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Topic 17: Discharge of Contracts: Frustration (Development (After parties…
Topic 17: Discharge of Contracts:
Frustration
Development
After parties have agreed all the terms of the contract and essential requirements are all present
A contract may still not be capable of performance
Circumstances outside the control of either party might render the contract impossible to perform
Friel:
We are concerned here with factors which so radically alter the basic assumptions on which the contract is founded that its performance is futile
Modern Doctrine has evolved to deal with cases where contractual obligations can no longer be performed as a result of circumstances beyond the control of either party
Contractual liability previously considered to be absolute
Pardine v Jane:
Facts: D, lessee, ejected by armed forces from possession of land, being usef by military during English Civil War
Under terms of lease, lessee required to pay rent on quarterly basis
P took action for arrears in rent from time lessee ejected from property
Issue: Lessee pleaded she be excused for payment given circumstances
Held: Lessee oblied to pay rent owed
Gamble v The Accident Insurance Company
Facts: Gamble had taken out life insurance policy
Term stated that if he were involved in an accident, should inform insurance co within 7 days
Issue; Gamble died from drowning accident
Held; Gamble, while he was alive should have arranged for third party to notify insurance co in event of his death from an accident
Unable to claim under policy
Rule relaxed to some extent
Taylor v Caldwell
:
Facts: Music hall hired as concert venue
6 days prior to first concert taking place, hall caught fire and was destroyed
Neither parties at fault
Issue: Destruction of hall made contract between the parties impossible to perform
Ps sued for money spent advertising concert
Held; Destruction of music hall discharged the contract
Theoretical Basis
Davis Contractors v Fareham UDC
: Frustration occurs whenever the law recognsies 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 radically different from that which was undertaken by the contract
Impossibility v Mere Difficulty
Davis Contractors v Fareham UDC
: P contractors agreed to build number of houses within 8 months and for 94,000
Due to labour diffs and shortages of materials - houses took 22 months and cost 115,000
Held: Circumstances did not frustrate the contract as performance was merely rendered more difficult rather than impossible to perform
Tsakiroglou v Noblee Thorl:
Facts; Sellers of ground nuts agreed to ship the nuts from port of Sudan to Hamburg
Believed goods would be transported to their destination via the Suez Canal
Issue; Outbreak of war, canal closed, resulted in parties taking a much longer route around Africa
Held: Frustration had not occurred under the circumstances as performance was merely more difficult but not impossible
Courts must be of opinion event rendered contract IMPOSSIBLE to perform rahter than more difficult
Zuphen v Kelly
Facts; D was a recruitment agency which was engaged by Eircom to supply it with workers for upgrading work
D lost contract- attempted to terminate contract with the P workers on basis the contract was frustrated
Contract between P and D conditional solely on presence of P in Dublin and their possession of work permit
Held: No frustration
Must have been such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for
Temporary Unavailability of something essential to performance of contract
Whether such temporary unavailability amounts to a frustrating event will depended on whether duration of unavailability coincides with the time that performance of the contract is due
The Nema
:
Facts- A vessel was chartered for six or seven trips
After first trip, long strike ensued which meant the vessel was only available for one or two further voyages
Held: Charter contract frustrated in the circumstances
The point then, is that he greater the proportion of the period available for performance that is eliminated by the delay, more likely that is to frustrate the contract
National Carriers Ltd v Panalpina (Northern) Ltd
Facts: Appellants= tenants of warehouse for 10 year lease
Commenced 1974
Issue: 1979 Local Authority closed access road to wharehouse until 1981
sued for frustration of the lease
Held: Based on the circumstances of teh case the event was not serious enough to constitute a frustrating event
Ching v Xuan YI
: prohibiting P from access to leased apartment for 10 days of two year lease because of SARS virus did not amount to frustrating event
Frustration of Purpose
If parties enter into contract for specific reason, and as a result of events that take place- this reason no longer exists- contract may be deemed to have been frustrated
Krell v Henry
Facts: P let his flat to D in order to allow him to view coronation of Edward VII, paid 25 deposit, to pay 50 on day
Issue: On morning of ceremony, coronation cancelled due to King being ill
P sued for 50
Held: Court of opinion that the purpose for which the room was wanted, went to the root of the contract
The cancellation of this event had led to the contract being frustrated
CONTRAST
Herne Bay Steam Boat v Hutton
Facts: D hired steamboat in order to view Naval Review which was celebrating King VII coronation and sail around the fleet
Naval Review Cancelled due to illness of the King
Held: Contract still enforceable as D could still sail around the fleet
