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Discharge by frustration - Coggle Diagram
Discharge by frustration
- Event of frustration that is sufficient to satisfy the general test of frustration ?
General test: without default of either party, the contract has become impossible to perform because circumstances have rendered it radically difference from that which was undertaken (Codelfa). The event must not have been foreseen by the parties neither have been provided for by the contract (Claude Neon). parties are released from future obligation
Not frustration just because performance becomes more onerous or expensive as it does not radically change the nature and performance of obligations (Eugenia). The purpose of the contract must be frustrated - facts must imply the end of existence of the state of things (purpose not frustrated merely because benefits are not realised)
Codelfa : injunction was the frustrating event. It was unlawful ti complete the work in a manner contemplated by the parties within the time frame, as it was prohibited by the injunction
Laundry Hotel: the public health order prevented the vendor from carrying on business in the same way, however did not mean the vendor was not complying with the contract. It was a temporary measure and the vendor was able to complete the sale on the settlement date because the public health order was lifted. Hotel was a going concern at the date required for completition (just because value declined did not mean the contract was radically different_
Two key requirements of frustration: Contract performance radically changes, and parties unable to perform that now fundamentally different obligation
Scope of frustration
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Failure of the basis of the contract - purpose of the contract (Krell v Henry) and (Herne Bay Stream Boat v Hutton)
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- Do any limits to frustration apply?
- The event must not be provided for in the contract (Claude v Neon v Hardie) - the party foresees the event and provides for the risk - an allocation of the risk between the parties and the contract provides for the rights in the event the risk does occur. Thus not frustrated at common law
Fibrosa Spolka - the clause was not contractual frustration as the contract needs to be precise in identifying the event of frustration e.g. the contract said it provided for the events of a war- not a war which provided indefinite disruption (unlikely the contract could be performed in this case)
- The event of frustration must have not been foreseen by the parties relying on the contract (Davis Contractors) What was originally contemplated by the parties must be considered with reference to the express provisions in the contract and the surrounding circumstances
(OOH! Media Roadside v Diamond Wheels) - the contract permitted the licensee to terminate if the road was not suitable for use. There was construction in front of the board and was not permitted for use. However the mere fact that the parties foresaw an event of the same kind as that relied upon is not sufficient grounds for the event was foreseen (foreseen event must have a serious possibility)
- It cannot be self-induced. The event must not be due to the failure of one of the parties (Super Servant Two) - an act or omission by the parties causes the default
- If that test is satisfied then WHEN exactly when did that frustration occur?
Frustration automatically discharges the contract. Both parties are relived from any further obligations under the contract including obligations to perform the contract and obligations to be ready and willing to perform. unlike breach and repudiation which requires and election to terminate
Prima facie, cannot plead frustration as grounds for partial discharge since when frustration operates it discharges the whole contract. EXCEPTIONS: limited to specific subject matter (discharged to the extent that the subject matter had perished). Parties may expressly provide for partial discharge
- What was the effect of that frustration
Unless there is a clause in the contract for unconditional accrual of liability for expenses incurred in performance of the contract, a party may be unable to recover in respect to any expenses
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