Unit 6 Flashcards
(36 cards)
Discharge by Frustration
Legal doctrine terminating a contract when an unforeseen event renders performance impossible or radically different from original intent. It acts as an exception to the general rule of pacta sunt servanda (agreements must be kept).
Construction Theory - Davis Contractors v Fareham UDC - Frustration occurs when a supervening event, considered in light of the “true construction” of the contract, makes performance radically different from what the parties originally intended. The court assesses whether a reasonable person would view the contract as essentially a new and different undertaking due to the changed circumstances. This theory gives courts more control over the application of frustration.
Frustration: Delay vs. Breach
A simple delay in performance (e.g., late delivery) is typically considered a breach of contract, not frustration. The contract remains in force, and remedies for breach may be available.
Frustration: Delay as Frustration
Delay will only frustrate a contract if it is so significant in its nature or likely duration that it causes a fundamental change in the nature of the contractual obligation, making performance radically different.
Metropolitan Water Board v Dick Kerr: Extreme and unforeseen delay due to wartime government intervention frustrated the contract.
Frustration: Delay - Relevant Factors
Courts consider several factors when assessing if delay frustrates a contract:
Contractual provisions addressing delay and its consequences.
Likely duration of the delay.
Timeframes specified within the contract.
Whether the contract, if resumed after the delay, would be radically different from the original agreement.
Frustration: Difficulty/Expense
Mere increased difficulty or expense in performing the contract, even if substantial, is generally not sufficient to cause frustration. The core obligation must be fundamentally altered.
Tsakiroglou v Noblee Thorl [1962]: Increased shipping costs due to Suez Canal closure did not frustrate the contract.
Frustration: Delay - Davis v Fareham
Significant labor and material shortages caused substantial delays and increased costs for contractors. Held: This amounted to hardship and inconvenience, but the obligation to build was not rendered “radically different,” so the contract was not frustrated.
pacta sunt servanda
agreements must be kept
Elements of Frustration
Supervening event must:
Make performance impossible or radically different (substantial change, not mere inconvenience).
Be beyond the ordinary risks (unforeseen, not reasonably anticipated).
Be beyond the control of either party (not self-induced).
‘Radically Different’: Courts have categorized common frustrating events:
Government Intervention:
Frustration: Government Intervention
Changes in law or government actions making performance illegal or impossible.
Example: Sudden export ban.
Metropolitan Water Board v Dick Kerr [1918]: Extreme, unforeseen delay due to government intervention frustrated contract despite delay clause.
‘Radically Different’: Courts have categorized common frustrating events -
Frustration: Unavailability of Specific Person
Incapacity (illness, death) of a specific individual essential for personal performance can frustrate contract.
Factors: following factors that will determine if a person’s unavailability will frustrate a contract: The length of the contract, The length of the period of absence, Whether or not a substitute can be used.
Morgan v Manser [1948]: Manager’s long absence due to war frustrated contract.
‘Radically Different’: Courts have categorized common frustrating events - Illegality
Change in law making performance illegal.
Fibrosa v Fairbairn [1943]: Trading with the enemy during wartime frustrated contract.
‘Radically Different’ - Destruction of Subject Matter
Physical destruction of the essential subject matter makes performance impossible.
Taylor v Caldwell (1863): Fire destroying music hall frustrated hiring contract.
why else is Taylor v Caldwell important?
The modern law of frustration is often said to date from the decision in the case of
Taylor v
Caldwell (1863) 3 B & S 826. Blackburn J justified the decision by saying that the existence of the music hall was essential
for the fulfilment of the contract.
‘Radically Different’ - Non-Occurrence of Fundamental Event (Frustration)
If a contract’s purpose is based on a specific event that does not occur, the contract may be frustrated. Krell v Henry [1903] 2 KB 740: A room hired to view a coronation procession was frustrated when the procession was cancelled. The coronation was the foundation of the contract.
‘Radically Different’ - Non-Occurrence of Fundamental Event (No Frustration)
If contract has multiple purposes and some remain achievable despite event non-occurrence.
Herne Bay Steamboat Co v Hutton [1903] 2 KB 683: In contrast, a boat trip to view a naval review was not frustrated when the review was cancelled, as the cruise itself was still possible. The contract had multiple purposes, one of which remained achievable. This highlights the importance of the contract’s primary purpose.
Possible restrictions for frustration: Limitations - Foreseeability
If parties foresaw or should have reasonably foreseen the event, frustration is less likely. Can arise through express provision or lack thereof.
The Eugenia [1964] 2 QB 226: A ship trapped in the Suez Canal during the Suez Crisis was not frustrated, as the risk of closure was foreseeable.
Foreseeability - Express Provision (Force Majeure Clause) - General
Clauses dealing with events outside parties’ control (war, strikes, disasters). If clause covers the specific event, contract usually not frustrated; clause governs consequences.
Note, however, that a clause cannot prevent frustration applying in the event of the contract becoming illegal, eg because of outbreak of war as in the case of Fibrosa which we looked at earlier
Foreseeability: Force Majeure Advantages
Flexibility: Can cover more events than legal frustration (e.g., shortages of labour). Yet Davis Contractors v Fareham
UDC showed that shortage of labour and materials did not cause the contract to be frustrated as
the contract had not become radically different
Control over Consequences: Parties decide outcomes (suspension, termination, loss allocation - greater certainty than Frustrated Contracts Act).
Certainty: Clear list of “force majeure” events reduces ambiguity.
Foreseeability: Force Majeure Drafting & UCTA
Drafting: Must be carefully worded to cover intended events (Metropolitan Water Board v Dick Kerr - delay clause insufficient).
UCTA 1977 s. 3: In B2B, force majeure clauses limiting/excluding liability subject to reasonableness test.
Foreseeability: Foreseen but No Clause
Conflict in case law:
Lord Radcliffe (Davis v Fareham): Foreseen event prevents frustration.
Lord Denning (The Eugenia - obiter): Foresight doesn’t necessarily prevent frustration if no specific provision made.
Restriction 2 - The Event Must Be Beyond the Control of the Parties (Not Self-Induced)
Frustration cannot be caused by a party’s own act or election. “Self-induced frustration” does not discharge the contract.
Self-Induced Frustration: Effect & Rationale
Effect: Contract not ended. Party causing the event is in breach for non-performance.
Rationale: Prevents parties escaping liability through their own fault.
Self-Induced Frustration: Maritime Fish v Ocean Trawlers
Limited licenses allocated to own vessels, leaving hired vessel unusable. Held: Frustration was self-induced by claimant’s choice.
Self-Induced Frustration: The Super Servant Two
One transport vessel sank (no fault). Defendant chose to allocate remaining vessel to other contracts, making claimant’s impossible. Held: Self-induced by defendant’s allocation choice (criticized as potentially too strict). t seems that any act by a party which
contributes to the event will prevent the contract from being frustrated. This shows the narrow
limits within which the doctrine of frustration operates and the advantage of inserting a
force
majeure clause in the contract to avoid liability
