Termination of Contracts (Frustration & Discharge by Performance)

Question 1

What are the two situations where the innocent party will generally have a right to repudiation?

Answer 1

Where the other party has breached:

1) A condition;
2) An innominate term.

Question 1

What are the two choices the innocent party will have when the other party breaches a condition or an innominate term of the contract?

Answer 1

They can either:

1) Affirm the contract (ie treat the contract as ongoing and accept the breach); or
2) Discharge the contract (known as repudiation or termination).

Question 2

If the innocent party decides to affirm the contract, can they change their mind and repudiate the contact at a later date?

Answer 2

No.

Once the contract has been affirmed they are not able to change their mind.

Question 3

What the doctrine of frustration an exception to the general rule of?

Answer 3

It is an exception to the general rule that requires complete perfjoamcne of obligations to avoid being in breach of contract.

Question 4

List the limited circumstances in which frustration will operate.

Answer 4

The circumstances must:

1) make performance of the contract impossible or radically different; and

2) be something beyond the ordinary risks that the parties can be treated as having taken on board when entering into their contract (ie something unexpected); and

3) be something that was beyond the control of either party.

Question 5

List some of the situations which have been deemed to fulfil the ‘radically different circumstances’ test for frustration.

Answer 5

• Government intervention;
• Unavailability of a specific person crucial to the contract;
• Illegality;
• Destruction of the subject matter;
• Non-occurrence of a fundamental event.

Question 6

Which relevant factors must be considered when deciding if delay frustrates the contract?

Answer 6

1) whether there are content provisions for the consequences of delay;
2) the likely length of delay relative to the duration of the contract;
3) any time set in the contract for the obligations to be performed; and
4) whether the performance resumed is radically different from the contract.

Question 7

How do the courts decide whether the contract has genuinely been frustrated by delay as opposed to being less profitable and more difficult to perform?

Answer 7

Delay is not a cause of frustration as blanket rule as it depends on the context.

If there is a term stating a date when the goods must be delivered by, failure to do so would amount to breach of contract not frustration.

In reality therefore, it is highly likely in most cases delay would result in a breach, not frustration.

Question 8

Explain what may about to something unexpected, and lead to a court deciding that unexpected event has amounted to frustration.

Answer 8

If party is not performing obligation due to a reasonably foreseeable event, it will not be unlikely they could plead frustration. An example would be non-delivery due to a road closure - as this is reasonably foreseeable.

For this reason, parties usually provide for unexpected events in the contract through use of force majure clauses.

Important to note however that contracts cannot provide for illegality, and any force majure clause must satisfy the reasonableness test in UCTA 1977 in order to be upheld by the court.

Question 9

Explain frustration through an event ‘beyond the control of the parties’.

Answer 9

It must be completely out of the control of the parties. Effectively, if it is in anyway self induced, the courts will find there has been a breach and refuse the use of frustration.

Question 10

Explain the importance of The Super Servant Two [1990].

Answer 10

Court held that D had brought the issue on themself ad could not rely on the doctrine of frustration.

They had agreed to transport drilling equipment, and intended to use boat 2. However boat 2 sank and they were already agreeing to use boat 1 for other deliveries.

COA held it was their fault - they had promised to transport the goods, and made the choice to use boat 1 for the other contracts, instead of performing their duty under this contract.

The contract was not frustrated.

Question 11

Explain the consequences of a contract being frustrated.

Answer 11

Parties are both discharged from their future obligations and neither party is in breach for the frustrating event.

It is therefore not the choice of the parties whether or not they wish to repudiate the contract - it is automatically terminated by law.

Question 12

Explain the rules of the Law Reform (Frustrated Contracts) Act 1943.

Answer 12

The main points are:

1) Money paid before the frustrating event is recoverable;

2) Money that should have been paid before the frustrating event need not be paid ;

3) At the court’s discretion, expenses incurred by the payee can be recovered out of toll sums paid/payable before the event (this discretion is very wide). Not, under this section, maximum amount the court can award for expenses incurred by payee is a sum equal to total paid and payable prior to the frustrating event.

Question 13

Explain the provision of s1(3) LR(FC)A 1943 (in relation to one party conferring a practical benefit before the frustrating event).

Answer 13

If one party confers a valuable benefit on the other party before the frustrating event, court has discretion to order a just sum paid by recipient of tat benefit.

What is just will depend on the circumstances/ ant further money they have lost under the provision of s1(2) LR(FC)A 1943.

Question 15

Summarise when frustration might apply.

Answer 15

If an unforeseen supervening event occurs that was beyond the control of either party, and made performance of the contract impossible or otherwise radically different, parties are discharged from their future obligations under the contract and the LR(FC)A 1943 determines how any losses should be borne by the parties.

Question 16

Explain the doctrine of complete performance.

Answer 16

general rule that perfjoamcne obligations under a contract must be exact and precise.

As such, if one party has to pay the other following performance, and the performance is not done to the exact and precise nature set out, the party owing the money can withhold payment.

Question 17

List the exceptions to the doctrine of complete performance.

Answer 17

1) Divisible obligations;
2) Substantial performance;
3) Wrongful prevention;
4) Voluntary acceptance of part performance.

Question 18

Explain the divisible obligations exception to the doctrine of complete performance.

Answer 18

Contractual obligations are deemed divisible if parties agree a specific sum for each distinct part or stage of the contract.

Each part/ stage is therefore treated a a separate contract, and once completed the contractor (performer) is entitled to be paid in full for that part.

Question 19

Explain the substantial performance exception to the doctrine of complete performance.

Answer 19

This is where contractor complete agreed work but it is slightly defective.

Intros situation they are entitled to the contract price, less the money which is required to put the defective work right.

General rule is that as long as cost of rectification is not more than 25% of total contract price, court is likely to deem there has been substantial performance.

Question 20

Explain the wrongful prevention exception to the doctrine of complete performance.

Answer 20

This is where a party is wrongfully prevented from completing their contractual obligations.

If they are prevented, they will be entitled to damages or a reasonable sum in restitution for what has already been done.

Important to note s13 SGSA 1982 implies an innominate term into business to business contracts that service work is carried out with reasonable care and skill. This means tat if the employer terminates contract where contractor’s work has fallen short of a serious enough breach, that would amount to wrongful prevention grand a repudiator breach by the employer.

Question 21

How does s13 SGSA 1982 conflict with the wrongful termination exception to the doctrine of complete performance?

Answer 21

S13 SGSA 1982 implies an innominate term into business to business contracts that service work is carried out with reasonable care and skill.

This means if the employer terminates contract where contractor’s work has fallen short of a serious enough breach, that would amount to wrongful prevention and a repudiatory breach by the employer.

Employer’s therefore need to be careful when looking to terminate contracts under s13 SGSA 1982.

Question 22

Explain the exception of voluntary acceptance of part performance to the doctrine of complete performance.

Answer 22

If supplier of goods or services partly performs their contractual obligations and other party voluntarily accepts part performance, supplier is entitles to a reasonable sum for their work.

Non-defaulting party must however have a genuine choice whether or not to accept part performance. If they have no choice (eg something built on their land and just left abandoned by the supplier), then the non-defaulting party will not have to pay anything.