Discharge of Contract FRUSTRATION

DOCTRINE of FRUSTRATION
Effects of Doctrine of frustration is: (criteria)
 MUST be that performance of the contract becomes impossible,
– Destruction of the subject matter of the contract Taylor v Caldwell

– Death / incapacitation of a party Carmichael v Colonial Sugar

– Failure of the basis of the contract

– Contemplated method of performance becoming no longer possible

– Excessive delay in performance

– Supervening illegality Scanlan's New Neon v Tooheys

 Through no fault of the parties,
 Their contractual obligations are automatically discharged at the point of frustration, AND
 Thereafter, neither party can demand further performance of the contract by the other

STEP 1
ANSWER The facts of this case leads us to determine whether the Doctrine of Frustration can be applied. Finally acknowledged by
courts, Taylor v Caldwell sought to counteract the Doctrine of Absolute Liability laid down in Paradine v Jane.
STEP 2 Acceptable Impossibility choose!
STEP 2a Absolute Impossibility
a) Destroyed ANSWER In this case we can determine that the supervening event [facts] makes future performance physically
impossible, as the subject matter [fact] of the contract destroyed: Taylor v Caldwell
b) Personal services ANSWER In this case we can determine that in contracts requiring personal service, person whose
services are required becomes incapable of performing, as seen by [facts]: Morgan v Manser
c) Not available ANSWER In this case we can determine that because [facts], and thus the subject matter of the contract no
longer available to the parties – Bank Line Ltd v Arthur Capel & Co

NOTES - 1. Radical Difference

Whether delay or interruption makes performance something radically different from what was agreed is something that must be
determined when the delay or interruption occurs
 The question of frustration does NOT depend on actual length of any delay or interruption, BUT ON
– Anticipated duration of delay, etc AND The relationship between that anticipated duration and the contract overall

STEP 2b Radical Difference

a) ANSWER The [facts] of this case shows that the performance has not become impossible in an absolute sense, but the
circumstances have changed [facts] such that performance can now only occur in a way that is radically different [facts], this
is not what both parties intended they entered into the contract: Codelfa Construction P/L v State Railway Authority (NSW) &
Ooh! Media Roadside P/L v Diamond Wheels P/L
 b) ANSWER The [facts] of this case shows that this delay [or interruption] did frustrate the contract, as the contract’s main
purpose cannot still be substantially achieved: FC Shepherd & Co Ltd v Jerrom (app plumber sent to prison)
STEP 2b NOT Radical Difference - TIME
a) Delay ANSWER The [facts] of this case shows that this is a mere delay or interruption and as such does not frustrate the
contract.
b) Can achieve ANSWER The [facts] of this case shows that this is a mere delay or interruption and as such does not frustrate
the contract, especially as the contract’s main purpose can still be substantially achieved [OR if the delay or interruption was
within the commercial risks of the undertaking] National Carriers Ltd v Panalpina (lease warehouse but road closed still OK to
use warehouse)
c) Death or incapacitation of a person essential for performance: Whether sickness renders a contract something radically
different depends on the nature and probable duration of the sickness and the nature and terms of the contract (Carmichael v
Colonial Sugar & Simmons v Hay)

a) STEP 2b - TIME
– Mere delay or interruption to performance of contract not normally enough to frustrate it UNLESS delay or interruption makes
the possible means of performance radically different from the means that both parties contemplated when contract was
entered into
– Will depend on the probability of the length of the delay compared to the time left to run on the contract (Pioneer Shipping v
BTP Tioxide)
– Courts tend to a 'wait and see' approach to strikes because they are usually over before the start (Embiricos v Sydney Reid)
– Events are not judged with hindsight (Court Line v Dant)

