Contract Law-Chapter 23-

What did Rix LJ say in the Sea Angel?

'the application of doctrine of frustration requires a multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix or context the parties' knowledge, expectations, assumptions and contemplations, in particular to risk, as at time of contract, at any rate so far as these can be ascribed mutually and the objectively, and then the nature of the supervening event, and the parties' reasonable and objectively calculations as to the possibilities of future performance in the new circumstances. Since the subject matter of the doctrine of frustration is contract, and contracts are about the allocation of risk, and since the allocation and assumption of risk is not simply a matter of express or implied provision but may also depend on less easily defined matters such as the contemplation of the parties, the application of the doctrine can often be a difficult one. In such circumstances, the test of radically different' is important: it tells us that the doctrine is not to be lightly invoked; that mere incidence of expense or delay or onerousness is not sufficient; and that there has to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstances'

Foreseeable events?

-An event foreseeable at the time of entering into the contract should not be able to constitute a frustrating event. -An event might frustrate a contract despite being foreseeable at the time of the conclusion of the contract, provided that the risk of that event occurring was not allocated to one of the parties in the contract. But where both parties foresaw the possibility of the event (such as the closure of the Suez Canal) but failed to state what should happen if the event actually occurred, there appears to be room for the doctrine of frustration to operate. -As Rix LJ noted in The Sea Angel, most events are to a greater or lesser degree foreseeable. That does not mean that they cannot lead to frustration."

Risk allocated by the contract? (part 2)

-Force majeure clauses, and 'hardship clauses, which provide what should happen in the event of unexpected hardship occurring, are very useful. -They provide the parties with a greater degree of certainty about their affairs. -Such clauses enable contracting parties to avoid the difficult and uncertain law on frustration, particularly concerning the consequences of frustration.

What is the outcome of Section 7 of the SoG Act 1979?

-If the ownership has passed to the buyer (in other words, the agreement to sell has become a sale before the goods perish, the contract has not been frustrated.) -This is because the main purpose of the contract has been accomplished: ownership has been transferred. -Unless the parties have agreed otherwise, the risk passes with the ownership of good so the buyer must bear the loss when the goods perish after he has acquired ownership section 6 may be capable of exclusion by a promise that the thing exists, so might capable of exclusion by a promise that the thing will continue to exist. -However, for obvious reasons, the latter type of is less likely than the former promise. -Where the contract is to sell goods of a particular description rather than specific goods, the contract will not be frustrated just because the particular goods which the seller had in mind are destroyed. -The contract can still be performed, since the contract does not require the sale of specific goods. The seller must simply acquire other goods answering the description. -A fundamental assumption of the seller may have failed, but this is not true of the buyer; a contract will only be frustrated where a fundamental assumption that is common to both parties has failed.

What did Blackburn J state in Taylor v Caldwell?

-In the leading case of Taylor v Caldwell, Blackburn stated the general rule that the contractor must perform a contract which had become unexpectedly burdensome or even impossible, but then went on to say: 'But this rule is only applicable when the contract is positive and absolute, and not subject to any condition either express or implied: and there are authorities which, as we think, establish the principle that where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specified thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the is not to construed as a positive contract, but as subject to implied condition that the parties shall excused in before breach, becomes impossible from the perishing of the thing without default of the contractor'

What does Section 1(3) deal with?

-Section 1 (3) deals with situations where one party confers a non-monetary benefit upon the other party. -Section 1(3) provides that where one party (A) in performing the contract, has conferred a valuable benefit on the other (B), the court may allow A to recover from B such sum, if any, as the court considers just, not exceeding the value of the benefit to B. -In estimating the just sum, the court must take into account expenses incurred by B, including any money which he has paid, or is required to pay, to A under section 1(2), and the effect of the circumstances giving rise to the frustration of the contract. -It is important to note that the value of a benefit conferred may be recovered even though there is no provision for an advance payment in the contract.

What does Section 1(2) provide?

