Frustration of Contracts
Frustration of Contracts
A frustrating event is one that prevents the performance of the contract, but is beyond the control of either party. Thus, a contract may be frustrated where there is a change in circumstances, after the contract was made, that was not the fault of either of the parties. It essentially renders the contact impossible to perform or deprive it of its original purpose. When a contract is found to be frustrated, each of the parties involved are discharged from future obligations, making it impossible for either party to sue for breach of contract. Taylor v Caldwell
When can frustration occur?
1. Impossibility of performance
Destruction of the subject matter - Taylor v Caldwell
Unavailability of the other party - Robinson v Davidson
Outbreak of war -Metropolitan Water Board v Dick Kerr & Co.
Excessive, unavoidable delay -The Evia (No.2)
The intervening event means performance of the contract becomes illegal.
Trading with the enemy -Fibrosa v Fairbairn Lawson Combe Barbour
The law of another country changes -Denny, Mott & Dickinson v James B Fraser
The outbreak of war - Re ShiptonAnderson
3. Frustration of purpose
The commercial purpose of the
contract has disappeared as a result of the intervening event and the act that has occurred is fundamental to the purpose of the contract.
The commercial purpose in the contract is lost - Krell v Henry
But… not if some commercial purpose remains. The contract must be derived of the whole purpose in order to amount of frustration - Herne Bay Steam Boat Co v Hutton
When will frustration not occur?
1. Self - Induced Frustration:
The basic principle is that one cannot rely on the doctrine of frustration if your own negligence or your own breach of contract prevents you from performing the contract if it contributes to the supervening events. ( Maritime National Fish Limited v Ocean Trawlers Ltd)
The Eugenia: Negligence on the party who caused the frustrating event cannot rely on frustration.
Super Servant two : Frustration can occur only if without any act of the defendant the performance became impossible. Wherever there is a choice for the defendant of which contract to breach, there cannot be frustration.
a. Contractual provision made for the event
Larinaga: The parties are generally free to allocate the risk of a supervening event but there's one exception to it.
Trading with the enemy rule: Frustration always occurs, no leeway.
Ertel Bieber v Rio Tinto : The parties' contract did provide that the contract would only be suspended during the period of the war, Court held the contract frustrated, and it is a mandatory rule.
b. Foreseen or foreseeable events
The general rule is that where an event is foreseen or reasonably foreseeable the contract is not frustrated.
Harvey v Walker: When the event is foreseeable the defendant cannot rely on frustration.
The only exception is trading with the enemy, that's always a frustrating event.
c. Where the risk of the event has been provided for in the contract
The effects of Frustration:
Chandler v Webster: At common law, all obligations finish at the point of frustration.
Fibrosa: Changed the harshness of Chandler à people can recover partial payment if they have conferred a valuable benefit before the frustrating event (i.e. payments made before the frustrating event can be recovered).
Law Reform (Frustrated Contracts) Act 1943:
Taylor v Caldwell : Money ceases to be payable from the point of frustration. (Section 1 (2).)
S.1 (2) - money paid in advance of a contract can be recovered if a frustrating event occurs.
S.1 (2) - The court has discretion to award parties compensation who have done work under the contract
S.1 (3) - the court can also grant recovery for partial performance that has conferred a benefit on the other party.
BP Exploration (Libya) v Hunt (No.2): It's up to the court to determine what a reasonable amount in the circumstances is.
The act does not apply to carriage of goods by sea, contracts of insurance, and perishing of goods under the SGA 1979.
Gamers Co SA:
S.1 (2) illustrates the discretion of the courts to allocate expenses recoverable under this act.