WS 6 - Frustration

Question 1

Structure for answering question on frustration?

Answer 1

STEP 1: Identify contracting parties – e.g. A and B
STEP 2: State general/original rule:
STEP 3: Identify party who might try and claim that the contract has been frustrated in order to avoid liability for breach: e.g. A
STEP 4: is there frustration [DEFINE]?
STEP 5: What is the effect if the contract is frustrated
STEP 6: Does the Law Reform (FC) Act 1943 apply?
STEP 7: What is the effect if the contract has NOT been frustrated?

Question 2

Paradine v Jane [1647]:

Answer 2

If a party has assumed an absolute obligation, even if circumstances make performance of this obligation impossible, he is liable for breach of contract. [Facts: D said he had been forced off land by hostile army, why he couldn’t pay rent. Courts held he was still liable for the rent]

Question 3

Definition of frustration

Answer 3

1. Define – “frustration” and apply to facts. A contract is frustrated when:
   a. A supervening event – apply the facts
   b. Which is unforeseen, and
   c. Outside the control of the parties (Maritime Fish Ltd) – apply to facts
   d. Renders the contract impossible to perform, or radically different (Davis Contractors) – apply to facts

Question 4

Events which will frustrate contract

Answer 4

Essential person unavailable 
Essential thing unavailable
Fundamental event does not occur
Government intervention
Illegality of contract
Delay
Lease frustrated
Denning in Eugenia

Question 5

Events which will not frustrate

Answer 5

Event was foreseen or should have been foreseen
Express provision in the contract covering event which occurred (Force Majeure)
Prices go up/contract becomes more expensive to perform
Event not the foundation of the contract
Self induced event
Temporary delays

Question 6

Essential person unavailable

Answer 6

(Condor v Barron Knights)
-	Length of contract
-	Length of absence
-	Is he essential?
•	Morgan v Manser [1948] – unavailability of vital person causes frustration of contract, where ‘cheerful Charlie chester’ was called up for military service

Question 7

Essential thing unavailable

Answer 7

(Taylor v Caldwell [1863] – C hired music hall which burnt down before concerts. Contract discharged by frustration)

Question 8

Fundamental event does not occur

Answer 8

(Krell v Henry [1903] – Not like cab from London to Epsom. Rooms had a special quality. Foundation of contract was to view the coronation procession (important that rooms were let out for days not nights), did not occur, therefore frustrated)

Question 9

Government intervention

Answer 9

(Met Water Board v Dick Kerr [1918] – Kerr agrees in 1914 to build a reservoir for Cs. Govt tells him to stop as men and equipment needed for war effort. HELD – contract frustrated. Lord Finlay: not as short and temporary stoppage. Whole character of the contract could be revolutionised by infinite delay)

Question 10

Illegality of contract

Answer 10

(Fibrosa v Fairbarn [1943] – respondent had agreed to manufacture machinery for the appellant (a Polish co) and to deliver to Poland. Germans occupy Poland. HoL – contract frustrated)

Question 11

Delay

Answer 11

Consider length and time obligation time in performance, and if the contract is resumed after delay, was it radically different (Met Water Board v Dick Kerr) How long was the delay? Was there a time limit for obligations to be performed? The delay will only frustrate the contract if it has become radically different

• Tsakiroglon v Noblee Thorl [1962] – Sellers agree to ship groundnuts from Port Sudan to Hamburg. At time of contract assumed route would be Suez Canal. Then Suez crisis, so had to go Cape of Good Hope. HoL – contract was not frustrated. Could still be performed and not radically different

Question 12

Lease frustrated

Answer 12

• National Carriers v Panalpina [1981] – HoL said could apply to leases if frustrating event occurred during currency of term (IN THIS CASE NOT FRUSTRATED as only 2/10 years). Factors which are relevant in determining whether a lease has been frustrated are
• the length of the lease and
• how long the party will be deprived of the use of the property

Question 13

Denning in Eugenia

Answer 13

• The Eugenia – Lord Denning says obiter that the contract could still be frustrated even if the event was foreseen – the only essential thing was that the parties should not have made provision for the event in the contract.