-Section 1(2) provides that all money paid or payable before the frustrating event recoverable or cease to be payable. -It is not necessary to show that the consideration has totally failed. But there is a provison that, if the party to whom money was paid or payable under the contract has incurred expenses for the purpose of the performance of the contract, the court may, if it think it just to do so, allow that party to retain or recover a sum not exceeding that payable under the contract and not exceeding the amount of expenses incurred.

What did HoL say in the case of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd?

-The House of Lords insisted that benefits transferred from the claimant to the defendant prior to the frustrating event could be recovered by the claimant if there had been a total failure of consideration'. -When we are discussing the formation of contracts, consideration' means the promise. But when we are concerned with the action in unjust enrichment based on total failure of consideration, consideration means the performance of the promise.

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

-The legislation is instead concerned with adjusting the rights of parties as fairly as possible after frustration has occurred. -Nevertheless, the common law where recovery will only be possible in unjust enrichment on the basis of a total failure of consideration following the Fibrosa case is not entirely redundant. -This is because there are some important contracts to which the Act does not apply at all, namely: except time chart or charter parties except time chapter parties or chapter parties way of demise, contracts of insurance, contracts for the sale of specific goods which are frustrated perish in the goods, where section 7 of the Sale of Goods Act 1979 applies 61 and by the contract for the sale of specific goods which is frustrated by the a other 62 perishing of the goods of an to the contrary the parties. -If on The Act applies only in the absence that arise on the occurrence of a frustrating some different solution to the problems that arise on the occurrence of a frustrating event, then the parties' agreement and not the Act should prevail.

What would happen if there is an occurrence of frustrating event?

-The occurrence of the frustrating event brings the contract to an end. -It kills the contract. -The contract is not, however, invalidated from the start. -Everything that was done from the making of the contract up to its frustration was, and remains, validly done in pursuance of the contract.

What happened in the case of Joseph Constantine S Line Ltd v Imperial Smelting Corp Ltd? (part 2)

-The respondents, contended in reply, that this frustration does not suffice to excuse the appellants from having to pay damages for non- performance unless the appellants establish affirmatively that the explosion occurred without any fault on their part. The appellants, on the other hand, contend that, once the frustrating event is proved, the onus is on the respondents to establish such default on the part of the appellants as would deprive the latter of their right to rely upon it. -The learned arbitrator has made an interim award in the form of a special case. He concluded that he was not satisfied that any of the servants of the appellants were guilty of negligence nor was he satisfied that negligence on the part of the servants of the appellants did not cause or contribute to the disaster. In the High Court Atkinson J. decided that the present appellants succeeded but the Court of Appeal reversed Atkinson J.'s decision. Scott L.J. delivered the first judgment, with which the Master of the Rolls and Goddard L.J. agreed.

What is the secon stage of Section 1(3)?

-The second stage of section 103 under requires the court Robert Goff J's analysis the co to establish the just sum be paid by B to A. This might be less, but cannot be more, than the value of the benefit conferred upon B by A. The judge thought that the aim of the court was to prevent the unjust enrichment of A at B's expense, so the principles involved should be similar to those involved in an action for quantum merit. This analysis of Robert Goff J therefore rested upon the idea that section 1(3) is concerned with unjust enrichment. -Indeed, it might be thought that the 1943 Act not very clear or well drafted and could easily be improved some of the difficulties with the 1943 able to the fact that the Act was passed very soon after the decision of the House of Lords in the Fibrosa case. -Parliament was no doubt motivated by the number of pleas of frustration facing the courts due to the outbreak of war. -At the moment, this is still somewhat unclear. The lack of clarity has perhaps prompted many commercial parties to choose either to settle disputes before going to court, or to include force majeure and hardship clauses in their contracts at the outset, thereby circumventing any need to test current doctrine.

What happened in the case of Blackburn Bobbin Co Ltd v TW Allen Sons Ltd?