Clark acknowledges: While the boundary between these cases= narrow, it is clear the hire contract in
Herne Bay
was not tied to the presence of the monarch- it was expressed to be basically a contract to hire a boat
in the same way room in Krell was only entered into because of anticipated procession
Foreseeaility of the Frustrating Event
Mulligan v Brown
Facts: Doctor's contract of employment provided that the continued employment of doctor dependent on sufficient funding, in absence of which his contract would be discharged following three months notice
Issue: Hospital ran into difficulty and sought to terminate doctor's contract
Held; If it is dealt with in the contract then it was within the contemplation of the parties and the doctrine of frustration
cannot apply
Existing but undiscovered
Gamerco SA v ICM/Fair Warning Agency
: Held Frustrating event could be in existence at the time the contract was entered into but was
undiscovered at the time
Concert cancelled in Madrid when discovered materials used in construction of the stadium where the concert was to be held were unsafe
Held; Contract promoters successfully pleaded frustration following the Spanish government's decision to cancell concert
Carke; This case somewhat surprising promoters could plead frustration
Could be argued local agents had impliedly warranted the venue was satisfactory i.e. such such an occurence was forseeable
Parties to contract may be aware of the possibility that a frustrating event may take place
May elect to provide for this in the contract
Contract will generally not be discharged where the term of a contract covers an event alleged to be frustration
Where parties forsee a frustrating event but fail to provide adequately for consequences of such an event within the contract, the parties mus be prepared to suffer consequences of the risk involved
Neville and Sons v Guardian Builders Ltd
Facts; Parties involved in negotiations for sale of land for development purposes
Issue: Parties aware at time they entered into contract, in orderf for contract to be successful, a strip of land belonging to Local authority would have to be acquired
Local authority refused to convey land
Held: HC: Failure of Local Authority to sell land was a frustrating event
SC: overturned on the basis that the refusal of the Local Authority only made performance of the contract more difficult, as opposed to impossible
Subsequent Changes in the Law
Sometimes contract = legal when first entered into
Frustrated subsequently on basis that the performance contracted for has since been deemed illegal
O'Cruadhlaoich v Minister for Finance
Facts: P appointed a memeber of Judiciary by Dail Eireann
Appointment for life
Issue: These courts subsequently abolished by statue passed by Government
P sued for salary due to him under contract of employment
Held: Action dismissed on grounds the contract had been frustrated
Self- Induced Frustration
Frustrating event must be outside control of the contracting parties
Self Induced frustration will not discharge a contract
Herman v Owners of SS Vicia
Facts; Ship unable to dock in Britain as owners negligently failed to obtain and produce necessary documentation to authorities
Hedl: Since events in question that made contract impossible to perfom were self induced
No frustration arose
Maritime Fish Ltd v Ocean Trawlers
Failure to obtain a license was not considered to be a frustrating event
Lack of a license under the circumstances was due to a choice made by the D to apply the three licenses he had to other ships
Self induced
FC Shepher v Jerrom
:
An apprentice sentenced to not less than 6 months in a boarstal when he was halfway through his 4 year apprenticeship
Held; the contract of apprenticeship was frustrated because of the length of the sentence when compared to the length of the apprenticeship
Held: sentence did not amount to self-induced frustration
Effects of Frustration
Fibrosa Spolka Akcyjnia v Fairbairn Lawson Combe Barbour Ltd:
Held: if a party to a contract that has been frustrated can show they derived no tangible benefit under the contract, then the equitable remedy of restitution of money paid will be ordered
It is unclear whether the Irish Courts will follow this line of authoirty and has been suggested that the lRC and Oireahtas should provide gudiance
Doctrine of frustration comes into
effect
after the contract is entered into and not at the time the contract is entered into
Unlike mistake/misrepresentation
From time frustration declared, all future obligations are discharged
In certain cases this can lead to unfair results
Applyby v Myers
Facts: Contract to install a machine frustrated
Building in which machine being installed destroyed in a fire and thus the machine had not been fully installed
Manufacturers of machine deemed unable to recover payment for the work already done because payment was due after the frustrating event occured
Nonetheless, where a payment or an oblgiation is due before the frustrating event takes place, then liability may still arise
Loss is said to 'lie where it falls'- so if payment is made before frustrating event occurs, it will not be recoverable
Latter may be said to produce very harsh results
Reform:
Law Reform (Frustrated Contracts) Act 1943:
enacted as wartime measure in England and Northern Ireland
adopted in several jurisdictions of the Commonwealth to date
Provides for the recovery of money paid under frustrated contracts
Clark:
it cannot be disputed that some kind of general legislative measure is overdue in Ireland