Question 14

• Event was foreseen or should have been foreseen

Answer 14

(Davis Contractors v Fareham [1956])

Question 15

• Express provision in the contract covering the event which has occurred

Answer 15

this will be binding (NB – clause cannot prevent frustration applying in the event of the contract becoming illegal, e.g. because of outbreak of war Fibrosa)

Question 16

• Force Majeure clause advisable

Answer 16

• Force Majeure clause advisable – much more certain than LR(FC)A 1943. Will be subject to UCTA, so must be reasonable

Question 17

• Prices go up/contract becomes more expensive/difficult to perform

Answer 17

• Prices go up/contract becomes more expensive/difficult to perform (Davis Contractors v Fareham)

Question 18

• If event is not directly related to objective of contact

Answer 18

(Herne Bay v Hutton [1903] – D agreed to hire a ship from the claimant for 2 days ‘for purpose of viewing the Naval Review and for a day’s cruise around the fleet’. NR cancelled. CoA NR was not foundation of contract and cancellation did not discharge D from his obligations under the contract. Stirling LJ noted a cruise around the ships still possible)

Question 19

How do you distinguish the decisions in Krell and Hutton?

Answer 19

CoA NR was not foundation of contract and cancellation did not discharge D from his obligations under the contract. Stirling LJ noted a cruise around the ships still possible) [- contrast with: Krell v Henry]

• Roger Brownsword: “Henry’s lost spectacle and Hutton’s lost speculation: A classic riddle solved?” (1985) – Hutton engaged in business, Henry for leisure – this influence courts

Question 20

• If event is in anyway self-induced

Answer 20

Any element of choice will prevent frustration (Maritime Fish v Ocean Trawler [1935] – Used wrong trawl for trawler when could have done. Not frustrated)

Question 21

Super Servant Two

Answer 21

SS2 sunk before transport of oil rig date. SS1 needed on other contracts. Informed C’s that could not transport rig. CoA – not frustrated. JUDGEMENT CRITICIZED ON BASIS THAT Ds DID NOT HAVE A CHOICE ABOUT ALLOCATION OF SS1. NB – there was a valid force majeure clause covering “perils or danger and accidents of the sea”)

Question 22

Excessive delay

Answer 22

• Delay and leases of land – not being able to use property for 2 out of 10 years was held not to be a frustrating event

Question 23

What is the effect if contract is frustrated (common law)?

Answer 23

a. Contract is automatically discharged/terminated (Fibrosa v Fairbarn)
b. Future obligations cease (Krell v Henry)
c. No parties are in breach

Question 24

s.1(2) LR(FC)A 1943

Answer 24

i. Money paid before the frustrating event is recoverable
ii. Money that was payable before frustrating event need not be paid
iii. Expenses incurred by the payee are recoverable

Question 25

Recovery of expenses under s.1(2) subject to?

Answer 25

1. But – subject to a price ceiling (the sum of (i) and (ii)).
2. The court has a broad discretion as to this amount and its goal will be to avoid unjust enrichment (Gamerco SA v ICM)
3. It will achieve this goal by adjusting the amount for the payee depending on whether the payer has also incurred any expenses

Question 26

s.1(3) LR(FC)A 1943

Answer 26

If there is any valuable benefit that survives the frustrating event, court may order a “just sum” to be paid with regard to all the circumstances

Question 27

Define valuable benefit for purposes of s.1(3)

Answer 27

Valuable benefits must be: “benefits accrued in, or for the purpose of the contract” (s.1(3))

Question 28

How will the size of the valuable benefit be decided?

Answer 28

iii. The size of this sum will be decided with regard to:
a. The value of the valuable benefit to its recipient (BP Exploration v Hunt)
b. Any expenses awarded under s.1(2)

Question 29

Why is leaving things down to s.1(3) risky?

Answer 29

Unpredictable element - hard to know what courts may do.

Question 30

What if minerals are found on the land before frustration of contract?

Answer 30

Lord Goff in BP Exploration v Hunt said that minerals found on the land will not normally be part of the valuable benefit

Question 31

Can the court take into account any money paid out under the insurance policy when applying ss.1(2) and (3) of the Act?

Answer 31

The court could not take into account insurance payments (s.1(5)) unless there was an express term of the contract imposing an obligation to insure.

Question 32

Weaknesses in the legislation (s.1(2))

Answer 32

1. The amount recoverable is limited to the total of the sums paid and payable before the frustrating event. Expenses incurred above this amount cannot be recovered. if no money was paid or payable before the frustrating event, s.1(2) does not help at all
   s. 1(2) does not make clear the basis on which an award for expenses is to be calculated. Garland J, in Gamerco v ICM said that the court had broad discretion. Absence of guildelines as to how this discretion is to be exercised could lead to inconsistencies.

Question 33

Weaknesses in legislation (s.1(3))

Answer 33

Difficult to predict how much will be awarded under s.1(3). Also, is it reasonable for the valuable benefit to be the end product of what the claimant has provided rather than the value of the work done? Goff’s interpretation in BP Exploration v Hunt, where fire destroys a building to which work had already been done, the award under s.1(3) would be nil

The person doing work could claim expenses under s.1(2) but this award would be limited to the amount of money paid and/or payable to him before the frustrating event.