STEP 3 INTERVENING ILLEGALLITY

 a) FOREIGN GOV ANSWER The [facts] of this case shows that although the contract was perfectly legal when entered into,
this enactment of a law by a foreign government made performance impossible and thus frustrated the contract: C
Czarnikow Ltd v Rolimpex (polish Gov introduced ban so frustrated contract)
b) WAR ANSWER The [facts] of this case shows that although the contract was perfectly legal when entered into, this
enactment of a law to commandeer materials due to the war made performance impossible and thus frustrated the contract:
Metropolitan Water Board v Dick, Kerr & Co Ltd (material needed got commandeered by Gov ACT because of war so
contract frustrated)
c) POLICY CHANGE ANSWER The [facts] of this case shows that although the contract was perfectly legal when entered into,
this change in government policy radically changed the basis of the contract and thus frustrated the contract: Lindsay-Owen
v Associated Dairies (buying farm with milk quotas, but Gov banned quotas, so sale was radically different)
d) ENEMY WAR ANSWER The [facts] of this case shows that although the contract was perfectly legal when entered into,
dealings with the ‘enemy’ would be prohibited and as such make the performance impossible and thus frustrated the
contract: Hirsch v Zinc Corporation Ltd

STEP 4 FUTILITY
a) Futility ANSWER The [facts] of this case shows that although performance is still possible, it would be futile because the
contract’s mutually understood purpose can no longer be achieved. Krell v Henry (coronation room rent)
b) NOT futility ANSWER The [facts] of this case shows that performance is still possible, it would be not be futile because the
contract’s mutually understood purpose could be achieved. Herne bay Steam Boat Co v Hutton (hired boat to see new king
and to see regatta – can still be partially carried out cause can see regatta)

STEP 5 NON – FRUSTRATING EVENTS

 a) NOT impossible ANSWER The [facts] of this case shows that performance is still possible, just because [facts] would mean
the performance has merely become more [onerous, inconvenient or expensive] it would not frustrate the contract.
Tsakiroglou & Co Ltd v Noblee Thorl GmbH (The Suez case)
b) Provision in contract ANSWER The [facts] of this case shows that specific provision has been made for the event and the
matter is to be dealt with in the manner provided for by the contract Claude Neon Ltd v Hardie
c) foreseen ANSWER The [facts] of this case shows that the frustrating event should have been foreseen and provided for and
thus does not frustrate the contract Walton Harvey Ltd v Walker and Homfrays
d) self-induced ANSWER The [facts] of this case shows that the frustrating event is result of [facts conscious act or omission
by party pleading frustration] and so the contract will not be discharged and, if that party cannot perform, it will be liable for
breach of contract Maritime National Fish Ltd v Ocean Trawlers (A hired a ship from B – to operate they needed license –
only 4 licenses allowed – they cancel hire of Licence they wanted to use for the hired ship –was held self induced)

STEP 6 THE EFFECT OF FRUSTRATION

ANSWER Firstly, the onus of proof lies on the party making the allegation of frustration: Joseph Constantine Steamship Line Ltd v
Imperial Smelting Corp Ltd

STEP 6a - CHECK
I. The event must not be provided for in the contract (Claude Neon)
II. The event must not have been foreseen by the parties (except from the case of illegality) (Codelfa)
III. It must have been a serious possibility (Codelfa)
IV. The event must not be due to the fault of one of the parties (Maritime National Fish)
V. The onus lies on the party asserting the fault (Joseph Constantine)
When a contract is frustrated;
 It is automatically discharged, at least as regards all future performance
 Whole contract automatically comes to an end at the point at which frustrating event occurs
 Thereafter, neither party can be held to performance
 However, the contract only terminates from the point of frustration – Rights, duties and liabilities that accrued prior to that point
remain ‘on foot’

Frustration has 2 results

– Payment for any work performed AFTER the contract has been frustrated is NOT governed by contract - Consequently, any
recovery of ‘post-frustration’ work must be on a quantum meruit basis
– Normally payments already made at the point of frustration cannot be recovered AND payments that have accrued and are due
(at the date of frustration) generally remain payable - In re Continental C&G Rubber Co Pty Ltd BUT in Australia monies can be
recovered – Fibrosa SA v Fairbarn Lawson Combe Barbour Ltd
 REMEDIES FOR NON-PERFORMANCE OF A CONTRACT Damages for Breach of a Contract
STEP 1
– WARRANTY - If breach is breach of warranty or minor breach of intermediate term, REMEDY IP can only sue for damages.

