FRUSTRATION

The doctrine of frustration operates in situations where it is established that due to subsequent change in circumstances, the contract is rendered impossible to perform, or it has become deprived of its commercial purpose by an event not due to the act or default of either party. Frustration is not to be confused with initial impossibility, which may render the contract void ab initio. See Couturier v Hastie ( !"#$ " H% Cas #&' (Handout on (ista)e$.

TESTS FOR FRUSTRATION

There are two alternative tests for frustration* ( $The implied term theory* +n Taylor v Caldwell (below$ ,lac)burn - stated* .The principle seems to us to be that, in contracts in which the performance depends on the continued e/istence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall e/cuse the performance.. %ord %oreburn e/plained in F0 Tamplin v 0nglo1(e/ican 2etroleum that the court* 34 can infer from the nature of the contract and the surrounding circumstances that a condition which was not e/pressed was a foundation on which the parties contracted 4 5ere the altered conditions such that, had they thought of them, the parties would have ta)en their chance of them, or such that as sensible men they would have said .if that happens of course, it is all over between us..3 (6$ The radical change in the obligation test. +n the House of %ords case of 7avis Contractors v Fareham 87C, %ords 9eid and 9adcliffe stated that the

3radical change in the obligation3 test required the court to*

. Construe the contractual terms in the light of the contract and surrounding circumstances at the time of its creation. 6. :/amine the new circumstances and decide what would happen if the e/isting terms are applied to it. '. Compare the two contractual obligations and see if there is a radical or fundamental change. +n ;<ational Carriers v 2analpina=, %ord 5ilberforce was reluctant to choose between the theories. He too) the view that they merged one into the other and that the choice depends upon .what is most appropriate to the particular contract under consideration..

EXAMP ES OF FRUSTRATION

A! "ESTRU#TION OF T$E SPE#IFI# O%&E#T ESSENTIA FOR PERFORMAN#E The destruction of the specific ob>ect essential for performance of the contract will frustrate it. Taylor ' #ald(ell Caldwell agreed to let a music hall to Taylor so that four concerts could be held there. ,efore the date of the first concert, the hall was destroyed by fire. Taylor claimed damages for Caldwell3s failure to ma)e the premises available. The court held that the claim for breach of contract must fail since it had become impossible to fulfill. The contractual obligation was dependent upon the continued e/istence of a particular ob>ect.

%! PERSONA IN#APA#IT) 2ersonal incapacity where the personality of one of the parties is significant may frustrate the contract* #ondor ' The %aron *nights +,-../ , 0 R 12 0 drummer engaged to play in a pop group was contractually bound to wor) on seven nights a wee) when wor) was available. 0fter an illness, Condor3s doctor advised that it was only safe to employ him on four nights a wee), although Condor himself was willing to wor) every night. +t was necessary to engage another drummer who could safely wor) on seven nights each wee). The court held that Condor3s contract of employment had been frustrated in a commercial sense. +t was impracticable to engage a stand1in for the three nights a wee) when Condor could not wor), since this involved double rehearsals of the group3s music and comedy routines. Phillips ' Alhambra Palace #o +,-3,/ , 4% 5?ne partner in a firm of music hall proprietors died after a troupe of performers had been engaged. The contract with the performers was held not to be frustrated because the contract was not of a personal nature, and could be enforced against the surviving partners. 6ra'es ' #ohen 7,-8-! 9. T R ,8, The court held that the death of a racehorse owner frustrated the contract with his employee, a >oc)ey, because the contract created a relationship of mutual confidence. F# Shepherd ' &eromm +,-1./ : All ER 51-; The Court of 0ppeal held that a sentence of imprisonment imposed on an employee was capable of frustrating the employee3s contract of employment if the sentence was such that it rendered the performance of the contract radically different from that which the parties contemplated when they entered into the contract.

#! T$E NON<O##UREN#E OF A SPE#IFIE" E=ENT The non1occurence of a specified event may frustrate the contract. Compare the leading cases*

*rell ' $enry +,-3:/ 8 *% 293 Henry hired a room from @rell for two days, to be used as a position from which to view the coronation procession of :dward A++, but the contract itself made no reference to that intended use. The @ing3s illness caused a postponement of the procession. +t was held that Henry was e/cused from paying the rent for the room. The holding of the procession on the dates planned was regarded by both parties as basic to enforcement of the contract. $erne %ay Steamboat #o ' $>tton +,-3:/ 8 *% .1:; Herne ,ay agreed to hire a steamboat to Hutton for a period of two days for the purpose of ta)ing passengers to Spithead to cruise round the fleet and see the naval review on the occasion of :dward A++3s coronation. The review was cancelled, but the boat could have been used to cruise round the assembled fleet. +t was held that the contract was not frustrated. The holding of the naval review was not the only event upon which the intended use of the boat was dependent. The other ob>ect of the contract was to cruise round the fleet, and this remained capable of fulfillment.

