen between the parties. They are employed as a sanction to be invoked in the event of the parties themselves failing to negotiate their way out of a hardship event.

If a party to a contract specifies where he will get the goods from what implied obligation does he take on?

It is implicit that the seller will either supply the goods himself or will make arrangements for the goods to be supplied by others. He undertakes a personal obligation to get the delivery of goods, as such he takes the risk of his supplier's failure to perform.

What is a force majeure clause

It is often added in order to make provision for the impact of unexpected events.

How does including hardship and force majeure clauses improve certainty?

It is often difficult to know whether or not a contract has been frustrated, this can be reduced by the parties agreeing to a list of events which are to constitute force majeure or hardship events.

What is Lord Roskill's opinion of the doctrine of frustration in The Nema [1982]?

It is unlikely that the doctrine will be invoked to relive contracting parties of the normal consequences of bad bargains.

What was the outcome of the frustrating event in Taylor v Caldwell (1863)?

It released both parties from their obligations under the contract and so the D were no longer under an obligation to supply the hall and were not in breach of contract.

How does Rix LJ describe the test of 'radically different' in Edwinton Commercial Corp v Tsavliris Russ Ltd [2007]?

It tells us that the doctrine is not to be lightly invoked, mere incidence of delay or onerousness is not sufficient. - There has to be a break in identity between the contract as provided for and contemplated, and its performance in the new circumstances.

What did Treitel think were the benefits of the implied term approach?

It was consistent with the prevailing notion of freedom of contract. It based the intervention of the court, not on any assumed right of the law to intervene, but on the implied intention of the parties.

What was the common purpose in Krell v Henry [1903]?

It was the usage of the rooms for the viewing of the procession. • This purpose was frustrated in the postponement of the coronation.

Why did Vaughn Williams not allow a common purpose in Herne Bay v Hutton [1903]?

It would follow that a cabman who was hired to take someone to Epsom on Derby Day at a suitably enhance price for such a journey would be discharged if the race at Epsom for some reason became impossible. • Such a contract would not be frustrated because the happening of the race was not at the foundation of the contract Although it was the hirer's purpose to view the Derby, this was not the Taxi owner's purpose, and both parties purposes need to be frustrated, not the one.

How are the effects of frustrating events governed?

Law Reform (Frustrated Contracts) Act (LR(FC)A) 1943 and the common law.

In what case and by who was the 'changing obligation' theory of frustration created?

Lord Radcliffe in Davis [1956]

What was the legal principle in Chandler v Webster [1904]?

Money paid prior to the frustrating event could not be recovered and money payable prior to discharge remained due.

What is the effect of 1(2) LRFCA 1943?

Moneys paid prior to the frustrating event are recoverable Sums payable prior to the time of discharge cease to be payable The payee may be entitled to set off against the sums so paid, expenses which he has incurred before the time of discharge.

How did Rix LJ in The Sea Angel [2007] question the need for a frustrating event to be unforeseen?

Most events are foreseeable to some extent, but that does not mean that they cannot lead to frustration. - Even events which are not merely foreseen but made the subject of express contractual provision may lead to frustration if the event lasts for so long as to go beyond the risk assumed under the contract and to render performance radically different from that contracted for. - The less an event, in its type and impact, is foreseeable, the more likely it is to be a factor which may lead to frustration.

What are the 2 main theories behind the doctrine of frustration?

New term implied into the contract The obligation under the contract has changed.

What is the prospective operation of discharge?

Parties are excused from future obligations but not from obligations that existed prior to the frustrating event.

What does s2(3) LRFCA 1943 state?

Parties can agree to exclude the provisions of LR(FC)A 1943

What contracts are not within the scope of LRFCA 1943?

S2(5) • Particular charter parties • Contracts of insurance • Contracts falling within s7 of the SGA 1979

Why was the contract in Jackson v Union Marine Insurance Co (1874) frustrated?

Sailing across the Atlantic at a different type of year makes for other sailing conditions, radically different from that originally contemplated, and one the C did not have the intention to be engaged in.

Why do parties include force majeure and hardship clauses in their contract?

So that they can allocate the risk of the occurrence of such unforeseen events. The courts in recent years have again become more restrictive in their application of frustration

How can a contract become impossible to perform?

Subject matter is destructed. Death or incapacity Unavailability or Delay Government Intervention

What is the 'new implied term' theory of frustration?

Taylor v Caldwell (1863) Blackburn J: If a contract depends on the continued existence of a given person or a thing, then a condition is implied, that the impossibility of performance that arises if that given person or thing no longer exists shall excuse the performance.