– CONDITION - NOTE: Damages for Breach of a condition or serious breach of intermediate (“innominate”) term) occurs where
contract has come into being AND one of contracting parties has failed to perform all or some of its contract obligations and the
REMEDY is rescission + Damages.

STEP 2 THE EFFECT OF FRUSTRATION

1. ANSWER The facts in this case lead us to argue that damages, as a monetary amount, should be awarded by the court
to compensate [who] for [facts - foreseeable loss arising naturally and consequentially out of a] which led to the breach of
the contract: Keynes v Rural Directions P/L and that the plaintiff must prove their loss based on the balance of
probabilities: Photo Production v Securicor Transport
2. ANSWER The object of these damages is to place [the innocent party] in the position they would have been in had there
been no breach of promise (Robinson v Harman).
3. ANSWER It must be noted that once [who] initiates proceedings then the ‘once and for all’ rule applies. Johnson v Perez

STEP 3 Date of calculation of damages (6 years limit & deed limit 12 years)
a) ACTUAL BREACH ANSWER The calculate the value of the damages to be awarded, one must determine the date from
which the breach occurred and [facts] indicate that [was the date] Johnson v Perez (lawyer client – date action expired)
Johnson v Agnew (A sold to B, B went cold on deal, but A’s bank sold the property – the claim was to be the date the bank
has sold the land)
 b) ANTICIPATORY BREACH ANSWER The calculate the value of the damages to be awarded, one must determine the date
from which the breach occurred and [facts] indicate show that the breach was anticipated then we can state that breach
occurred on [was the date] Melachrino v Nickoll and Knight
STEP 4 CAUSATION
a) BUT FOR ANSWER The ‘but for ‘ test established in March v Stramare [facts] allow us to determine that there was “causal
connection” between the breach of the contract by the defendant and the plaintiff has proven that the loss, based on the
balance of probabilities. Photo Production v Securicor Transport
b) Multiple cause ANSWER This case shows multiple causes for the breach so the ‘but for ‘ test established in March v
Stramare [facts] cannot be used to determine if that there was “causal connection” between the breach of the contract by the
defendant and the plaintiff has proven that the loss, based on the balance of probabilities. Photo Production v Securicor
Transport . The court will then use a common sense: Chappel v Hart, or policy consideration approach: Alexander v
Cambridge

STEP 5 REMOTENESS
a) Natural & not too remote ANSWER As established as the first limb of remoteness in Hadley v Baxendale (crankshaft for mill)
the facts [facts] allow us to determine that loss arising naturally from the breach was not too remote as clarified in Victoria
Laundry v Newman Industries and in Australia, the favoured interpretation is “sufficiently likely to result” Burns v MAN
Automotive
b) SPECIAL & not too remote ANSWER As established as the second limb of remoteness in Hadley v Baxendale the facts
[facts] allow us to determine that loss arising from the [special or exceptional circumstances] can be shown that the
defendant had actual knowledge of the plaintiff’s needs. Victoria Laundry v Newman Industries, Koufos v Czarnikow
STEP 6 MITIGATION OF DAMAGES
a) Did take steps ANSWER The general rule for mitigation is that the plaintiff must take reasonable steps to minimise their loss:
Dunkirk v Lever. As can be seen by the facts of this case [facts] the plaintiff did take all reasonable steps to minimize or
mitigate the loss and so qualifies for damages: Robinson v Hartman
b) Did NOT take steps ANSWER The general rule for mitigation is that the plaintiff must take reasonable steps to minimise their
loss: Dunkirk v Lever. As can be seen by the facts of this case [facts] the plaintiff did not take all reasonable steps to
minimize or mitigate the loss and so does not qualify for damages: Payzu v Saunders
– Extravagant steps P is only required to take steps that are reasonable, not required to resort to steps that are costly or
extravagant (Westinghouse v Underground Electric)
– new bargain If the parties had the opportunity of entering into a new bargain after breach which might have eliminated the loss
suffered, the issue is whether the P has acted reasonably in refusing to enter into a new contract (Schindler v Northern
Raincoat)
– Refusal to negotiate because of any ulterior motive may deny the P damages where entering into another contract with the D
would have been reasonable (Payzu v Saunders)
– The fact that the losses of the P have increased will not bar recovery – if they have acted reasonably they will be recoverable
(Banco v Waterlow)
– Principles of mitigation to not apply to claims for liquidated damages or other non-contractual debts (White and Carter v
McGregor)
STEP 7 DAMAGES ARE ONLY COMPENSATORY
1. ANSWER In assessing appropriate compensation, the court will attempt to place the plaintiff in same situation with respect to
damages, as if the contract had been performed as only actual loss can be compensated for in damages Commonwealth of
Australia v Amann Aviation P/L

