Contract law Lectures: Frustration

Nature of the Doctrine
Performance of the obligation has become either impossible or futile.

-Paradine v Jane (1647)
-Taylor v Caldwell (1863)
Two parties had entered into a contract for the hire of a music hall. Considerable expense to do this. Just before the first contract, the music hall was destroyed by fire. Owner of the hall could not perform his obligation. Other party sued to try to recover expenses and damages. ‘Your music hall, your obligation to provide and your risk.’
-Courts interested to see where the business risk lay. If no risk is allocated (unanticipated by the parties) then all obligations potentially ‘cancellable’.
Problem= recovery of expenses.

Davis v Fareham UDC (1956) à Revised explanation of frustration.
Building contractors had entered into a contract to build 78 homes in a fixed period of time. However, chronic shortage of labourers made this impossible. Building company had projected 8 months, it would actually take much longer (22 months). Building company had pitched this venture at a time of demobilisation and chronic manpower shortages. H of L said that this was not frustration. Builders could have built the houses on time had they been willing to pay much higher wages and bought up all the labour in the county. They had not properly assessed the risk of the undertaking.

Contracts are subject to an implied condition that will be excused if performance is impossible without the fault of the contract

Illustrations of Frustration
-Destruction of subject matter (Taylor v Caldwell)
-Personal incapacity (Condor v Barron Knights – One of the band members was ill. Band said they could not perform. Court said performance was not impossible, just more difficult).
-(persistent) illness/absence (Shepherd v Jerrom – Worker did not turn up for six months. Then he did. When he turned up, his employer said he no longer worked there anymore. Worker had been in prison for the previous six months, uncertainty had frustrated the relationship. ‘We didn’t dismiss, the contract collapsed around us’).
-non-occurrence of an event (Krell v Henry – Coronation of Edward VII. A group of people hired a flat overlooking the procession. A third of the price paid as an initial deposit. Two days before the procession was due, it was cancelled. Owner wanted deposit and balance for expenses incurred whilst preparing the flat.
£25 already paid/ frustrating event/ £50 still to pay
Consequence: Obligation to pay balance was discharged. Deposit was not recoverable and balance was not payable.
-supervening illegality (Denny Mott v James Fraser)
-industrial action (The Nema)
-the effects of war (Finelvet AG v Vinava Shipping)

Limitations on the Doctrine
The contract must not still have some surviving purpose-
Herne Bay Steam Co v Hutton (1903)
Review of the Fleet. King cancelled. Steam boat still there. Court said that the Contract had not been frustrated because the fleet tour could still be carried out.

Tsakiroglou v Noblee and Thorl (1962)
Journey through the Suez Canal from Sudan to Hamburg (regular route taken for shipping). Suez crisis led to the shutting down of the passage. H of L said contract was not frustrated. Could still be carried out using the Cape/ always part of the business risk.

Self-induced frustration
Maritime National Fish v Ocean Trawlers (1935)
Hiring of trawlers for fishing. Defendants had 5 trawlers and entered into a contract to supply them for use. However, the Gvt. Only gave them 3 licences. Plaintiffs who had been expecting 5 trawlers sued the defendants for breach of contract.
The defendants pleaded frustration. However, the Court said that this was self-induced frustration because they had entered into the contract before ensuring that they had adequate licence permits.

Events Foreseen and Provided for
Jackson v Union Marine Ins (1874)
Land
Contracts for the sale of land can be frustrated.
Amalgamated investment v J. Walker (1976)
Development potential of land had disappeared when land was declared listed. Contract – had it now become impossible à frustrating events need to occur before frustrating events arise.

National Carriers Ltd v Panalpina (1981)
Plaintiff leased a warehouse to the defendant for a year. In May 1979, the local authority closed the only access road to the warehouse because of the dangerous condition of the road. The closure was to last 18 months. Plaintiff claimed rent due. Defendant claimed that the lease was frustrated by the closure.
- H of L said denial of access to the warehouse was not sufficiently serious to frustrate the contract. Doctrine of frustration will apply to leases, but only in exceptions in circumstances.

The Effect of Frustration
a) at common law
- the contract is automatically terminated;
- only future obligations are discharged, those which arose prior to the event still survive…
Chandler v Webster (1904) 1 KB493
£25 deposit paid –led to many cases with unsatisfactory results.

At common law (cont)
Recovery of money paid will be allowed if there has been a total failure of consideration.
Fibrosa Spolka Lawson (1943)

However, there can be no recovery for which work done before the frustrating event but for which payment was not yet due.
Appleby v Myers
b) Law reform (frustrated Contracts) Act 1943
Section 1(2): money paid or payable prior to frustration.
Changes Chandler & Webster decision. Deposits can be recoverable.

Law Reform (Frustrated Contracts) Act 1943
Section 1(3): compensation for a valuable benefit.
If a party has obtained a valuable benefit, the other party can obtain compensation, to the extent that the court considers just in all the circumstances. The benefit must survive the frustrating event, however, otherwise there can be no recovery.

BP Exploration v Hunt (1982) 1 All E.R 925
Libyan oil industry nationalised/ ruined business deal/ Court tired to apportion the losses fairly.