What was the legal principle in Pioneer Shipping Ltd v BTP Tioxide Ltd [1982]?

Temporary Impossiblity may frustrate a contract where eventual performance would be radically different from that originally envisaged. Half of the contract was not able to be performed; therefore, it was frustrated.

What are the facts of Maritime National Fish Ltd v Ocean Trawlers Ltd [1935]?

The D chartered a ship from the C, but the vessel could only be used for its intended purpose if fitted with an 'otter trawl'. - An otter trawl could only be used under licenses and, although the D applied for licenses for the 5 vessels which they operated, they were allocated only 3 licenses. They elected to apply the licenses to the trawlers

What are the interpretations of the ratio in Maritime National Fish Ltd v Ocean Trawlers Ltd [1935]?

The D elected to allocate the licenses to their own vessels which led to the court concluding that this was a case of self-induced frustration. The mere fact that the D's had a choice as to the distribution of the licenses was sufficient to constitute self-induced frustration.

What are the facts of The Super Servant Two [1990]?

The D had inserted a clause that the drilling rig would be carried by either the 'Super Servant 1' or 'Super Servant 2'. The Super Servant 1 was allocated to a different contract and therefore unavailable, so they were contracted Super Servant 2. The Super Servant 2 was lost, due to no fault of the D.

What were the difficulties with The Super Servant Two [1990]?

The D had no real choice as to the allocation of Ship 1. The CoA here appears to leave a seller or supplier of goods in an impossible position where his source of supply partially fails due to an unforeseen event.

What are the facts of Herne Bay v Hutton [1903]?

The D hired a ship from the C 'for the purpose of viewing the naval review and for a day's cruise around the fleet'. After the contract had been concluded, the naval review was cancelled due to the King falling ill. The fleet remained in the harbour however.

Why was there no common purpose in Herne Bay v Hutton [1903]?

The D's purpose was to watch the naval review, and have a tour of the fleet. Although the postponement had frustrated his purpose in entering the contract, it had not frustrated the C's purpose, which was presumably to provide a tour of the fleet.

Where are the factors the court take into account when assessing whether frustration took place found?

The Sea Angel [2007]

How must parties prove a frustrating event was self-induced?

The Super Servant Two [1990] If a party wishes to argue that a frustrating event is self-induced by the other party, they must prove it on the balance of probabilities.

What is the preferred theory of frustration?

The changing obligation' theory, the implied term theory was criticised for its artificiality

What is the legal principle in Krell v Henry [1903]?

The contract may be frustrated where the common purpose for which the contract was entered into, can no longer be carried out because of some supervening event.

Why was the contract frustrated in Metropolitan Water Board [1918], despite the delay clause?

The contract was frustrated because the delay clause was not intended to apply to such fundamental change of circumstances. The clause was intended to cover only temporary difficulties and did not cover fundamental changes in the nature of the contract, including the prohibition of the Ministry.

What is the legal principle of Taylor v Caldwell (1863)?

The contract was frustrated because the destruction of the music hall rendered performance of the contract impossible. There was an implied condition that the parties shall be excused from performance if the subject matter of the contract is destroyed

What are the facts of Metropolitan Water Board [1918]?

The contractors agreed to construct a reservoir in 6 years. The contract provided that, in the event of a delay 'whatsoever and howsoever occasioned', the contractors were to apply to the engineer for an extension of time. The contractors were required by Government Order to stop the work and sell their plant.

Why are the courts reluctant to invoke frustration?

The courts do not want to allow the doctrine to act as an escape route for a party for whom the contract has simply become a bad bargain.

What was the legal principle in Paradine v Jane (1647)?

The doctrine of frustration will not apply where the contract expressly provides that performance should occur under any circumstances

What is the legal principle in Davis [1956]

The doctrine of frustration will not apply where the contract has merely become more difficult to perform or less beneficial to one of the parties

What is the legal principle in Joseph Constantine [1942]?

The doctrine of frustration will not apply where the frustrating event was in the contemplation of the parties at the time that the contract was formed, or the parties should have contemplated that it might occur.

What is the legal principle in The Super Servant Two [1990]?

The doctrine of frustration will not apply where the frustration is self-induced.

What is the legal principle in Fibrosa [1943]

The doctrine of frustration will not apply where there were provisions in the contract for the frustrating event which covered the extent of the loss or damage

Why are the courts reluctant to invoke the doctrine of frustration for certainty?

The future is uncertain; prices may increase, inflation may rise, labour disputes break out. Contracting parties are expected to foresee when entering into a contract and guard against them in the contract.

Why was the contract not frustrated in Herne Bay v Hutton [1903] ?

