Frustration and Common mistake (cases and principles)

Taylor v Caldwell

contract is terminated if performance becomes physically impossible when the essential subject matter is destroyed

music hall fire

Blackburn: implied term of existence of subject matter (now under the doctrine of frustration)

Krell v Henry

contract can be frustrated for the cancellation of an event/etc that forms the foundation of a contract when the contract is tailored to the event thing

window rented to view coronation procession although this wasn’t raised in the contract. did not pay remainder of price after discovering that the coronation date had changed.

Vaughan Williams: frustration not limited to matter of existence of a thing, can be re state of things and can be inferred from circumstances

Derby Day Cab example: must be ‘special qualifications for the purpose which led to the selection of the cab … any other cab would have done as well’ whereas the room was specific for the coronation because of the view it provided

Herne Bay Steamboat v Hutton

cancellation of an event which does not form the unique and central purpose of a contract does not frustrate it

boat hired to view naval review which was cancelled however this did not amount to frustration because the object extends to a cruise round the fleet, any other ship would have done as well.

Metropolitan Water Bd v Dick Kerr

contract can be frustrated by legal impossibility when rendered illegal by government regulation.

wartime order to sell reservoir.

illegality and indefinite delay made the contract cease to be binding

conditions re delay are limited to what could have been in the contemplation of the parties when the contract was made

Davis Contractors v Fareham UDC

change in circumstances that makes a contract more difficult not impossible to perform does not frustrate it

shortage of labour and materials increased the time taken to build houses

builders claimed that contract was frustrated by the delay and was entitled to quantum meruit from that point onwards

Reid: frustration happens by operation of law

frustration is not implying terms but rather the true construction of terms. since the delay was not caused by any new/unforeseeable factor, there was no reason that it was not the same kind of job contemplated

Radcliffe: test for frustration = the law realises that 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 current case.

Rejects implied theory term. Frustration as an operation of law rather than hypothetical intention of either of the parties.

The Eugenia

self-induced frustration cannot be relied on

war clause that chartered ship not be to brought into a war zone. defendant argued that the contract was frustrated on either construction that the contract implied a specific route through the Suez canal or that the journey would otherwise take so much longer that it was a fundamentally different journey.

court rejected these arguments

Denning: it was the defendant who had ordered the ship through the Suez canal.

National Carriers v Panalpina

leases can be frustrated

warehouse leased for 10 years unusable for 10 months due to street closure. defendant withheld rent for that period, arguing that the lease had been frustrated. claimant argued that leases cannot be frustrated since land is indestructible.

Wilberforce: if the lease is a means to an end and not the end itself, it can be frustrated. however the tenant failed here because 10 months was not a substantial portion.

Russell (dissent): why should justice require that a useless site be returned to the lessor rather than remain the property of the lessee’

Maritime National Fish v Ocean Trawlers

contract not frustrated when the impossibility of performance is induced by the party seeking relief

failed to assign one of limited number of licenses to trawler that was required for a charterparty

‘essence of frustration is that is should not be due to the act of election of the party’

The Super Servant Two

contract not frustrated when the frustrating event was self-induced to prove frustration, even if it acted reasonably in choosing not to perform

termination of the contract is automatic rather than by election

had two ships eligible under the contract but one was leased out and the other sank

where parties are free t to allocate risk of impossible performance, a narrow doctrine of frustration applied

Canary Wharf v European Medicines Agency

frustration operates where a ‘supervening event renders the performance of the bargain ‘radically different’ when compared to the considerations at play in the conclusion of the contract

lease in London by an EU agency affected by Brexit. claims of supervening illegality failed because it would have been self-induced and frustration of common purpose failed because it was nevertheless possible to fulfil the contractual obligations.

Fibrosa v Fairbairn

contract to sell machinery; partially paid; outbreak of WW2 made delivery impossible

allowed to recover the partial payment due to ‘total lack of consideration’ (=provision for the restitution of moneys conferred prior to frustration) Lords stressed desire for this requirement to be lessened as it was through the 1943 reform

total failure of consideration = no part performance promised under the contract in return for payment had been carried out

Appleby v Myers

restitution is not available for work done but destroyed by supervening event as no benefit conferred to the other party

construction of machinery in factory destroyed by fire

BP Exploration v Hunt

no restitution to be made under law reform (frustrated contracts) act 1943 for non-monetary benefit conferred if the outcome is destroyed by frustrating the event

Libyan oil concession; claimant’s share was expropriated by the government. Awarded ‘just sum’ under the contract. ‘benefit has to be identified, valued, and such value forms the upper limit’

Gamerco SA v ICM

local authority retracted permit for a concert once the claimant had incurred $450k preparation expenses and the defendant had paid $50k

recoverable without any deduction for the claimant’s losses - illustrates judges discretion under the 1943 act re loss apportionment. no indication in the act of inclination either way.

court will allow defendant to bear its losses where the claimant’s losses greatly exceed theirs

Garland: ‘its task is to do justice in a situation which the parties had neither contemplated nor provided for, and to mitigate potential harshness of allowing all loss to lie where it has fallen’

Couturier v Hastie

import of corn and third party refused to pay

sued for the sum that would have been entitled to if the sale had been successful - debate as to whether the third party was bound to pay?

where, unbeknownst to the buyer and seller, the subject matter of sale is not in existence (or not capable of transfer) at the time of contract - the contract is void for common mistake

Bell v Lever Bros

contract void for mistake as to quality only if the quality is sufficiently fundamental, without which the thing will be essentially different

merged company entered into severance agreement. defendants continued trading cocoa independently which would have been grounds to terminate employment.

not sufficiently fundamental - must be as to existence, title, or essentially different quality

Mc Rae v Commonwealth Disposals Commission

n.b. Australian

wrecked oil tanker did not actually exist when claimant sought to find it. held: breached implied warranty of existence. this was based on the seller’s assertion rather than common assumption.

(Bell v Lever Bros finds this case wrongly decided)

Associated Japanese Bank v Credit du Nord

common mistake as to existence of the subject matter of a contract renders the contract void.

sale of machines which did not exist.

Great Peace Shipping Ltd v Tsavliris Salvage

contract void for common mistake only when the mistake renders the contract impossible to perform

differing distance from the salvage to the damaged vessel

the service provided was not essentially different

Brennan v Bolt Burdon

personal injury caused by CO leak in rented property

entered into contract of compromise because case law at the time barred this type of claim - case law then overturned

threshold for ‘common mistake as to law’ is that it renders the performance of the contract impossible - here it was just advantageous

Sedley J proposed alternative test: ‘whether, had the parties appreciated that the law was what it is now known to be, there would still have been an intelligible basis for their agreement’

Amalgamated Investment v John Walker

difference between common mistake and frustration si timing

bought warehouse on the assumption that it would be redeveloped. the day after the contract had been signed, having discussed that the warehouse was not listed, the warehouse was listed causing significant fall in value.

Solle v Butcher

rented one flat for a certain price and rented renovated flat for higher price. both agreed that the higher price was justified but it was barred by Rents Act.

tenant sought restitution of the overpaid rent.

found for landlord - rescinded the contract due to common mistake (allowed the tenant to leave or stay and pay the higher rate)

wider use of common mistake as it was not impossible to be performed - rather inequitable (Denning). rejected in the Great Peace