Discharge by Frustration

 The doctrine as it was believed that it would be grossly unfair if a promisor becomes
liable for breach of a contract because they are prevented from performing their
side of the bargain by the occurrence of some event that is beyond their control.
 Frustration is really an expression indicating that the contract, once entered into,
has become subsequently impossible to perform.
 The effect of frustration is that it brings about the immediate and automatic end to
the contract, releasing the parties from the need to perform their obligations under
it.
 Originally, the occurrence of frustrating events did not have any effect on the
obligations of the parties to perform their side of the contract. This was developed
in the case of Paradine v. Jones.
 This confinement of the doctrine operated at two levels:
1. The courts would only allow frustration to be used as a defence to an action for
breach of contract where the supervening event was destroyed by a fundamental
assumption on which the contract was based.
2. The courts recognized that contracts themselves could provide for the
consequences of the occurrence of such an event. This gave rise to force majeure
clauses.

The development of the modern doctrine

i. In nineteenth century, the principles of freedom of contract and equality of

bargaining power were highly emphasized. Thus, judges were reluctant to
imply terms into contracts. However, the courts were so persuaded to imply
terms into contracts where they were merely giving effect to the
unexpressed wished or intentions of the parties.
ii. The ability of courts to imply terms got the ball rolling in developing the
doctrine of frustration. This result was produced in the case of Taylor v
Caldwell. In the said case:
o The defendant agreed to a hire a music hall to the plaintiff.
o After the contracts we made but prior to the concert a fire broke
out; destroying the music hall.
o The plaintiffs had gone on to make extensive arrangements that
resulted in financial loss.
o The contract contained no express provisions dealing with such an
eventuality.
o The defendants pleaded the destruction of the music hall through no
fault of their own as a defence.
 o The court upheld the defence of the defendants, deciding that the
principle contained in Paradine v Jane was confined to positive
contracts.

From this basis the doctrine of frustration began to expand, though

it was always relied on the basis of an implied term because of the
continued fiction of equality of bargaining power.

iii. The implied term became almost as fictitious. The fictitious nature of the
implied term was discussed in Davis Contractors Ltd v Fareham UDC [1956] 2
All ER 145, in which both Lord Reid and Lord Radcliffe expressed
dissatisfaction with the concept. Lord Radcliffe stated,
‘there is something of a logical difficulty in seeing how the parties could
even impliedly have provided for something which, ex hypothesi, they
neither expected nor foresaw.’
iv. In Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, it was also
noticed that the officious bystander test could not stand as the parties could
not possibly have expected or forseen the implied term expressed. Lord
Radcliffe and Lord Reid were of the belief that an objective rule within the
law of contract should arise independently of the intentions of the parties.
v. The modern test is often expressed as a ‘radical change in obligations’ or a
‘construction’ test. The court is required to construe the contract in the light
of its nature and surrounding circumstances so that the obligations of the
parties can be determined. Once this has been done the court is then able to
assess whether obligations of the parties have changed because of the
subsequent supervening events. It should be noted that the test amounts
to a question of law, not fact, even though the issue of fact heavily
overlays the considerations of the court.

Application of the doctrine of Frustration

Destruction and unavailability of the subject matter of the contract

o The death of an individual on whom the execution of a contract depends

o The complete destruction of an object on which the execution a contract depends
(Taylor v Caldwell)
o Frustration here revolves around the period of unavailability. If this is only a short
time then the courts might well determine that the contract still subsists, such a
finding becoming less predictable the longer the period of unavailability.
o Case Law: Condor v The Barron Knights Ltd (1966)
  A court relating to a member of a pop group contemplated that he would be
able work seven evenings a week, should this work be available.
 The member fell ill and was advised to work only a limited number of nights a
week. In fact, he ignored this advice since he considered himself sufficiently
well to work to the contract, and he did so.
 The court nevertheless held that the contract was frustrated.