"! INTERFEREN#E %) T$E 6O=ERNMENT +nterference by the government may frustrate a contract. Metropolitan 0ater %oard ' "ic? *err +,-,1/ A# ,,-; @err agreed to build a reservoir for the 5ater ,oard within si/ years. 0fter two years, @err were required by a wartime statute to cease wor) on the contract and to sell their plant. The contract was held to be frustrated because the interruption was of such a nature as to ma)e the contract, if resumed, a different contract.

E! SUPER=ENIN6 I

E6A IT)

0 contract may become frustrated if it later becomes illegal. "enny@ Mott A "ic?inson ' &ames Fraser +,-99/ A# 8.5 0 contract for the sale and purchase of timber contained an option to purchase a timber yard. ,y a wartime control order, trading under the agreement became illegal. ?ne party wanted to e/ercise the option. +t was held that the order had frustrated the contract so the option could not be e/ercised. Re Shipton@ Anderson and $arrison %rothers +,-,5/ : *% .2.; 0 contract was concluded for the sale of wheat lying in a warehouse. The Bovernment requisitioned the wheat, in pursuance of wartime emergency regulations for the control of food supplies, before it had been delivered, and also before ownership in the goods had passed to the buyer under the terms of the contract. +t was held that the seller was e/cused from further performance of the contract as it was now impossible to deliver the goods due to the Bovernment3s lawful requisition.

F! "E A)

+nordinate and une/pected delay may frustrate a contract. The problem is to )now how long a party must wait before the delay can be said to be frustrating. &ac?son ' Union Marine Ins>rance 7,12:! R ,3 #P ,85; 0 ship was chartered in <ovember !& to proceed with all possible dispatch, danger and accidents of navigation e/cepted, from %iverpool to <ewport where it was to load a cargo of iron rails for carriage to San Francisco. She sailed on 6 -anuary, but the ne/t day ran aground in Caernarvon ,ay. She was refloated by ! February and ta)en to %iverpool, where she underwent e/tensive repairs, which lasted till 0ugust. ?n " February, the charterers repudiated the contract. The court held that such time was so long as to put an end in a commercial sense to the commercial speculation entered upon by the shipowner and the charterers. The e/press e/ceptions were not intended to cover an accident causing such e/tensive damage. The contract was to be considered frustrated.

IMITATIONS OF T$E "O#TRINE

C 3The doctrine of frustration must be applied within very narrow limits3, per Aiscount Simmonds in ;Tsa)iroglou=. C %ord 9os)ill said that the doctrine of frustration was 3not lightly to be invo)ed to relieve contracting parties of the normal consequences of imprudent commercial bargains3, in ;2ioneer Shipping v ,T2 Tio/ide=.

A! EXPRESS PRO=ISION FOR FRUSTRATION The doctrine of frustration cannot override e/press contractual provision for the frustrating event.

%! MERE IN#REASE IN EXPENSE OR OSS OF PROFIT The mere increase in e/pense or loss of profit is not a ground for frustration. "a'is #ontractors ' Fareham U"# +,-5./ A# .-. The plaintiff agreed to build &! houses in eight months at a fi/ed price. 7ue to bad weather, and labour shortages, the wor) too) 66 months and cost D &,EEE more than anticipated. The builders said that the weather and labour shortages, which were unforeseen, had frustrated the contract, and that they were entitled to recover D &,EEE by way of a quantum meruit. The House of %ords held that the fact that unforeseen events made a contract more onerous than was anticipated did not frustrate it. Tsa?iroglo> ' Noblee Thorl +,-.,/ 8 All ER ,2-; T agreed to sell Sudanese groundnuts to <T, the nuts to be shipped from 2ort Sudan to Hamburg, <ovemberF7ecember G"#. 0s a result of the 3SueH crisis3, the SueH Canal was closed from 6 <ovember G"# until 0pril G"&. T failed to deliver, arguing that shipment round the Cape of 0frica was

commercially and fundamentally different. The court held that the contract was not frustrated. T were, therefore, liable for breach 1 the change in circumstances was not fundamental.