STEP 8 Expectation losses (normal) or Reliance losses (ex not making a profit but had wasted money trying to do contract)
1. ANSWER The facts in this case [facts] show that the plaintiff is entitled to recover those losses that are expected to arise out
of this breach: Tabcorp Holdings Ltd v Bowen Investments P/L and the court will ensure that the plaintiff is not placed in a
superior position from which the plaintiff would have been in had the contract been performed: Commonwealth of Australia v
Amann Aviation P/L

STEP 9 Not recoverable

Usually injured feelings, anxiety, inconvenience, distress and disappointment, frustration, discomfort, mental stress – general not
recoverable, but….
Injured feelings- Addis v Gramophone Co. Ltd. (sacked musician not entitled)
Inconvenient - Falko v James McEwan & Co. (heater not working not entitled)

STEP 9 Holiday mostly recoverable

– Injured feelings OK - Baltic Shipping v Dillon + Jackson v Horizon Holidays
– Disappointment -Jarvis v Swan Tours

– Mental distress (Baltic Shipping v Dillon)

STEP 10 others recoverable

– Physical injuries (Cullen v Trappell)

– Delay in performance or delay in payment of money (Hungerfords v Walker)

– Lost opportunity (Commonwealth v Amann)

– Loss of reputation or publicity (only where contract promises publicity or enhancement to reputation) (Marve v George
Edwardes Ltd)

STEP 11 Damages
1. ANSWER When assessing the amount of damages to be awarded to the plaintiff the courts must estimate to the best of its
ability: Fink v Fink as difficulty in calculating is not a ground for disallowing a claim, Howe v Teefy (lease of racehorse – future
earnings – Held because court tried to make it reasonable)
a) ORDINARY DAMAGES ANSWER based on the facts of the case [facts] the plaintiff should argue that he be compensated
for the loss suffered as a result of the breach [money]
b) Nominal DAMAGES ANSWER based on the facts of the case [facts] the plaintiff should argue that the plaintiff’s legal
rights have been infringed and although no loss has been suffered he should receive at least nominal damages [money]
NSW v Stevens, Charter v Sullivan
 c) Punitive DAMAGES ANSWER The plaintiff cannot argue for punitive damages as they are not recoverable: Gray v Motor
Accident Commission

STEP 12 damages can be pre-arranged

– liquidated damages - a genuine pre estimate in the contract of the likely loss that would be suffered in the event of a breach

– Unliquidated damages Awarded where injured party has no fixed sum mentioned in the contract and therefore leaves it to the
court to decide the amount of damages
– PENALTY - Stipulation inserted into contract to make it punitively expensive for party to commit a breach of contract BUT NOT
enforceable because it is NOT a genuine pre estimate of the damage that will result from the breach Dunlop Pneumatic Tyre Co
v New Garage and Motor Co

NOTE Has IP lost right to sue for breach of contract? Eg statute of limitations

Actions for a fixed sum and debt

 REMEDIES FOR NON-PERFORMANCE OF A CONTRACT RESTITUTION
– Only use when no contract exists – no contract or no valid contract (void, abandoned or unenforceable)

