Discharge 2 Frustration Notes

Contract Law: Discharge 2, Frustration

• If frustration is found: the contract falls away from the date of the frustrating event.

Intro

• Modern definition of frustration, Lord Radcliffe, Davis Contractors v Fareham Urban District Council (1956):

  • ‘[F]rustration 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 radically different from that which was undertaken by the contract. ...It was not this that I promised to do.’

• The frustrating event which renders performance ‘radically different’ must occur after the formation of the contract.

• More unforeseeable = more likely to render the contract ‘radically different’

• IF contract frustrated brought to an end automatically, parties have no choice in the matter.

• Frustration can be raised as a defence to an action for breach of contract—eg Taylor v Caldwell (1863)

Frustrating event—definition

• A supervening event

• Unforeseeable:

  • Amalgamated Investment v John Walker (1977): was not unforeseeable no frustration.

• At no fault of either party

  • The Eugenia (1964)

  • Ship transporting goods from England to India. Wants to sail through Suez canal. Risky because often Suez is closed due to war.

  • Didn’t contact the owners before entering the Suez canal (was in terms they should have contacted the owner).

  • Eugenia gets stuck in the Suez when it closes due to war.

  • Charterers tried to argue: the contract with the owners is frustrated. They want to argue this, because in a shipping contract you have to pay a hire charge; and there is always a delivery date, by which time you have to get the ship back.

  • HELD: not frustrated, the charterers took it upon themselves to put themselves in that position, it was the charterers fault that they ended up landlocked in the Suez.

• Renders further performance of the contract:

  • Impossible;

  • Illegal

  • OR radically different: the whole contract must be completely changed in nature.

  • (Davis Contractors v Fareham UDC (1956))

  • HELD: not frustration. You have a contract to built a plot of houses. Even if takes much longer, and is more costly, that doesn’t make the contract radically different. So Davis Contracts had to carry on and finish the job.

• By operate of law, in case of frustration, all future obligations are discharged from the date of the frustrating event.

History of the doctrine

• At first, rule of absolute obligations (Paradine v Jane, 1647): idea that there is no doctrine of excuse for breach. You enter into the contract-no getting out of it; if you breach it, no defence.

  • Paradine v Jane: Paradine leased land to Jane; Jane farmed the land and lived on it; paid rent to Paradine; rent stopped coming. Paradine took Jane to court for non-payment of rent.

  • D argued: arrears not due because had been forced off the land by a hostile army.

  • HELD: defence should fail--. HELD: no, rule of absolute obligations, pay the rent anyway. Where a party by their own contract creates a duty on themselves, he is bound to make it good, notwithstanding any accident after contract is formed.

  • Where a party assumes an obligation under a contract, where it is not qualified in any way, then even if circumstances make performance impossible, they are still liable for breach—the obligation is absolute.

• Then, implied term theory (idea that there must be some excuse for breach)

  • Taylor v Caldwell (1863):

  • Events organiser, a Victorian festival. Was going to advertise it, people would pay to come to the amusement park/festival.

  • Shortly before festival due to start, the venue, a music hall, burnt down.

  • Taylor sued Caldwell for breach—Caldwell unable to provide the music hall he had promise to provide, under absolute obligations rule.

  • HELD: although there’s no doctrine of excuse for breach, we will imply a term into the contract that the music hall had to still be in existence for the contract to be a valid one. Since the music hall is no longer in existence, the contract is now at an end.

• Now, implied term theory is ‘artificial’

• Theory underpinning frustrating today is the ‘radically different’ one

Contracts which may be frustrated

• ‘Radical difference’ theory is most widely accepted theoretical underpinning of doctrine of frustration:

  • Impossibility

  • Illegal or prevented by gov intervention.

  • Common purpose is frustrated

• [not an exclusive list—and a frustrating event may fit into more than one category].

1. Impossibility (frustration through impossibility).

(1) Unavailability of a thing or person necessary to the contract

(a) Impossibly due to Destruction of:

• (i) subject of contract –Taylor v Caldwell (1863): the music hall, the subject of the contract, burnt down, making performance impossible.

• (ii) OR a thing necessary to contract (not the subject-matter, but essential for performance of the contract)

• Appleby v Myers (1867): the contract to install and maintain machinery in a factory; the factory burnt down, and the factory was essential to performance of the contract.

(b) Unavailability of thing

• Eg in shipping contracts, even temporary unavailability may discharge a contract, if the interruption is such as to make performance substantially different from that originally undertaken.

• A matter of degree—how badly is contract affected?

• Bank Line v Arthur Capel (1919):

  • Thus, where a ship was requisitioned for a period of five months out of a year’s charterparty, the contract was frustrated

• Jackson v Union Marine Insurance (1874):

  • Trip chartered from Liverpool to Newport and there to load a cargo to be shipped to San Francisco.

  • The ship ran aground, and was not ready to load until 8 months later.

  • Contract had not imposed any time limit for performance, but court held: there was an implied term regarding completion within a reasonable time, so contract was frustrated because of such a long delay.

  • HELD: unavailability of that ship contract is frustrated through...

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