FRUSTRATION
Doctrine of frustration (DOF) is summed up well in Davis Contractors with a rule that
effectively says “when something extraordinary and outside the normal course of events happens
that fundamentally changes the nature of the K, the courts will let parties walk away from their
obligations”.
Here, JJJ would argue that clause 12.4 cannot be enforced because one of the boxes was lost
by the shipper and thus the K was frustrated. BDR would argue that as per Claude Neon, a K
will only be frustrated if the intervening event fundamentally alters the agreement (high
threshold) – just as the court found the buyer had contracted for a “sign” and had received a sign
(despite its uselessness because of the nighttime light prohibition), there was nothing in the K
that said that a shipper’s error would negate the deal – in fact, the K said otherwise.
However, JJJ would note that the Ontario Court of Appeal took a more lenient stance in Capital
Quality, where the court ruled that because the intervening event (a new law) should not have
been anticipated and was the fault of neither of the parties, the law frustrated the K. JJJ would
argue that that the lost box could not have been anticipated and was neither of the parties’
fault – however, BDR would counter with the fact that it was JJJ’s responsibility to
procure competent shippers (it said so in the K), and that a box being lost in transit is
anticipatable – that’s why it was included as an express term.
Further, BDR would argue that Victoria Wood is a more applicable case, since the court rejected
frustration even though the intention of the parties was clear (that the purchaser would subdivide
the lots) – the point was that the purchaser should have included as a term in the K what they
deemed to be fundamental to the agreement. Here, since there was an explicit term that stated
that JJJ would be responsible for any boxes that were lost in transit, according to VW,
frustration cannot apply.
Finally, BDR would note that while Capital Quality and Victoria Wood are “bookend cases”,
even if the courts followed the middle-ground 2000 BCCA case of KBK, frustration would not be
found to apply. Here, the court stated it was necessary to look at what the parties said, wrote, and
did to conclude one way or the other. While in KBK, the land purchaser was able to convince the
courts that the K was built on the idea that the land could be used for developing condos despite
the lack of a term to this effect, by pointing to factors such as the advertisement that Safeway had
posted (which implied the land would be suitable for development), the non-competition clause
(land couldn’t be used by another grocer), and the clause that linked the value of land to its use,
there is little in this case that JJJ can point to that would suggest that the K was built on
the idea that the they would not be liable for any boxes lost in transit. The only factors JJJ
could possibly point to would be that the clause was unconscionable or that they didn’t
actually read it - but obviously these arguments would be dealt with by appealing to other
doctrines.
Thus, JJJ would lose as frustration would not apply here. The bottom line is that the
shipper losing the box is simply not something that is outside the realm of possibility when
constructing a K – and there was a term that addressed the possibility anyway!