-Timber merchants entered into a contract for the sale of Finnish birch timber. The outbreak of the First World War then essentially prevented the sellers from importing timber from Finland as they had contemplated, and meant that the sellers could not perform their contract with the purchasers of the timber. The sellers argued that the contract was frustrated. This was rejected by the Court of Appeal. The seller was liable for a breach of contract to sell Finnish birch timber. Even though the custom of English timber merchants was to import Finnish timber as required, and not to hold stocks of such timber, the buyer neither knew nor had reason to know of this custom. As a result, the existence of this custom was wholly immaterial. The buyer might reasonably have thought that the sellers had such timber in stock. In any event, it was not a shared, common assumption by both the buyer and the seller that the timber would need to be imported from Finland. However, if the buyer had been a timber merchant, the result may well have been different since then the buyer would also have known and assumed that the timber could and would be imported from Finland.

What was the outcome of Maritime National Fish Ltd v Ocean Trawlers Ltd?

-Where it is uncertain whether or not the alleged frustrating event was due to the fault of one of the parties, and neither party is able to establish what happened, it is crucial to determine which party bears the burden of proof. -If it is for the party claiming that the self to prove that was the claim will fail. But if it is for the other party to prove that it was not self-induced contract will be frustrated.

Two main reasons for narrowing the doctrine of frustration?

1) First, it is a radical change in the nature of the obligation' if a contract simply becomes more difficult to perform; establishing that a contract has been frustrated is very demanding indeed. 2) Secondly, the part them- selves might expressly allocate the risk of an event occurring to one of the parties, which would preclude the operation of frustration.

What could happen with a contract for the sale of specific goods?

A contract for the sale of specific goods is generally frustrated if, without the fault party, the goods are destroyed before ownership passes to the buyer.

What happened in Davis Contractor Ltd v Fareham Urban District Council?

A contract to build houses for £92,000 within a period of eight months ran into significant difficulties due to an unexpected shortage of skilled labour and building materials. The project ultimately took 22 months to complete and cost £17,000 more than estimated. That was very bad luck for the contractor, but it was clear that the contract was not frustrated. The contract had simply become more difficult to perform.

What happened in the case of Paradine v Jane?

A landlord sued his tenant for three years arrears of rent. The tenant argued that he should not have to pay because throughout that period of time the tenant had been expelled from the premises by a German prince called Prince Rupert (described by the court as "an alien born, enemy to the King) and his army. Despite this state of affairs, the court insisted that the tenant was bound to pay his landlord the rent which was in arrears. The rule stated by the court was hard and uncompromising: though the land be surrounded, or gained by the sea, or made barren by wildfire, yet the lessor shall have his whole rent'. The court distinguished between duties imposed by law and duties undertaken by contract. Whereas performance of duties imposed by law might be excused by circumstances, performance of duties undertaken by contract would not be excused unless the contract provided for this possibility. So, on the facts of Paradine v Jane, the tenant could have qualified his under- taking to pay rent when he gave it. But, since this had not been done in the contract, the obligation to pay was taken to be absolute. The court pointed out that the tenant would have taken the benefit of casual profits' during the relevant period of time.

What was the outcome of the case of Paradine v Jane?

A lease may be terminated prematurely by reason of an express term, so it seems equally possible that it might be terminated by an implied term, if such a term should properly be implied.

What happened in the case of Jackson v Union Marine Insurance Co Ltd?

A ship was chartered to proceed with all possible dispatch' (dangers and accidents of navigation excepted) from Liverpool to Newport, and then to load a cargo of iron rails for San Francisco. The ship sailed on 2 January 1872, but ran aground on 3 January. The ship was refloated on 8 February but required repairs which took until the end of August. In the meantime, on 15 February, the charterers had given up on the charter and chartered another ship. The court that the charterers were entitled to do so. A voyage after the repairs had taken place would have been a different adventure from that contemplated by the parties, even though the same ship would be carrying the same rails between the same ports.

What happened in the case of National Carriers Ltd v Panalpina (Northern) Ltd?

Four out of five members of the House of Lords agreed that a lease might be frustrated, although they also recognised that it would rarely happen and had certainly not happened in that case. The case concerned the lease of warehouse for ten years. After a little than five years had local authority more the warehouse because of the closed the street giving the only access to dangerous condition of a listed building opposite. It seemed likely that the closure would last just over 18 months, leaving the lease with three more years to run. The closure of the street would obviously cause a severe interruption of the lessee's business and force the les- see to incur considerable expense and inconvenience, but this is not enough to frustrate a contract. The interruption was for one-sixth of the total term and (perhaps more to the point) one-third of the remainder of the term.

