Claude Neon Ltd v Hardie

Termination for Frustration
By Amanda Kennedy
 Frustration is another way a contract may be discharged
 Frustration occurs where an event or events happens
after a contract has been formed
“the performance of the contract impossible or so changes
the circumstances that it can justifiably be said that the
parties did not intend to be bound to perform in the
changed circumstances.”
 History: Paradine v Jane (1647) Aleyn 26
Law now recognises that obligations may not be absolute
 This lecture:
What amounts to frustration?
How is it dealt with?
 Some contracts now have express ‘Force Majeure’
clauses - e.g. Act of God, natural forces / catastrophes
Test for Frustration
 Codelfa Construction Pty Ltd v State Rail Authority of New
South Wales (1982) 149 CLR 337
“…frustration occurs whenever the law recognises that
without default of either party a contractual obligation has
become incapable of being performed because the
circumstances in which performance is called for would
render it a thing radically different from that which was
undertaken by the contract”
 Basis of test:
there is a contract;
after formation an event or events happen;
without the default of either party; and
performance of the contract after occurrence of the event or
events is radically different from the performance
contemplated by the contract.
Test for Frustration cont.
 Depends on the circumstances of the case:
 the terms and construction of the contract in question;
 the effect of the events which have occurred
 Recall Codelfa regarding construction of the terms
 Frustrating event must be totally unforseen…if it is
anticipated in the contract then it will not amount to
 Past cases are therefore no more than a guide to a future
application of the doctrine – i.e. if something has frustrated
a contract in the past it may not necessarily frustrate a
similar contract in different circumstances
Basis of the Doctrine
 Paradine v Jane (1647) Aleyn 26
Jane leased premises from Paradine but was evicted from the land
by enemy forces during the English civil war. Jane denied liability
for rent owing due the the contract being frustrated
Held that there was an obligation to pay the rent despite the
eviction: “when the party by his own contract creates a duty or
charge upon himself, he is bound to make it good, if he may,
notwithstanding any accident by inevitable necessity, because he
might have provided against it by his contract”.
The modern doctrine
 Taylor v Caldwell (1863) 3 B & S 826
 Supervening events can frustrate a contract
 Implied term theory
 Court still did not enunciate the scope of the doctrine
‘Change in obligation’ theory
Theoretical basis for frustration?
 See National Carriers v Panalpina (Northern) Ltd [1981] AC
 Change in obligation theory?
 Failure of consideration?
 Justice? Fairness?
 “Whatever the theoretical basis for frustration, its practical
effect boils down to this – if performance becomes
impossible through no fault of the parties, their contractual
obligations are automatically discharged at the point of
 Stephen Graw, An Introduction to the Law of Contract
(4th ed, 2002) p. 378
Instances of Frustration
 Impossibility of Performance
 Destruction of subject matter
 Unavailability of subject matter
 Availability of source of supply
 Death or incapacity
 Contemplated Method of Performance not possible
 Frustration of Purpose or Common Objective
 Illegality
 Delay
 War
 Contracts involving land
Impossibility of Performance
 Destruction of subject matter
 Destruction can amount to a frustrating event
 Taylor v Caldwell – would it have been different if the
premises were damaged rather than destroyed?
 Appleby v Myers
 Frustration does not occur where one party agrees to
bear risk of destruction
 Sale of Goods legislation - Goldsbrough Mort & Co Ltd v
Carter (1914) 19 CLR 429
 Unavailability of subject matter
 Hirji Mulji v Cheong Yue SS Co Ltd [1926] AC 497;
Bank Line Ltd v Arthur Capel and Co [1919] AC 435
 See also Jackson v The Union Marine Insurance Co Ltd
(1874) LR 10 CP 125 - delay
Impossibility of performance
 Availability of source of supply
 E.g. crop failure - Howell v Coupland (1874) LR 9 QB
 Death or incapacity
 Where performance of a contract has a personal
 Jackson v Union Marine Insurance Co Ltd (1874) LR
10 CP 125
 Contract of employment – illness: Simmons Ltd v Hay
(1964) 81 WN (pt1) (NSW) 358
 Depends on the kind of contract; the extent of the
incapacity; and
 the expected duration of the incapacity.
Contemplated Method of
Performance not possible
 Codelfa
 Contract was frustrated as the mode of performance
was ‘radically different’
 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93
 Contract was not frustrated as a similar mode of
performance could be contemplated, though at a
considerable expense
 Main difference is that time was of the essence in Codelfa
 Is onerous performance evidence of frustration?