– When money has been paid & Defendant is unjustly enriched

STEP 1
1. STATE -enriched ANSWER The facts of this case leads us to argue that the defendant has been unjustly enriched by [value
or benefit] at the expense of the plaintiff [facts] and the [circumstances] allow that it would be unjust to permit the defendant
to retain this benefit as there has been a [(a)mistake or (b)total failure of consideration or (c) a right to claim for reasonable
remuneration for work done] Pavey & Matthews P/L v Paul. Here we see that there is no valid contract
[non-existent/void/unenforceable/abandoned] because [facts]

STEP 2
1. STATE –quantum Meruit ANSWER The facts of this case show us that the plaintiff has [does work for – supplies good –
rendered services] at the request of the defendant. However, as seen above the no longer remains any contractual
requirement to be paid for it, so we will argue that the plaintiff has the right to be reasonably remunerated through quantum
meruit. CHOOSE -
 a) Mistake ANSWER The facts of this case show us that the plaintiff has the right to recover the money paid under a
mistake ANZ v Westpac, It would not matter whether it was a mistake of fact or under a mistake of law, David
Securities P/L V CBA, but it this case it was a mistake of [law/fact] because [facts]
b) Failure of consideration ANSWER The facts of this case show us that there has been a total failure of
consideration: Fibrosa SA v Fairbarn Lawson Combe Barbour LTD, because [facts] and as this was the
underlying unjust factor the plaintiff has the right to recover the money. Baltic Shipping v Dillon
c) Reasonable remuneration ANSWER The facts of this case show us that the plaintiff can argue the right to claim
for reasonable remuneration for the [work – supplies good – rendered services] under the [void – unenforceable –
ineffective or contract that didn’t eventuate] because [facts]. Pavey & Matthews P/L v Paul & Lumbers v W Cook
Builders P/L
d) Anticipated Contracts ANSWER The facts of this case show us that the plaintiff can argue the right to claim for
reasonable remuneration because the facts show that the plaintiff truly anticipated that a contract would be
forthcoming due to the [work – supplies good – rendered services] and the [actions of defendant] Angelopoulos v
Sabatino

STEP 3
1. STATE -defenses ANSWER The defendant could argue that they have not been unjustly enriched because he acted in to his
detriment on the faith of the receipt of the benefit and it would be inequitable for the money to be returned because [facts]
 EQUITABLE – specific performance – Injunctions Mareva Injucntion – Anton Piller Order

STEP 1 – choose from below

a) specific performance ANSWER As seen above we are unable to recover damages, therefore we will request of the court to
order an equitable remedy in the form of specific performance. Lucas Stuart P/L v Hemmes Hermitage P/L we will request
that [what the defendant should do]
– NOT automatic the court has THE descretion to order an equitable remedy

– Not available where damages will suffice Lucas Stuart P/L v Hemmes Hermitage P/L

– Not available where it will cause undue hardship Dowsett v Reid

– Remedy must be mutually available Price v Strange

– Not available to enforce contracts of personal services De Francesco v Barnum

– Not available for contracts that require constant supervision Coop Insurance Society Ltd v Argyll Stores (Holdings) Ltd

– Not available where contract is otherwise defective – ex unconcibility

b) Prohibitory injunction ANSWER As seen above we are unable to recover damages, therefore we will request of the court to
order an equitable remedy in the form of an injunction. Doherty v Allman we will request that [what the defendant should NOT
do] Warner Bros Pictures Inc v Ingolia
– NOT automatic the court has THE descretion to order an equitable remedy

– Not available where damages will suffice Lucas Stuart P/L v Hemmes Hermitage P/L