Non-occurrence of an event central to the contract

 The question that arises here is whether the non-occurrence renders the object of
the contract defeated and thereby frustrated. One has to distinguish here between
the situation where the specified event amounts to the object of the contract and
that where it amounts merely to the motive for entering into the contract in the
first place.
 Krell v Henry (1903)
o The plaintiff hired a flat to the defendant for 26 and 27 June 1902.
o Purpose: Watch and celebrate the procession of Edward VII which would pass
by the flat.
o No mention of this purpose was made in the contract. A prepayment of one-
third of the rent was made.
o Due to the sudden illness of the King, the coronation did not take place.
o The defendant refused to pay the balance owing.
o It was held that the plaintiff could not recover these moneys since the
contract had been frustrated by the cancellation of the procession. The
court found that the procession and the position of the flat formed the
objective of the contract which was thus frustrated and discharged as a
result.
 Herne Bay Steamboat Co. v Hutton (1903)
o The defendant hired a motor launch for 28 and 29 June 1902 for the purpose
of seeing the coronation naval review of the fleet at Spithead and allowing
the passengers themselves the opportunity of touring the fleet.
o The review was cancelled due to the King’s illness.
o The coronation review was held not to be the object of the contract but
merely the motive for the hiring of the motor launch on these dates.
o The court reached its decision on two grounds:
1. It was still possible for the tour of the fleet to take place and;
2. Since the defendant intended to charge the passengers for the trip it
was his venture and therefore he should bear the risks inherent in the
venture.
Inability to comply with specified manner of performance

 In commercial contracts, it is common for there to be a specified manner of

performance. if it should become impossible to comply with that specified manner
then the contract will be frustrated.
 A distinction is made between mandatory stipulations and an expected manner of
performance.
 Tsakiroglou & Co. Ltd v Noblee Thorl GmbH [1962] AC 93 and The Eugenia
[1964] 1 All ER 161- the closure of the Suez Canal meant that the ships had to be
diverted to the Cape of Good Hope in Order to reach their destinations. This
diversion obviously meant that extra costs were incurred by the shipping companies,
which therefore sought to have their contracts set aside for frustration in order
that they could renegotiate their freight contracts.
 The fact that costs increased did not render the contract frustrated.
 Lord Radcliffe in the Davis case, ‘it is not hardship or inconvenience or material
loss itself which calls the principle of frustration into play’.

Unavailability

 Delay in performing an act can also frustrate a contract

 Case Law: Finelvet AG v Vinava Shipping Co. Ltd [1983] 2 All ER 658
 A time-chartered ship became trapped on 22nd September 1980
 The court held that the contract was frustrated, not on this date, but on 24
November 1980.
 At the earlier date expert opinion considered that the war would be quickly
won by Iraq, thereby reducing the period of confinement. At the time of the
later date the expert opinion had changed to that of anticipating a protracted
war, which clearly resulted in the contract being frustrated.
 In such a situation it is possible for the courts to wait and see in order to determine
the possible length of unavailability, either as a matter of fact or as a matter of
inference by reference to all the circumstances surrounding the contract and the
frustrating event, as we saw in the Finelvet case above.

Supervening Illegality

 The performance of contracts of the type entered into may prove to be illegal.
 Lord Macmillan in Denny, Mott and Dickson Ltd v James B Fraser & Co. Ltd [1944] 1
All ER 678. He stated: ‘It is plain that a contract to do what it has become illegal to
do cannot be legally enforceable.’ Thus, if a contract is made to ship goods to a
country and it subsequently becomes illegal to import such goods then the contract
becomes frustrated.
 The problem of frustration in Leases