What was held in Paradine v Jane?

Held: No. Judgment for Plaintiff. Defendant must pay the required rent to the Plaintiff. The law creates a duty, however, the law will excuse him of performance if the party was disabled to perform without any default in him and he has no other available remedy. When a party by his own contract creates a duty upon himself, he is bound to make it good notwithstanding accident because he could have provided against it in the contract. Here, the rent is a duty created by the parties, and the Defendant must make it good, notwithstanding interruption by enemies, for the law would not protect him beyond his agreement. The Defendant lessee must run the burden of casual losses and cannot place the burden on the Plaintiff lessor. Therefore, the Defendant here remains liable for the unpaid rent.

What was held in Maritime National Fish Ltd v Ocean Trawlers Ltd?

Held: The charter contract was not frustrated because the defendants' own election had pre- vented this trawler from having a licence to fish. The defendants were liable of the hire.

What was held in the case of Krell v Henry?

Held: The contract was frustrated as cancellation of the procession deprived it of its commercial purpose. The claimant's action for breach of contract was thus unsuccessful.

What was held in Herne Bay Steam Bat Co v Hutton?

Held: The contract was not frustrated. The contract had not been deprived of its sole commercial purpose as it was still possible to perform the days cruise. The Naval Review was not the only commercial purpose of the contract.

What was held in Gamerco SA v ICM Fair Warning (Agency) Ltd?

Held: The plaintiffs were not in breach because the contract was frustrated when the permit for the stadium was revoked Therefore the plaintiffs were entitled to recover the advance pay of $412,500 and did not need to make the further payment of $362,500 already due (s. 1(2).The court had a broad discretion' to allow the defendants off their expenses under the proviso to s. 102) to set so as to reduce the advance payment amount that would be recoverable by the plaintiffs. In all of the circumstances, and having particular regard to the expenses incurred by the plaintiffs, no deduction for the defendants' expenses was made under the proviso.

What was held in Cutter v Powell?

Held: The wife's action failed. Payment was on condition that he worked the ship to Liverpool, since he did not fulfil this condition the widow was entitled to nothing.

What happened in the case of Joseph Constantine S Line Ltd v Imperial Smelting Corp Ltd? (part 1)

In August 1936, the appellants, who were the owners of a steamship the Kingswood, chartered the ship to the respondents for a voyage with a cargo of ores and concentrates from Port Pirie in South Australia to Europe. On January 3, 1937 while she was anchored in the roads at Port Pirie, and before she became 'an arrived ship', there was an explosion of extreme violence in the neighborhood of her auxiliary boiler, which caused significant damage to the steamer. Following this accident the appellants gave notice to the respondents to the effect that she could not perform the charter party. The respondents claim damages from the appellants under allegation that the latter have broken the charter party by failing to load a cargo. The appellants sought the defence in that the contract was 'frustrated' by the destructive consequences of the explosion on the Kingswood.

What did it happen in the case of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd?

In Fibrosa, the House of Lords recognised that the law was still not entirely satisfactory. This was for two main reasons. First, money was recoverable only where the failure of consideration was total; the performance of even small part of the consideration would defeat the claim. Secondly, it might be unfair if a party who had prudently requested payment in advance in order to be able to meet expenses would then have to repay that payment after the frustrating event. Indeed, it may be that the English company in Fibrosa was left with a considerable amount of useless half-built machinery on its hands.

What was the outcome of the case of National Carriers Ltd v Panalpina (Northern) Ltd?

It appears that where a lease has a particular purpose building, warehousing, frustrate (such as dwelling, and so on) event which the fulfilment the lease. If property is let as a warehouse, it certainly seems reasonable to conclude that the basic common assumption of the parties is that the property is, and will remain, capable of use as a warehouse.

What are the facts of Cutter v Powell?

