Objective Notes: W300 – Agreements, rights & responsibilities
UNIT 21 - MANUAL THREE
FRUSTRATION
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Where contracts are frustrated (frust)
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Supervening event post-contract formation making it impossible for parties
to perform obligations where so attempting would be in vain & as a
consequence contract ends (is discharged) so neither in breach or has to carry
out future obligations;
Original common law position = rule of absolute obligations – party bound
by contractually assumed absolute unqualified/ modified obligations even if
circumstances rendered performance impossible so would be in breach/ liab
for damages, mitigated only by express contractual terms &, where not
provided, courts not permit obligation avoidance (Paradine v Jane (1647));.
Modified by Taylor v Caldwell (1863) - where continued existence/
availability of thing/ person essential to contract (e.g. where contracts
depend on one party’s particular skills - Condor v Baron Knights [1966])
obvious that basis of contract was thing’s/ person’s continued existence/
availability so frust when performance becomes impossible;
Event must be post-contract formation & outside parties’ control but where
only makes performance more difficult/ expensive &/ or less profitable,
insufficient as makes it too easy to avoid obligations so hardship,
inconvenience & material loss not themselves amount to frust since must be
such change in obligation’s significance that thing undertaken would, if
performed, be something entirely different from that contracted for & event
must make performance impossible or radically different from that envisaged
(Davis Contractors Ltd v Fareham UDC [1956]);
Where specific event/ ceremony taking place essential to contract it’s
dependent on it &, should event be cancelled, this may frust (Krell v Henry
[1903]) but where contract still had some purpose, effect on it of
cancellation not sufficiently fundamental to amount to frust (Herne Bay
Steamboat Co v Hutton [1903]);
Where govt intervention makes performance impossible/ radically different
from originally envisaged, contract is frust (Metropolitan Water Board v
Dick Kerr & Co [1918]) & also by lengthy delays, if contract resumed postdelay, likely to be radically different (Jackson v Union Marine Insurance Co
Ltd (1874)) but increased difficulty/ expense/ loss of profitability insufficient
(Ocean Tramp Tankers Corporation v V O Sovfracht (The Eugenia) [1964]);
Where performance becomes illegal (e.g. laws changed) including outbreak
of war, frust may apply (Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe
Barbour Ltd [1943]);
Where contract expressly makes provision for foreseeable events (e.g. force
majeure clauses re events outside parties’ control), these bind parties &
contract not frust although courts may decide do not cover event – in which
case contract remains frust (Metropolitan Water Board);
In absence of express provisions position not clear but Treitel suggests frust
not occur where events foreseeable in some detail but may where delay/
interference differs in extent to that foreseeable by parties (The Eugenia);
Where frust self-induced, impossibility results from party’s own act/ choice
& he cannot treat contract as at end (J Lauritzen A S v Wjismuller B V
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Objective Notes: W300 – Agreements, rights & responsibilities
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[1990] (The ‘Super Servant Two’)) & party alleging contract not frust
because other at fault must establish this (Joseph Constantine Steamship Line
v Imperial Smelting Corporation Ltd [1942]);
Leases of land can be frust, although rare, subject to length of lease & of
period during which lease holder is deprived of use so where lengthy lease &
deprivation period comparatively short, insufficient to make lease radically
different so would not amount to frust (National Carriers Ltd v Panalpina
(Northern) Ltd [1981]).
Common law frust effects
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General effect = contract discharged when event occurs, both parties released
from future obligation & frust not = breach so neither can sue/ be sued &
traditionally, monies paid before event not recoverable & monies due prefrust remained payable but those due post-frust are not (Krell v Henry &
Chandler v Webster [1904]);
Position unfair since party received nothing for payment & event not
either’s fault but payer severely prejudiced as consequence of events beyond
control & not only could not recover monies paid pre-frust, but obliged to
pay further money where obligation incurred pre-frust;
Remedied by Lords in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe
Barbour Ltd [1942] so Chandler was overruled & where total failure of
consid, monies paid recoverable & money due no longer payable but if
payer had received some benefit, could not recover monies paid & would
still have to pay future sums due.
Statutory effects - Law Reform (Frustrated Contracts) Act 1943 (LRFCA)
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Fibrosa left injustices since if party incurred expenses carrying out
obligations before event, was unable to recover & where had completed most
obligations pre-frust, not entitled to payment so LRFCA enacted to do
justice between parties where frust event occurred;
By s.1(2), sums paid/ payable recoverable without requirement for total
failure of consid so Fibrosa qualification overruled & expenses incurred by
party paid/ payable under contract recoverable where incurred before event
in connection with contract performance but cannot > sums paid/ payable so
party’s position improved except he cannot claim expenses where monies
not paid/ payable pre-frust event;
But onus of proof on person paid/ payable who must show it’s just to retain/
recover money re expenses & set off proviso discretionary so court not
obliged to award total retention/ equal division but must act rationally, with
broad discretion to do justice where situation not provided for by parties &
aim to mitigate harshness if all loss allowed to lie where it fell (Gamerco SA
v ICM/ Fair Warning (Agency) Ltd [1995];
By s.1(3), where party has obtained valuable benefit other party may claim
‘just sum’ not > val ben but courts must consider all relevant circumstances
including expenses benefited party incurred & whether benefit affected by
event but, as wording refers to val ben rather than value of services provided,
benefit is end product of what claimant produced rather than value of work
done (e.g. where fire destroys building on which work been done, contract is
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Objective Notes: W300 – Agreements, rights & responsibilities
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frust but no ‘end product’ so award = nil) (BP Exploration Co (Libya) Ltd v
Hunt [1979];
By s.2(3), parties may exclude stat provisions & make own terms re frust
affect &, by s.2(5), LRFCA does not apply to (a) charterparties, except time
charterparty/ charterparty by way of demise & contracts (other than
charterparty) for carriage of goods by sea; (b) contracts of insurance or (c)
contract to which s.7 SOGA 1979 (which avoids contracts for sale of specific
goods which perish before risk has passed to buyer) applies, or other
contracts for sale or sale/ delivery, of specific goods, where frust by reason
of goods being perished – so common law provisions apply re such excluded
contracts;
Whilst LRFCA has improved parties positions, difficulties remain –
o Expenses limited to sums paid/ payable pre-frust so amounts > not
recovered & where no money paid/ payable no recovery at all,
calculation basis not stated, judicial discretion broad & no guidelines
as to how to be exercised so inconsistencies may occur;
o Where val bens obtained, uncertain how just sums will be calculated
& arguably unfair that val bens = end products & not take into account
value of work done - albeit premised on stat text orientated interp – so
harsh where, say, contractor incurs considerable expense in building
etc works but unable to seek compensation if building then destroyed
pre-completion simply because other party has received no end result
benefit (BP Exploration) & although may have s.1(2) expenses claim,
this is limited.
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