 The particular problem that arises with frustration in leases is that when a tenant
takes a lease over property, they are acquiring an estate in land that persists
even if the building rented is completely destroyed.
 Case Law: Cricklewood Property & Investment Trust Ltd v Leighton’s
Investment Trust Ltd [1945] AC 221:
 In this case, a plot of land was let in 1936 to the lessees for 99 years in
order that they could build shops on the property. Before the lessees
could begin construction, the war broke out and the government
subsequently passed regulations restricting such development. The effect
was that the lessees could not build the shops they had covenanted to do
and they thus claimed that the lease was frustrated. The House of Lords
held that the doctrine of frustration did not apply, basing their decision
in terms more appropriate to unavailability, as outlined above, in that the
restrictions would only delay building for a comparatively short period
when balanced against the full extent of the 99-year lease.
 The position not to allow frustration in leases is, however, more than just a little
illogical since if one rents a property for a particular purpose then surely if that
purpose becomes impossible the doctrine should apply.
 The issue relating to frustration and leases would seem to be now decided by the
case of National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 where
the House of Lords decided that frustration could apply to leases. They expressed
the view, however, that its occurrence would be rare and probably confined to the
situation where there was a joint intention that the property was to be released for
a particular purpose,

Factors affecting the operation of the doctrine

Self-Induced Frustration

 If an event arises out of the actions of a party to the contract then the doctrine
cannot be relied on.
 Case Law: Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524:
 The appellants chartered a trawler from the respondents
 This was fitted with an otter trawl net which was illegal to use without a
licence.
 The appellants had four other trawlers all fitted with the same type of
net. They applied for five licences but in fact were awarded only three.
They had to stipulate to which trawlers the licences applied and this did
not include the one chartered.
  They claimed the otter trawl charter was discharged by frustration.
 The Privy Council held: would fail since they could have nominated the
vessel in question to have one of the licences but but had declined to do
so.
 Case Law: J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyd’s Rep 1
 The plaintiffs needed a drilling rig from Japan to Rotterdam.
 The defendant possessed two specialist transportation systems capable of
performing this task, Super Servant One and Super Servant Two. The
contract was open as regards which vessel could be used, though the choice
of vessel rested with the defendants.
 In fact, although they did not mention this to the plaintiffs at the time, the
defendants intended to use Super Servant Two for the task and allocated
other tasks to the sister ship.
 Super Servant Two sank.
 The defendants claimed frustration when the plaintiffs submitted that the
contract could have been performed nonetheless.
 The court of appeal held that the contract was not frustrated seeing that the
frustrating event lay in the hands of the defendant.

Frustration expressly provided for in the contract

 The parties may make provision for what is to happen should a particular supervening
contingency occurs. These clauses are the so-called force majeure clauses mentioned
earlier.
 Case Law: Jackson v Union Marine Insurance Co. Ltd (1874)
 A ship was chartered to sail ‘with all possible despatch’ from Liverpool to
Newport to pick up a cargo and then to proceed to San Francisco ‘dangers and
accidents of navigation excepted’. The ship ran aground one day out from
Liverpool. The repairs took eight months to complete, during which time the
charterers repudiated the contract. It was held that despite the force
majeure clause the contract was still frustrated. Undoubtedly the clause took
account of the contingency that had occurred, but it was not designed to cover
damages and delay of such an extensive nature. It was considered that if the
contract had been upheld and a voyage to San Francisco had taken place the
venture would have been entirely different commercially.

The legal effects of the doctrine of frustration

General Rule: Injured decides whether to bring claim in frustration or not.

The effect of frustration at common law: Any obligations that had already arisen under the
contract had to be performed.

Case Law: Chandler v Webster [1904] 1 KB 493

 In this case the defendant agreed to let a room to the plaintiff for £141 for the
purpose of viewing the coronation procession.
 The cost of the hire was payable immediately but in fact the plaintiff paid only £100
in advance. Before he paid the balance, the procession was cancelled and the contract
frustrated as a result.
 It was held that the plaintiff could not recover the £100 but additionally he was also
liable to pay the balance since the obligation to pay this had already accrued prior to
the supervening event.

Case Law: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32