 See Ocean Tramp Tankers Corp v V/O Sovfracht (The
Eugenia) [1964] 2 QB 226
 Must be ‘radically different’ (Codelfa)
Frustration of Purpose or
Common Objective
Where the purpose of the contract can no longer be achieved
 The ‘Coronation’ Cases
 Krell v Henry [1903] 2 KB 740
Henry required the flat to view Edward VII’s coronation
Postponed coronation was the foundation of the contract and
it would be in vain to continue
 Compare with Herne Bay Steam Boat Co v Hutton [1903] 2
KB 740
Hutton required boat to see a Navy Regatta as part of the
Coronation celebration
Contract was not frustrated as it was not in vain; the vessel
could be used to see the remaining regatta
A ‘mere disappointment’ is not the same as the destruction
of the foundation of the contract – see also Scanlan’s New
Neon Ltd v Tooheys Ltd (1943) 67 CLR 169
 If performance of a contract becomes illegal because of
a change in the law after its formation but before it has
been discharged by performance, it may be frustrated
 Change in the law, eg Scanlans New Neon Ltd v
Tooheys Ltd
 Contracts with the enemy in time of war will result
in the contract being illegal and frustrated, eg
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe
Barbour Ltd [1943] AC 32
 Does the delay render performance radically different from
what was originally contemplated
 Jackson v Union Marine Insurance Co Ltd (1874) LR 10
LP 125
 Delay frustrated the contract as it made the venture
entirely different (i.e. radically different) in what the
parties had contemplated
 Delay will not frustrate a contract unless it radically
alters the nature of the performance
 Embiricos v Sydney Reid & Co [1914] 3 KB 45
 Frustrated due to delay as subsequent events did
not effect rights and the delay was necessary at the
 Depends on whether the performance
of the contract will be rendered
radically different from that
 Kodros Shipping Corp of Monrovia v
Empresa Cubana de Fletes (The Evia)
(No 2) [1983] 1 AC 736
 Contract was frustrated as war impinged
upon performance of the contract
Contracts involving land
 Wong Lai Ying v Chinachem Investments
 Due to unforeseen circumstances the vendor
had the right to rescind
 National Carriers v Panalpina
 Interruption to a lease was not sufficient to
frustrate the contract
 But note Australian position in Firth v Halloran –
doctrine of frustration can’t apply to executed
leases in many cases as a lease creates an
estate in land which can not be destroyed by
later events
Limitations on Frustration
 Foresight of the Supervening Event
Frustration can only be invoked where parties have not
foreseen the event
What was originally contemplated by the parties?
Must be foreseen as a serious possibility
 Simmons v Hay [1965] NSWR 416
 Codelfa
 Express contractual provision
Depends on the construction of the contract
If the contract makes provision with respect to what would
otherwise be a frustrating event, then the event is dealt with
as provided in the agreement
 Claude Neon Ltd v Hardie [1970] Qd R 93
Limitations on Frustration cont.
 Self-induced frustration
 No reliance can be placed on a self-induced event
which frustrates the contract
 A party cannot plead frustration where it has brought
about the event by some conscious act or omission
 Maritime National Fish Ltd v Ocean Trawlers Ltd
[1935] AC 524
 the failure to secure a licence was the direct
result of Maritime’s conscious election
 The onus of proving self-induced frustration rests on
the party alleging that the frustration was self-induced
Consequences of Frustration
 Common Law
Unlike breach there is no election – frustration automatically
discharges the parties from the obligation to perform their
contractual duties
The contract only terminates from the point of frustration
See Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe
Barbour Ltd [1943] AC 32
 Rejects the rule in Chandler v Webster [1904] 1 KB 493;
Approved in Baltic Shipping Co v Dillon (1993) 176 CLR
 Difficult application in Australian jurisdictions where there
are statutory provisions regarding frustration
Consequences of Frustration cont.
 Statute
 Frustrated Contracts Act 1978 (NSW)
 “so complex as to be largely unintelligible”
 Attempts to establish a scheme to apportion
the loss resulting from frustration.
 See text for discussion of relevant sections
 “It is difficult to believe that the Frustrated
Contracts Act 1978 (NSW) is, in the
majority of cases, an improvement on the
common law”
Is a
Apply test from
Has performance
become radically
different from that
anticipated in
the contract?
Method of Performance
not possible?
Frustration of Purpose?
Are there any limitations to
frustration? e.g. fault?
Can another
action be
i.e. breach of
What is the
effect of the
1. Statute
2. Common law