Flashcards in Discharge by Agreement and Frustration Deck (30)
rule of absolute contracts
- The parties can (and should) always provide for contingencies when negotiating their contract.
› Paradine v Jane (1947) 82 ER 897.
- But this can lead to unfair results and these eventually led in 1863 to the exception of ‘frustration’ in Taylor v Caldwell (1863) 122 ER 309
basis of doctine of frustration
- Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called would render it a thing radically different from that which was undertaken by the contract.
› Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.
- There is no frustration just because performance of a contract becomes more onerous or inconvenient or expensive.
› National Carriers Ltd v Panalpina (Northern) Ltd  AC 675.
frustration theoretical basis.
- Implied term theory (Taylor v Caldwell).
› Taylor v Caldwell – theatre burnt down and people could no longer perform.
- ‘Change in significance of the obligation’ theory.
› ‘radical difference’, ‘frustration of purpose’.
davis contractors ltd v fareham urban district council
(no frustration found in this case).
It was going to take longer.
We’re not going to finish on date.
Tried to claim frustration. Not frustration – it must be impossible to complete the contract, its just going to take longer.
elements of frustration
- Contract is ‘impossible’
- No fault of either party.
- Not provided for risks (‘contemplated’) in the contract.
- Hardship/delay is not classified as frustration.
› National Carriers Ltd v Panalpina (Northern) Ltd.
frustration - contract is impossible
› Absolutely impossible – Taylor v Caldwell.
› Radical difference – Codelfa Construction Pty Ltd v State Rail Authority of NSW. - Codelfa Constructions – injunction made contract radically different.
› Supervening illegality – C Czarnikow v Rolimpex
› Futility of purpose – Krell v Henry  2 KB 740 - Purpose no longer able to be fulfilled.
scope of frustrayion
- Applies to all contracts.
- Does not apply if event is foreseen.
- Frustration can be excluded.
- It is not frustration if it was caused by the parties.
examples of non-frustrating terms
- Performance has not become impossible.
› Tsakiroglou & Co Ltd v Noblee Thorl GmbH
- Where the event should have been foreseen.
› Walton Harvey Ltd v Walker and Homfrays Ltd
- Where specific provision has been made (excluded)
› Claude Neon Ltd v Hardie.
- Where the event is self-induced.
› Maritime National Fish Ltd v Ocean Trawlers Ltd.
effect/consequences of frustration
- Contract is automatically discharged (i.e. election is not required).
› Neither party has to continue performance.
› Does not make the contract void ab initio.
› The contract is terminated, not suspended.
› Usually it is the whole contract that is terminated.
› Terms cease to be enforceable.
'losses lie where they fall'
› Any work performed after frustrating event is not recoverable in contract (can perhaps claim quantum meruit – like in Codelfa).
› Payments made before or at point of frustration cannot generally be recovered (except for total failure of consideration).
Fibrosa SA v Fairbairn Lawson Coombe Barbour Ltd.
frustration - prior right, duties and obligations
› E.g. a right to recover damages from a prior breach.
› Money due prior ceases to be payable unless it was earned prior to frustration.
› Money paid prior may not be recovered (except perhaps in equity or by statute – e.g. a total failure of consideration).
› Non-monetary benefits may not be reclaimed.
frustration - effect of statutes
- Legislation modifies the common law rule that losses lie where they fall.
› However, in WA they follow common law.
› In Victoria and NSW provisions exist which go further than rule.
what is force majure
A contractual clause which, if an unforeseen event or circumstances beyond the control of the parties involved occurs, relieves the parties of any obligations or liabilities stipulated in the contract.
› Includes ‘acts of God’ such as natural disasters, as well as war and crime, being things beyond the party’s control.
› If it is not something that can be described as an act of god, then there needs to be a clause to specifically deal with it.
› A FM event that becomes protracted or renders the contract radically different/impossible could then be a ‘frustrating event’.
effect of force majure
› Neither party is liable to the other for delays or losses caused by the FM event
› But of course, this does not mean that the parties will not suffer loss of their own.
what would force majure typically cover
› The types of events constituting FM
› The effect i.e. no liability of either party
› Terminating if FM lasts longer than a defined period (frustration?)
examples of frustrating events
- Destruction or unavailability of subject matter.
› Taylor v Caldwell (1893) 3 B & S 826.
› Appleby v Myers (1867) LR 2 CP 651.
- Death or incapacitation of person essential for performance.
› Simmons Ltd v Hay (1964) 81 WN (Pt1) (NSW) 358.
› Carmichael v Colonial Sugar Co Ltd (1944) 44 SR (NSW) 233, 235-6.
› Finch v Sayers  2 NSWLR 540.
- Failure of basis of contract (Event must be true basis of contract and not mere co-incident).
› Krell v Henry  2 KB 740.
- Method of performance impossible.
› Particular methods of performance must be stipulated or contemplated by both parties in circumstances necessitating that method.
› Codelfa Constructions Pty Ltd v State Rail Authority of NSW.
- Excessive delay.
- Illegality. Performance rendered legally impossible by changes in law or supervening executive action.
› Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169
› Fibrosa v Fairbairn  AC 32
› Or dealing with the enemy in times of war - Hirsch v Zinc Corporation Ltd (1917) 24 CLR 34 Metropolitan Water Board v Kerr  AC 119
- Land Contracts
- Sale Contracts.
› Austin v Sheldon  2 NSWLR 661.
› Holland v Goldtrans Pty Ltd  1 Qd R 18.
› National Carriers Ltd v Panalpina (Northern) Ltd  AC 675
› Robertson v Wilson (1958) 75 WN (NSW) 503
› Firth v Halloran (1926) 38 CLR 261; contra
limits on doctrine of frustration
- The event must not be provided for in the contract
› Claude Neon v Hardie  Qd R 93.
- In general, the event must not have been foreseen by the parties, apart from the case of intervening illegality
› Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
› WJ Tatem Ltd v Gamboa  1 KB 132
- The event must not be due to the ‘fault’ of one of the parties.
› Maritime National Fish v Ocean Trawlers  AC 524
› Super Servant Two  1 Lloyd's Rep 1
› Onus of proof: Joseph Constantine v Imperial Smelting  A.C. 154
effects of frustration
- Frustration automatically discharges a contract as to the future at the time of the frustrating event.
› Hirji Mulji v Cheong Yue Steamship Co Ltd  AC 497.
- Unconditional rights accrued before frustration remain enforceable. Rights not yet accrued at the time of frustration remain unenforceable (obligations not yet accrued are discharged).
› But some clauses may continue to bind the parties (e.g. arbitration clause: Codelfa).
- Neither party is entitled to damages after frustration. The loss arising from the discharge lies where it falls unless there is a total failure of consideration:
› Fibrosa SA v Fairbairn, Lawson Ltd  AC 32
› Baltic Shipping Co v Dillon (1993) 67 ALJR 228
- Work done under the contract after frustration may be claimed on quantum meruit basis (Codelfa No1 case).
› Note WA does not have
what is discharge by agreement
- What has been created by agreement can be extinguished by agreement.
- An agreement by the parties to an existing contract to extinguish the rights and obligations it has created is itself a binding contract provided it is either made under seal or supported by consideration.
how can discharge by agreement occur
› Discharge by prior and subsequent agreements.
› Conditions precedent and subsequent (contingent conditions)
› Unilateral and bilateral agreements
› Formalities, waiver, variation
discharge - conditions precedent
› Failure: discharge automatically or on election.
› Unless a certain thing occurs, the contract is either
Not formed (condition precedent to the contract as a whole) – Meehan v Jones (1982) 149 CLR 571.
Formed but not enforceable (condition precedent to performance) – Perri v Coolangatta investments Pty Ltd (1982) 149 CLR 537.
discharge - conditions subsequent
› Something occurring after the contract has been formed (sometimes even wholly performed) that triggers an automatic discharge or on election – Head v Tattersall (1871) LR 7 Ex 7.
discharge - waiver
- A waiver is where a party waives the particular condition, they cannot in the future rely on it.
- Waiver of a contingent condition.
› Can be by one or both parties.
By the party who is the beneficiary of the condition (Perri v Coolangatta Investments Pty Ltd).
› Contract cannot be terminated for failure of a contingent condition if waived.
- Restrictions on termination
unilateral discharge in subsequent agreement
› One party has outstanding obligations.
› The other agrees to not require them to complete.
› Must be supported by consideration or under seal.
Done something additional (i.e. finished earlier than first expected).
bilateral discharge in subsequent agreement
› Both parties have outstanding obligations.
› Both agree to relinquish
Mutual ‘recission’ or ‘release’ agreement.
‘Recission and substitution’ or ‘novation’ – new party.
› Typically, some form of consideration is required. It could be some small payment or forbearance to sue.
other forms of discharge by agreement
- Abandonment (DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423).
- Lapse of time.
› If a contract must be in writing, then the variation itself must be in writing.
- The consideration for a bilateral discharge is the mutual release by each party of the other from performance of outstanding obligations.
› It may be an agreement to discharge without relacing, or to discharge and replace.
- Where one party has completely performed their side, any release by that party of the other party must be under seal or supported by fresh consideration
› accord and satisfaction (McDermott v Black).
discharge and variation
- discharge of contractual obligations must be distinguished from partial discharge or variation. Depends on the intention of parties.
› Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93, 135
› Papapetros v Mazza (1989) 7 BCL 60 (NSW Sup. Ct.).
discharge - requirement in writing
- If the contract is one required to be evidenced in writing, any variation will be unenforceable by action unless evidenced in writing.
› Australian Provincial Association Ltd v Rogers.
- The contract can be discharged by oral agreement. If oral agreement discharges written contract and substitutes a fresh contract, there is no enforceable contract at all.
› Morris v Baron & Co  AC 1
› Tallerman & Co Pty Ltd v Nathan's Merchandise Pty Ltd (1957) 98 CLR 93
- If oral contract is inconsistent with the written contract to an extent that goes to the root of it, the inference is that the parties intended to discharge and replace it.
› British & Bennington’s Ltd v NW Cachar Tea Co.