#! FRUSTRATION MUST NOT %E SE F<IN"U#E" Maritime National Fish ' Ocean Tra(lers +,-:5/ A# 589; (aritime chartered from ?cean a vessel which could only operate with an otter trawl. ,oth parties realised that it was an offence to use such a trawl without a government licence. (aritime was granted three such licences, but chose to use them in respect of three other vessels, with the result that ?cean3s vessels could not be used. +t was held that the charterparty had not been frustrated. Consequently (aritime was liable to pay the charter fee. (aritime freely elected not to licence ?cean3s vessel, consequently their inability to use it was a direct result of their own deliberate act.

"! FORESEEA%I IT) OF T$E FRUSTRATIN6 E=ENT 0 party cannot rely on an event which was, or should have been, foreseen by him but not by the other party. 0alton $ar'ey td ' 0al?er A $omBrays td +,-:,/ , #h 829; The defendant3s granted the plaintiffs the right to display an advertising sign on the defendant3s hotel for seven years. 5ithin this period the hotel was compulsorily acquired, and demolished, by a local authority acting under statutory powers. The defendants were held liable in damages. The contract was not frustrated because the defendant3s )new, and the plaintiffs did not, of the ris) of compulsory acquisition. They could have provided against that ris), but they did not.

#ONSE4UEN#ES OF FRUSTRATION

The %aw 9eform (Frustrated Contracts$ 0ct GI' was passed to provide for a >ust apportionment of losses where a contract is discharged by frustration.

7A! RE#O=ER) OF MONE) PAI" Section (6$ provides three rules* C (oney paid before the frustrating event is recoverable, and C (oney payable before the frustrating event ceases to be payable, whether or not there has been a total failure of consideration. C +f, however, the party to whom such sums are paidFpayable incurred e/penses before discharge in performance of the contract, the court may award him such e/penses up to the limit of the money paidFpayable before the frustrating event.

6amerco ' I#MCFair 0arning 7Agency! td +,--5/ , 0 R ,88.; The plaintiffs, pop concert promoters, agreed to promote a concert to be held by the defendant group at a stadium in Spain. However, the stadium was found by engineers to be unsafe and the authorities banned its use and revo)ed the plaintiffs3 permit to hold the concert. <o alternative site was at that time available and the concert was cancelled. ,oth parties had incurred e/penses in preparation for the concertJ in particular the plaintiffs had paid the defendants KI 6,"EE on account. The plaintiffs sought to recover the advance payment under s (6$ %aw reform (Frustrated Contracts$ 0ct GI', and the defendants counterclaimed for breach of contract by the plaintiffs in failing to secure the permit for the concert. +t was an implied term of the contract that the plaintiffs would use all reasonable endeavours to obtain a permit, yet once the permit was granted they could not be required to guarantee that it would not be withdrawn. The contract was frustrated essentially because the stadium was found to be unsafe, a circumstance beyond the control of the plaintiffs. The revocation of the permit, subsequent to its being obtained by the plaintiffs, was not the frustrating eventJ the ban on the use of the stadium was. 8nder s of the GI' 0ct, the plaintiffs were entitled to recover advance payments made to the defendants. The court did have a discretion to allow the defendants to offset their losses against this, but in all the circumstances of the present case the court felt that no deduction should be made in favour of the defendants and their counterclaim should be dismissed.

7%! =A UA% E %ENEFIT Section ('$ provides* C +f one party has, by reason of anything done by the other party in performance of the contract, obtained a valuable benefit (other than money$ before the frustrating event, he may be ordered to pay a sum in respect of it, if the court considers it >ust, having regard to all the circumstances of the case. 0 case has discussed, inter alia, the meaning of the words 3valuable benefit3. See ;,2 :/ploration v Hunt=.

7#! S#OPE OF T$E ,-9: A#T Section 6('$ permits contracting out. Section 6(I$ provides that the 0ct does not apply where wholly performed contractual obligations can be severed from those affected by the frustrating event. Section 6("$ provides that the 0ct does not apply to* C Contracts containing a provision to meet the case of frustrationJ C Charterparties (e/cept time charterparties or charterparties by demise$J C Contracts for the carriage of goods by seaJ C Contracts of insuranceJ C Contracts for the sale of specific goods, which perish before the ris) has passed to the buyer.