Mr Cutter, agreed to be paid 30 guineas if he fulfilled his duties on a voyage from Jamaica to Liverpool. Mr Cutter died before the ship reached Liverpool. It was famously held that Mrs Cutter could not recover any part of her late husband's wages.25 However, it should also be noted that at least Mrs Cutter was not liable as Mr Cutter's personal representative for any breach of contract in failing to serve as the second mate for the whole voyage. Mr Cutter was, of course, discharged from his obligation by death.

What was highlighted in Tsakiroglou Co Ltd v Noblee Thorl GmbH 9 sellers?

Performance becomes difficult. The starting point must be that a party is not excused from performing his contract merely on the ground that performance turns out to be unexpectedly burdensome or difficult.

What are the facts of Paradine v Jane?

Plaintiff sued Defendant under a lease for years for unpaid rent. Defendant pleaded that as a result of the invasion of an enemy of the King Defendant was forced out of possession of the property and was unable to take the profits. Defendant refused to pay Plaintiff rent for the time he was forced out of possession by the army. Plaintiff demurred and the plea was held to be insufficient.

What happened in Tsakiroglou Co Ltd v Noblee Thorl GmbH 9 sellers?

Sellers Port Sudan had agreed to ship goods to various European ports for a fixed price. The sellers had expected to be able to send the goods through the Suez Canal. However, because this was impossible, the sellers had to send the goods round the Cape of Good Hope. This route was more than four times as far. The cost to the sellers was obviously far greater than they had expected, but their argument that the contract of sale was frustrated nevertheless failed. The contract was still capable of performance, since the goods were not so perishable that they would not survive the journey round the Cape of Good Hope. The bargain had turned out to be a very bad one for the sellers, but it was still capable of being performed. The sellers had to perform it or pay damages.

What are the facts of Cutter v Powell?

The claimant's husband agreed by contract to act as a second mate on the ship the 'Governor Parry' on a return voyage to Jamaica. The voyage was to take eight weeks and he was to be paid on completion. A term in the contract stated: "Ten days after the ship 'Governor Parry,' myself master, arrives at Liverpool, I promise to pay to Mr. T. Cutter the sum of thirty guineas, provided he proceeds, continues and does his duty as second mate in the said ship from hence to the port of Liverpool. Kingston, July 31st, 1793." Six weeks into the voyage the claimant's husband died. The claimant sought to claim a sum to represent the six weeks work undertaken.

What are the facts of the case of Metropolitan Water Board v Dick Kerr and Co Ltd?

The defendant contracted with the claimant to build a reservoir in six .The years, beginning in July 1914. In 1916, the Ministry of Munitions exercised its wartime powers to force the defendant to stop the work and to sell its plant. There was a clause in the contract that said that, in the event of any difficulties whatsoever and howsoever occasioned, the defendant should apply for an extension of time. This very broad clause may reasonably be thought to have covered the situation in which the defendant found itself, but the House of Lords interpreted the clause in a narrow manner. Their Lordship held that the clause was only intended to cover temporary obstacles in the construction of the reservoir. On the facts of the case, the delay was substantial and more than temporary, and was not covered by the clause. The House of Lords held that contract was the frustrated.

What are the facts of Krell v Henry?

The defendant hired a flat on Pall Mall for the sole purpose of viewing King Edward VII's coronation procession. The price agreed was £75 for two days. The defendant paid £25 deposit. Due to illness of the King the coronation was cancelled. Consequently, the defendant did not use the flat. The claimant sought to claim the outstanding £50.

What are the facts of Herne Bay Steam Bat Co v Hutton?

The defendant hired out the claimant's steamship. The purpose of the contract was to take paying passengers to view the Naval Review which was part of King Edward VII's coronation celebrations. The defendants were also offering a day's cruise for the passengers. The Naval Review was cancelled as the King was ill. The defendant did not use the steamship and the claimant brought an action for the agreed contract price. The defendant argued the contract had become frustrated due to the cancellation of the Naval Review.