The happening of the naval review was not at the foundation of the contract. There is more to the object of the voyage than just watching the naval review, it extends to a cruise around the fleet. The fleet was still there, and passengers might have been willing to go around it. It is true that in the event which happened the object of the voyage became limited, but that was the risk of the D who venture the taking of the passengers was.

What is the difference between the timing of frustration and mistake?

The main difference between mistake and frustration is the time at which the misapprehension or unforeseen event occurs. - mistake = before contract is concluded, frustration is after

What was the legal principle in The Super Servant Two [1990]?

The mere fact that the D's had a choice as to the distribution of which ship would be sent was sufficient to constitute self-induced frustration. If in the contract, it had specified they were being allocated Ship 2, then the ship sinking would have frustrated the contract.

What is the legal principle of Asfar & Co v Blundell [1896]?

The nature is not necessarily altered because something has been damaged. The nature of the thing is altered, and for business purposes, something else, the question for determination is whether it has become a total loss. • If it changes so much that is becomes so unmerchantable, that no buyer would buy it, and no honest seller would sell it, then there is total loss.

What theory behind implied terms does Treitel prefer?

The one put forward in Davis [1956] by Lord Radcliffe Frustration occurs when the law recognises 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

What does Lord Sumner say that the principle of frustration assumes?

The principle of frustration assumes that it arises without blame or fault on either side.

Why is it extremely difficult to draft a force majeure clause which will exclude the operation of the doctrine of frustration completely?

The provision for the event must be 'full and complete' before frustration is excluded, the greater the magnitude of the event, the less likely it is that it will be held to fall within the scope of the contract.

What is the difference between Krell v Henry [1903] and Herne Bay v Hutton [1903] ?

The purpose in Krell was watching the coronation, and this was wholly frustrated by the postponement of the coronation. Whereas, in Hutton, the purpose was only partially frustrated and so only partially impossible. • Watching the fleet was such a substantial part of the contract that it was enough for the whole contract not to be frustrated. • The fleet was still in place, so the tour could still go ahead.

What are the factors in The Sea Angel [2007] that the court take into account when assessing whether frustration took place?

The terms of the contract itself It's matrix or context The parties' knowledge, expectations, assumptions and contemplations - risk allocations in particular The nature of the supervening event The parties' reasonable and objectively ascertainable calculations as to the possibilities of future performances in the new circumstances

Why did Lord Radcliffe reject the implied term theory in Davis [1956]?

There was 'a logical difficulty in seeing how the parties could impliedly have provided for something that was ex hypothesis they neither expected nor foresaw.'

Why is it good for parties to include including hardship and force majeure clauses?

They can have a wider scope than frustration e.g. allow an event that makes the contract more onerous etc. Frustration operates too drastically because it terminates the contract, irrespective of the wishes of the parties. Very often, the parties want to continue their relationship but to adapt to the terms to meet the new situation. • This cannot be done under the doctrine of frustration.

Where did the losses fall in the old common law effects of frustration?

They fell where they lay It does not take into account any expenditure which may have been incurred by the recipient in relation to the contract. This means that a recipient may be left out of pocket if they have spent some or all of the prepayment on materials necessary for performance It also fails to provide assistance for those who have supplied services prior to the frustration of the contract.

What are the negatives of the prospective operation of discharge?

This can lead to one party being unjustly enriched at the expense of another.

What was the aim of LRFCA 1943?

To enable the courts to apportion the losses resulting from the frustrating event by means of a more flexible form of restitutionary relief.

Limitations on the old common law effects of frustration

Total Failure = high bar to reach The loss will fall wherever it lay

When does the doctrine of frustration not apply?

Where - The frustration is self-induced; - The contract has merely become more difficult to perform or less beneficial to one of the parties - Davis [1956] - The frustrating event was or ought to have been in the contemplation of the parties at the time of formation - there were provisions in the contract that covered the frustrating event - The contract expressly provides that performance should occur under any circumstances

What is the legal principle in The Nema [1982]?

Where the contract is of fixed duration, and the unavailability of the subject matter is only temporary, the court must, in deciding whether the contract has been frustrated, consider the ratio of the likely interruption in contractual performance to the duration of the contract. The higher the ratio, the more likely it is that the contract will be frustrated. In this case only 2/6 voyages could me made, as such, the contract was frustrated.

What was the legal principle in Atwal v Rochester [2010]?

Where there is a personal contract, and it is clear that the C entirely depended upon the D continuing in his role for the job to be completed, then the contract can be frustrated

When does a mistake occur?

Whereas a mistake is where the parties were labouring under the mistake at the time at which they entered into the contract. i.e. it happens before the contract