Frustration

Frustration

Definition (AO1)

Where between the date the contract is made and the date for (final) performance -

There is a major / significant change of circumstances

Which makes performance of the contract:

• Impossible (Physically) OR

• Illegal OR

• Radically Different

Courts are generally reluctant to grant frustration

Effect of frustration

Definition (AO1)

Contract terminates automatically at date of frustration -

Both parties are discharged from (further) obligations

Remedies are covered under -

Law Reform (Frustrated Contracts) Act 1943

Force majeure clause

Definition (AO1)

A contract term which identifies a particular / specific subsequent event outside control of contracting parties

AND

Specifies what effect such event will have on the contract:

• Liability of either party OR

• Suspension of contract OR

• Termination of contract

(This is a way of avoiding frustration)

Where there is no force majeure clause - Doctrine of frustration applies

What amounts to Frustrating Events

Types (AO1)

1. Physically impossible to perform

2. Legally impossible to perform

3. Performance has become radically different

Physically Impossible to perform

Definition (AO1)

Where availability of person / thing is essential to the performance of the contract:

Non-availability will discharge the contract by frustration

Longer time of unavailability = more likely to be seen as frustration

Physically Impossible to perform

Examples (AO2)

Destruction of the subject matter,

Subject matter unavailable,

Illness,

Under medical advice to limit availability etc

Physically Impossible to perform

Case (AO3)

(Taylor v Caldwell) - Key case

Music hall burnt down, Seen as frustration

(Robinson v Davison) - Illness

Contract for pianist to play at concert, pianist was ill and unable to perform. Seen as frustration

Legally Impossible to perform

Definition (AO1)

Where performance of the contract becomes illegal or physically impossible after the date of the contract.

If parties have a long time to adapt to legal change then no frustration

Legally Impossible to perform

Case (AO3)

(Fibrosa v Fairbarn Lawson)

Contract to sell a machine to a Polish company.

Germany invaded Poland

Contract was frustrated as would have amounted to trading with the enemy at time of war.

Radical difference (Change in circumstances) - Rare

Definition (AO1)

Where an unforeseeable event occurs which makes performance radically different from the main contractual purpose - Also referred to as commercial sterility -

(Where the value / purpose of the contract has been lost by the frustrating event)

HOWEVER

If there is still some value that remains then there may be no frustration

Radical difference

Case (AO3)

(Krell v Henry)

Contract for D to hire room from C on coronation day - Room overlooked processional route.
King was ill - coronation postponed. This amounted to frustration (even though the room could still have been used.

(HameBay Steamboat v Hutton)

Contract for D to hire boat watch king’s review of fleet.

King ill - no review but fleet was still in harbour.

Seen that there was no frustration as some value remained from seeing the fleet.

What does not amount to Frustrating Events

Types (AO1)

1. Frustration is self-induced

2. Intervening event merely makes contract more expensive / onerous / less profitable

3. There is a foreseeable risk that the event could occur.

Self-induced frustration
Definition (AO1)

Where party claiming frustration:

• Is at fault in some way

  OR

• Chooses not to perform

Contract is not discharged by frustration

Self-induced frustration
Examples (AO2)

Bad planning, making a decision which impacted on the performance of the contract.

Self-induced frustration
Case (AO3)

(Ocean Trawlers)

C charted a boat from D which used an otter trawl (a very large fishing net), to use such a trawl required a license.

C obtained 3 licenses but chose to use them for 3 other boats and so had no use for D’s boat.

C could not claim for frustration as not being able to use the boat was a result of their free choice.

Performance becomes more expensive / onerous

Definition (AO1)

Where an intervening event merely makes contract more expensive / onerous to perform - contract is not discharged by frustration

Performance becomes more expensive / onerous

Examples (AO2)

Shortages, strikes, loss of profits etc

Performance becomes more expensive / onerous

Case (AO3)

(Davis Contractors v Fareham UDC)

Contrac for C to build 78 houses for D.

Contract price: £94,000, completion 8 months

There were unanticipated labour shortages.

D’s cost increased by £22,000 and work took 22 months
C claimed contract frustrated by delay caused by labour shortages but contract was not seen as radically different just less profitable

There is a foreseeable risk that the event could occur

Definition (AO1)

Frustration will not apply if the event concerned was a risk that was foreseen or was foreseeable.

There is a foreseeable risk that the event could occur

Case (AO3)

(AIP v John Walker & Sons Ltd)

After a building was sold for development, it was given listed status by the Department for the Environment, meaning it could not be used for this purpose

Held that this was a foreseeable risk where old buildings are concerned and the parties should have had it in their minds, particularly as it was a topic referred to in the pre-contract enquires.

Held that frustration did not apply

Terms as to frustration included

Definition (AO1)

Regards Force Majeure clauses:

• Excludes doctrine of frustration

• Allows for parties to control the outcome if the event occurs

• After expiry set by force majeure clause, then frustration can be applied.

Terms as to frustration included

Case (AO3)

(Gold Group Properties v BDW Trading)

Effect of Frustration

Definition (AO1)

Contract is discharged automatically from date of frustration

SO
Contract is valid until date of frustration -

Under common law, parties remain liable for obligations before frustration.

However

Law Reform (Frustrated Contracts) Act 1943 reduces the harshness of the common law. - use this when a deposit has been paid

Law Reform (Frustrated Contracts) Act 1943 s.1(2)

Definition (AO1)

Applies to advanced payments (i.e. deposits)

Where contract is discharged by frustration:

• Money paid prior to frustration may be recovered

• Money due before frustration is no longer due

• The party receiving payment can retain or recover a sum on account of reasonable expenses

i.e. Deposit for a wedding reception is paid in advance and due to Covid, wedding cannot take place - deposit is to be returned

At Courts Discretion will remedy a just and fair amount but not necessarily the full amount

Law Reform (Frustrated Contracts) Act 1943 s.1(2)

Case (AO3)

(Gamerco v ICM)

Party paid $412k in advance in planning for a rock concert by Guns n Roses. Contract was cancelled as stadium was declared unsafe (seen as a frustrating event)

Law Reform (Frustrated Contracts) Act 1943 s.1(3)

Definition (AO1)

Where one party has gained a valuable benefit from the partial performance - at court’s discretion

Where contract is discharged by frustration:

If CP1 has received valuable benefit prior to frustration:

• CP2 may recover compensation for benefit

• For court to assess just and reasonable sum

i.e. wedding venue can claim for reasonable expenses, if they’d ordered materials / supplies ready for the occasion.

Law Reform (Frustrated Contracts) Act 1943 s.1(3)

Case (AO3)

(B.P. v Hunt)

BP spent $87 million in preparation for drilling oil and received a small amount.

Courts calculated costs on BP’s actual loss which worked out to be $35 million.

BP could recover the $35 million

Law Reform (Frustrated Contracts) Act 1943 - Not able to apply

Scenarios (AO2)

• Carriage of goods by sea

• Perishable goods

• Where parties have terms to decide what happens when frustration occurs