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

The defendants (appellants in the appeal) chartered a steam trawler, the St Cuthbert, from the plaintiffs solely for fishing use. It could operate as a trawler only with an otter trawl and both parties knew that a licence was required. The defendants applied to the minister for licences for five trawlers that they were operating including the St Cuthbert).The minister indicated that only three licences would be granted and asked the defendants to name the three trawlers to which the licences would be applied. The defendants did not name the St Cuthbert as one of the three. The plaintiffs claimed the charter hire, but the defendants pleaded that the charter was frustrated because it was impossible to perform i.e. to use this vessel to fish.

What is the essence of frustration?

The essence of frustration is that performance has been rendered impossible without the fault of either party, and so it is said that reliance cannot be placed on a self-induced frustration. On the contrary, a party who causes a frustrating event will usually breach of contract. If the father who had contracted that his son would serve apprentice for seven years had, as not have relied during that time, killed or incapacitated his son, he could on frustration.

What happened in the case of Cricklewood Property and Investment Trust Ltd v Leighton's Investment Trust Ltd

The lease was granted in 1936 for a term of 99 years. The land was to be used as sites for shops which the lessee covenanted to erect within a certain time limit. When war broke out in 1939, no building had been done, and it then became impossible to do so because of government restriction. The lessee's claim that the lease was frustrated failed. This is clearly right under the principles already discussed. Although prospects seemed very bleak in the early days of the war, it was still assumed that there would be plenty of time before the year 2035 during which the shops could be built and enjoyed. The invasion of the contract period-whether actual or contemplated-was not sufficiently extensive to prevent substantial performance. Two of their Lordships thought, obiter, that a lease could never be frustrated, but two others took the opposite view. The latter approach should be preferred.

What are the facts of Gamerco SA v ICM Fair Warning (Agency) Ltd?

The plaintiffs, Spanish pop group promoters, had agreed in a contract with the defendants that they would promote a rock concert by the group Guns N' Roses at a stadium in Madrid on 4 July 1992. However, on 1 July, the permit issued for the stadium was withdrawn because of safety concerns about the cement used in its construction, and the parties became aware of these events on 2 July. No other suitable venue could be found and the concert had to be cancelled. The plaintiffs, the promoters, had already paid $412,500 on account and were under an obligation to pay, but had not yet paid, a further $362,500. Both parties had incurred expenses in preparation for the concert. The judge, Garland J, accepted that the defendants' expenses amounted to $50,000, and the undisputed evidence was that the plaintiffs had also incurred expenses of $450,000 prior to the cancellation. The plaintiffs claimed that the contract was frustrated and sought to recover their advance payment (the sum paid on account) under s. 1(2) of the Law Reform (Frustrated Contracts Act 1943. The defendants counterclaimed for damages for breach of contract by the plaintiffs in failing to hold the concert.

What does Section 7 of the Sale of Goods Act 1979 state?

`Where there is an agreement to sell specific goods and subsequently the goods, without am fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided'

Risk allocated by the contract? (part 1)

¤ There is no scope for frustration to operate if the risk of the relevant event occurring is allocated to one of the parties in the contract itself. ¤ Whether the risk of the event occurring lies with one of the parties is a question of contractual interpretation. ¤ Parties often expressly state what should happen if unexpected events should occur by including a 'force majeure' clause. ¤ A good example of a force majeure clause is found in the contract at issue majeure in The Super Servant Two ¤ 'The party has the right to cancel its performance under this Contract whether the loading has been completed or not, in the event of force majeur [sic], Acts of God, perils or danger and accidents of the sea, acts of war, warlike-operations, acts of public enemies, restraint of princes, rulers or people or seizure under legal process, quarantine restrictions, civil commotions, blockade, strikes, lockout, closure of the Suez or Panama Canal, congestion of harbours or any other circumstances whatsoever, causing extraordinary periods of delay and similar events and/or circumstances, abnormal increases in prices and wages, scarcity of fuel and similar events, which reasonably may impede, prevent or delay the performance of this contract.' -If one of these events should occur, then the court should give effect to the parties' intentions and allow the party to cancel its performance under the contract. Frustration can only operate where there is a gap in the contractual allocation of risk.