discharge by frustration

Question 1

what is frustration?

Answer 1

refers to a situation where an unforeseen event occurs after the formation of a contract, rendering its performance impossible, illegal or fundamentally different from what the parties originally intended

Question 2

what must the supervening event or change of circumstances be?

Answer 2

make performance of the contract impossible/radically different, be something beyond the ordinary risks that the parties can be treated as having taken on board when entering into their contract and be something that was beyond the control of either party

Question 3

what are the different categories of ‘radically different’?

Answer 3

government intervention, unavailability of a specific person crucial to the contract, illegality, destruction of the subject matter, non-occurrence of a fundamental event

Question 4

can frustration be used as a defence?

Answer 4

yes if a party is accused of breach of contract they can claim that the contract was not performed due to frustration rather than breach

Question 5

what si the common law rule for frustration?

Answer 5

if a party assumed an absolute obligation under a contract then if circumstances made performance of the obligation impossible, party would still be liable Paradine v Jane, and the party liable should have accounted for suitable provisions

Question 6

what is implied term theory?

Answer 6

modern law of frustration formed in decision in Taylor v Caldwell- there was an implied condition in the contract that the parties would be excused if performance became impossible if there was no fault of either party

Question 7

what is construction theory?

Answer 7

implied theory dismissed in Davis Contractors v Fareham, said that the legal effect of frustration not dependent on intention of either party but rather what the parties as ‘fair and reasonable men’ would have agreed upon if they had made express provision as to rights/liabilities

Question 8

what events will frustrate a contract?

Answer 8

unavailability of a specific thing/person vital to the contract

Question 9

what are 3 factors that determine whether a person not being available leads to frustration?

Answer 9

length of contract, length of period of absence, whether the contract must be performed by that particular individual or whether a substitute can do the work

Question 10

how can non-occurrence of a fundamental event frustrate a contract?

Answer 10

Krell v Henry- foundation of the contract was not possible so neither party was in breach

BUT

Herne Bay v Hutton= cancellation of the event did not frustrate the contract even though it was a key part as it was only motive, not the key part of the contract

Question 11

what is governmental intervention?

Answer 11

Met Water Board v Dick- indefinite delay means if resumed would be radically different but because it wasn’t short it counted as frustration as it was meant to cover temporary delay, not interruption of such character and duration that it fundamentally changed conditions

Question 12

how can delay cause frustration?

Answer 12

delay doesn’t always frustrate contract, more likely to mean the party is in breach: certain factors need to be considered e.g. whether contract provides for what the consequences of the delay would be, likely length of delay, any time set in contract for obligations to be performed, if contract is resumed after delay, whether it is radically different from original contract

Question 13

what are policy reasons for why increased difficulty or expense doesn’t frustrate a contract and bring it to an end?

Answer 13

cost of performance goes uo e.g. materials so would be unsatisfactory if this could bring a ocntract to the end- also open floodgates to litigation with many claims that contract had been frustrated- lead to uncertainty if a party could say the contract was at an end just because performance had become more difficult/less profitable

Question 14

is foreseeability considered when there is a delay?

Answer 14

Davis Contractors v Fareham- yes as parties should have foreseen the cause of delay- the possibility of enough labour and materials and not being available was foreseeable and could have the subject of special contractual stipulation

Question 15

how can illegality cause frustration?

Answer 15

performance may become legally impossible due to change in law or the outbreak of wae where the other party is enemy occupied territory Fibrosa v Fairbairn

cannot be expressly provided for in the contract

Question 16

what are the restrictions of frustration?

Answer 16

event must not be foreseen by parties, and must be beyond control of parties,

Question 17

what is the restriction of the events not being foreseen by the parties

Answer 17

parties may make express provisions in contract covering the event which has occurred and explaining how any loss caused by event will be borne by the parties

force majeure- a clause inserted to cover events outside the control of the parties

Question 18

why is it advisable to include a force majeure clause?

Answer 18

brings flexibility rather than relying frustration, parties can specify exactly what should happen if such an event occurs and how the loss should fall, can provide greater degree of certainty as it may be difficult to decide whether a contract has been frustrated i.e. well worded clause means that disputes are avoided

Question 19

is a force majeure clause subject to UCTA?

Answer 19

yes in b2b contract limiting and/or excluding liability may be subject to s 3 of UCTA in which case it will need to be reasonable to be upheld

Question 20

what if there is no express provision in the contract but the event was foreseen?

Answer 20

Davis v Fareham says no frustration if event if foreseen but The Eugenia (obiter) can be frustration if foreseen as only essential thing is that parties should not have made provisions for the event in the contract

Question 21

what is the restriction of the event beyond the control of the parties?

Answer 21

party whose own act or election have given rise to the frustrating event cannot rely on frustration- it is said to be ‘self-induced’ and contract will not be at an end and will be in breach Maritime Fish v Ocean Trawlers

Question 22

what about if the party contributed to the event?

Answer 22

Super Servant Two- it will prevent the contract from being frustrated- shows the narrow limits within the narrow limits within with the doctrine of frustration operates and the advanatage of inserting a force majeure clause to avoid liability

Question 23

who has the burden of proof that the parties contributed to the event?

Answer 23

party alleging it- Joseph Constantine v Imperial Smelting Corp

Question 24

can frustration apply to leases of land?

Answer 24

National Carriers v Panalpina- doctrine of frustration capable of being applied to a lease so as to bring the lease to an end if a frustrating event occurred during the currency of the term

Question 25

what is the effect of frustration at common law?

Answer 25

future performance is terminated automatically as a matter of law so both parties are released from future obligations

Question 26

what is the original position at common law when a contract was frustrated?

Answer 26

if one party had paid money to the other before the frustrating event it could not be recovered and if any money was due to payable before the frustrating event, it still had to be paid Krell v Henry, Chandler v Webster- these outcomes were unfair BUT then in Fibrosa it was revisited and decided that if there had been a total failure of consideration then money already paid could be recovered and money due and payable need not be paid but if any benefit had been received, this cannot be recovered

Question 27

what is the effect of frustration under the Law Reform (frustrated contracts) act?

Answer 27

it deals with the following: money paid/payable by a party before the frustrating event, expenses incurred by the payee, valuable benefits obtained by either party

contains 3 key points- money paid before can be recovered (returned), money that should have been paid before the event need not be paid, at courts discretion expenses incurred by the payee in performance of the contract can be recovered out of the total sums paid/payable before the event Gamerco v ICM

Question 28

what is the effect of s1(3) of the law reform act?

Answer 28

if one party has received a valuable benefit before the frustrating event because of something done by the other party in performance of the contract, the court may order the recipient to pay such sum as the court considers just but not exceeding the amount of the benefit

Question 29

what are the two stages of the act in BP exploration v Hunt case?

Answer 29

in th ecase of an award under s1(3) i.e. where one party has conferred a valuable benefit on other party, court may order that party to pay a sum as the court considers just

this happens in two distinct stages:
benefit has to be identified and valued and this the forms the upper limit of the award - any expenses must be deducted from the value of the benefit

court has to assess the just sum having regard to consideration in the contract as evidence of the appropriate level of remuneration

Question 30

what does s 1(5) of law reform act say that courts shouldn’t consider/take into account?

Answer 30

insurance payments unless there was an express term of the contract imposing an obligation to insure Gamerco