– Not available where it will cause undue hardship Dowsett v Reid

– Likely that the effectiveness would be suspect

– Plaintiffs in breach Harrigan v Brown

– Plaintiff is not ready willing and able Green v Sommerville

c) Mareva injunction ANSWER We believe that the defendant may move assets from the courts jurisdiction. The [facts] indicate
a real risk so we will ask the court to freeze the defendants assets through a Mareva injunction Mareva Compania Naviera
SA v International Bulkcarriers SA
d) Anton Pillar order ANSWER We believe that the defendant has in his possession evedence that is vital to our claim. The
[facts] indicate such possesion so we will ask the court to apply an Anton Piller order so that we may gain access to this
evidence Anton Piller KG v Manufacturing Processes Ltd
 International sale of goods

– United nations Convention on Contracts for the International Sale of Goods (CISG) NOT SERVICES!

– COMMERCIAL only!

– Effective since Jan 1 1988

– 83 contracting states (as 26 Sept 2014) inc Aus, Canada, china, Japan, France, Germany, Mexico, Russia, US

– UK is NOT a contracting state

– Implemented in Aus by state & territory – Queensland- Sale of Goods (Vienna Convention) Act 1986

– CISG contributes to remove trade barriers

– CISG creates uniform rules, taking into account different social, economic and legal systems

– CISG promotes international trade

 – CISG can still operate even if companies are in the same country (Aus company dealing with US company within Aus, but
companies MUST HQ is in different countries)

– International Contracts - MUST HQ is in different countries ARTICLE 1 CISG

– Both countries - MUST be contracting to the convention ARTICLE 1(a) CISG

– The rules of private international law must lead to the application of the law of a contracting state/country countries -
MUST be contracting to the convention ARTICLE 1(b) CISG HOWEVER a contracting state may declare that it will apply
the CISG only when the buyer & seller are both from contracting states/countries

– Opting In & Out – parties to a contract may exclude or modify the CISG application by choice of law clause ARTICLE 6
(like UK may opt in to use it)

– Whether party can exclude a domestic law and adopt the CISG DEPENDS on the rules of the state where the case is
heard
Coverage of CISG
The formation of contracts
The rights and obligations of the parties ARTICLE 4
NO Coverage of CISG
1. Matters concerning the enforceability of contracts
– The validity of contractsARTICLE 5

– The competency of parties

 – The rights of third parties
2. Liability for deat or personal injury ARTICLE 5
3. Contracts NOT related to sale of goods by merchant (consumer sales or personal services)
4. Sales subject to special regulation and NOT covered by CISG
– Auction sales

– Sales on execution or otherwise by authority of law

– Sales of stocks, shares, investment securities negotiable instruments or money

– Sales of ships, vessels, hovercraft or aircraft

– Sales of electricity

There are distinctive CISG provisions relating to

– Interpretation – based on parties intent and all relevant circumstances ARTICLE 8

– Firm offers

– Time of acceptance ARTICLE 18

– Acceptance with additional terms ARTICLE 19

– Definiteness ARTICLE 14

– Formalities ARTICLE 11

– Remedies ARTICLE 25 (Nachfirst Notice Article 47, 48 and 63(1)) - (buyer’s right to reduction in price ARTICLE 50)
Albania Denmark Japan Republic of Congo
Argentina Dominican Republic Kyrgystan Republic of Korea
Armenia Ecuador Latvia Romania
Australia Egypt Lebanon Russian Federation
Austria El Salvador Lesotho Saint Vincent & Grenadines
Bahrain Estonia Liberia San Marino
Belarus Finland Lithuania Serbia
Belgium France Luxembourg Singapore
Benin Gabon Macedonia Slovakia
Bosnia-Herzegovina Georgia Mauritania Slovenia
Brazil Germany Madagascar Spain
Bulgaria Greece Mexico Sweden
Burundi Guinea Moldova Switzerland
Canada Guyana Mongolia Syria
Chile Honduras Montenegro Turkey
China (PRC) Hungary Netherlands Uganda
Colombia Iceland New Zealand Ukraine
Croatia Iraq Norway United States
Cuba Israel Paraguay Uruguay
Cyprus Italy Peru Uzbekistan
Czech Republic Poland Yugoslavia
Zambia