Frustration
It is often the case that whilst some
risks have been foreseen and catered
for in the contract, there may be some
unforeseen risks, and this is ‘unplanned
for risk’. Should things go wrong, the
courts may have to decide which of the
contracting parties is to bear the risk,
and hence any losses, in question.
Some key cases on mistake
and frustration
• Bell v Lever Bros Ltd 1932
• Solle v Butcher 1950.
• Davis Contractors case 1956
A possible definition of
frustration is:
A contract is frustrated where after the
contract was concluded unforeseen
events occur which make performance
of the contract impossible, illegal or
something radically different from that
which was in the contemplation of the
parties at the time they entered the
contract and neither party must be at
fault.
Origins and justification of
frustration
• Paradine v Jane 1647
• Taylor v Caldwell 1863
• National Carriers Ltd v Panalpina
(Northern) Ltd 1981
Why the courts are reluctant to
allow frustration to be a
successful defence
The courts don’t want frustration to be seen
as an easy way out of
a bad bargain
made by one of the parties – this can be
seen in the
case of Davis Contractors Ltd v Fareham
UDC 1956.
Why the courts are reluctant to
allow frustration to be a
successful defence
Due to the ability to insert a ‘force majeure’
clause into the contract. With one of these
the contract will not be terminated by
frustration of contract if the event that
happens is in the list in the force majeure
clause. Thus, the effect of a force majeure
clause is that the contract STILL STANDS –
IT IS NOT FRUSTRATED.
Three broad categories of
frustration
•
•
•
impossibility of performance
illegality of performance
radically different performance from
that contracted for.
Where performance of the
contract is Impossible
A classic case for physical items is Taylor
v Caldwell 1863
A case for personal services is Robinson
v Davison 1871
Where it would be Illegal to
perform the contract
In the case of Fibrosa Spolka Akcyjna v
Fairburn Lawson Combe Barbour Ltd
1943 (the Fibrosa case) a contract to
sell machinery to the buyers in Poland
was frustrated when Poland was
occupied by the Germans during World
War Two.
Radically different
performance
Two contrasting cases are
Krell v Henry 1903 and
Herne Bay Steam Boat Co v Hutton 1903.
Instances when frustration
will not apply.
- when the alleged frustrating event is self
induced
- when the contract has specifically
provided for the alleged frustrating
event, and
- when the alleged frustrating event was
foreseen by the parties at
the time the contract was made
Lauritzen AS v Wijsmuller BV
(The Super Servant Two) 1990.
The courts have not ruled on the degree of fault
that amounts to self induced frustration but it is
likely that a ‘negligent’ act by the defendant ‘will’
amount to self induced frustration because when
someone is negligent and an adverse event
happens it cannot be said that the alleged
frustrating event was altogether outside the control
of either party, nor unforeseen. This case also
explores the issue of the defendant having a
‘choice’ in what he does in relation to frustrating
the contract.
Where the contract expressly
provides for the alleged
Frustrating event
If a clause/term in the contract actually
expressly makes reference to the alleged
frustrating event then the event generally
cannot frustrate the contract because it is
not an ‘unforeseen’ event. But, see
Metropolitan Water Board v Dick, Kerr and
Co 1918
Where the alleged frustrating
event was foreseen by the
parties when the contract was
made
An event is foreseeable and will prevent the
contract being frustrated only where it is one
which ‘any person of ordinary intelligence
would regard as likely to occur’ when the
contract was initially made.
Effects of frustration
Law Reform (Frustrated Contracts) Act
1943.
Chandler v Webster 1904
Fibrosa case 1943
A claim to recover MONEY that
was paid or was payable before
the frustrating event happened
Section 1(2) states that any sums PAID
before the frustrating event are recoverable
and any sums that were PAYABLE before
the frustrating event are no longer payable.
But, this is modified – see
Gamerco SA v ICM/Fair Warning (Agency)
Ltd 1995
A claim to recover the value of
Goods Supplied or Services
provided before the frustrating
event happened
Section 1(3) is quite complicated but means
that where one party had conferred a
‘valuable benefit’ on the other party (other
than a payment of money that is covered by
1(2)), the one conferring the benefit shall be
able to recover a ‘just sum’ which should not
exceed the value of the benefit conferred.
See
BP v Hunt 1979
Appleby v Myers 1867
In Appleby v Myers 1867 the plaintiffs agreed to
erect machinery on the defendant’s premises for
£459. When the work was nearly finished there
was a fire on the premises that totally destroyed all
the work done to date. The plaintiffs brought an
action for £419 for work done and materials
supplied. It failed. The contract was frustrated
and so both parties were excused from their
obligations under the contract. As such the
defendants did not have to pay for services
already rendered.
Sections 2(3) and 2(4)
• Under section 2(3) the Act will not be applied
where the parties to the contract have included in
the contract a clause detailing what is to happen if
a frustrating event occurs.
• Under section 2 (4) if a contract can be broken
down into bits and some of the bits have been
performed, then these performed bits can be
‘severed’ from the contract and the frustrating
event and the Act will only apply to the unsevered
bits.