Discharge II - Frustration

Davis Contractors v Fareham UDC - per Lord Radcliffe: "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 so radically different from that which was undertaken by the contract... It was not this that I promised to do."

The Test

National Carriers Limited v Panalpina (Northern) Limited - per Lord Simon: "Frustration of a contract takes place when there supervenes an event (without default of the party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance."

Breaking down the test - requirements

Supervening

Radically different - Davis Contractors v Fareham UDC

For which the contract makes no sufficient provision

Unforeseeable - Amalgamated Investment v John Walker

At no fault of either party - The Eugenia

The Multi Factorial Approach - The Sea Angel (Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd) - per Lord Rix: "In my judgement, the application of the doctrine of frustration requires a multi factorial approach."

Categorisation - types of frustrating event

Impossibility - destruction of subject matter, unavailability of thing or person

Supervening illegality

Frustration of common purpose

Frustration of leases

1) Destruction of...

i) Subject of contract - Taylor v Caldwell, OR

ii) A thing necessary to contract - Appleby v Myers

2) Unavailability of thing - a matter of degree - how badly is the contract affected?

Jackson v Union Marine Insurance Co

FA Tamplin v Anglo-Mexican

Bank Line v Arthur Capel

Edwinton Commercial Corporation v Tsavliris Russ (The Sea Angel)

3) Unavailability of person

Incapacity - Morgan v Manser

Death - Stubbs v Holywell Railway Co

Fibrosa v Fairbairn - "a contract to do what has become illegal to do cannot be legally enforceable"

Denny, Mott, Dickson v Fraser - government intervention

Metropolitan Water Board v Dick Kerr

Must be common purpose of both parties

The "Coronation Cases"

Krell v Henry

Chandler v Webster

c.f.

Herne Bay Steamboat v Hutton

Armchair Answercall v People in Mind Limited

Can leases be frustrated?

Never - Paradine v Jane

Never/hardly ever - Cricklewood Property v Leighton's Investment Trust

In principle, yes - in rare circumstances - National Carriers v Panalpina

Consider ratio - unavailability of property: length of lease (i.e. how badly contract affected)

Radical difference - no frustration where contract made merely more onerous

Rix LJ - The Sea Angel - "the rest of 'radically different' is important: it tells us that the doctrine is not to be lightly invoked; that mere incidence of expense or delay or onerousness is not sufficient; and that there had to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstance"

Commercial impracticability/onerousness insufficient

Davis Contractors v Fareham UDC

Tsakiroglou v Noblee Thorl

The Eugenia

No frustration where event is self-induced/due to fault

Party at fault - The Eugenia

Self-induced - frustration as result of own choices

Maritime National Fish v Ocean Trawlers

"The Super Servant Two"

Burden of proof on the party alleging fault - Joseph Constantine Steamship Line v Imperial Smelting Corporation

No frustration where event is foreseeable

Walton Harvey Ltd v Walker & Homfrays ltd

The Sea Angel - "The less that an event is foreseeable, the more likely it is to lead on to frustration"

Armchair Answercall v People in Mind Limited

The Flying Music Company Limited v Theater Entertainment SA

Force Majeure clauses

Boiler plate drafting

Express provision for what happens on the occurrence of certain events

May count as parties providing for the risk = frustration difficult to argue if the clause covers the risk

Consequences of frustration

Common law

All future obligations discharged by operation of law from date of frustrating event

Monies paid or accrued amounts payable before frustration

If total failure of consideration - advance payment recoverable/ceases to be payable - Fibrosa v Fairbairn

If partial failure of consideration - advance payment not recoverable/remains payable - Chandler v Webster

Law reform (Frustrated Contracts) Act 1943

Act now applies unless excluded - s1(2)

Money paid before frustrating event if recoverable AND

Money payable before frustrating event ceases to be payable

Expenses recoverable

Party that incurred expenses must show it is "just" for them to retain the money they spent

Any just sum awarded is...

At the "broad discretion" of the court

Capped at limit of money paid/payable before frustrating event

Gamerco SA v ICM/Fair Warning

S1(3) - "valuable benefit"

Where one party has provided a non-monetary "end product" prior to frustrating event

Other party may have to pay "just sum" for that "end product"

BP Exploration v Hunt

S2

(3) Parties can contract out of act

(4) Multiple obligations e.g. leases

(5) Contracts excluded from act e.g. carriage of goods by sea/insurance products