Doctrine Of Frustration - Contract Law

Doctrine of Frustration

Has the change of circumstances make performance radically different from that which was originally undertaken?

• Davis Contractors v Fareham UDC [1956]:

  • Lord Radcliffe:

    • Courts first examine contracts and the circumstances in which they were made

      • In order to see whether or not from the nature of the parties must have made their bargain on the footing that a particular thing or state of things would continue to exist.

        • If they must have done so, a term will thereby be implied that this is the case.

    • Court will then ask whether or not literal enforcement of obligations in new circumstances

      • Will lead to radically different performance than that originally promised

        • owing to this non-existence of the thing contemplated at formation that it would continue to exist.

What makes performance radically different?

1. Legal impossibility

• Metropolitan Water Board v Dick Kerr [1918]: M contracted with D to build dam. Subsequently while work taking place, D banned from continuing work by Ministry of War.

  • Lord Atkinson:

    • Parties can be excused when conditions anticipated at contract formation have completely changed since then,

      • making performance entirely different (i.e. b/c illegal).

      • Or if contract continued, they would be bound for indeterminate length of time.

2. Physical impossibility

• Death and Serious Incapacity in personal service contracts

• Destruction of Subject Matter

  • Taylor v Caldwell [1863]: Music hall hired for concerts by D, subsequently destroyed accidently be fire before concerts performed.

    • Blackburn J:

      • Where parties knew something had to exist in order for the contract to be performed at contract formation

        • But subsequently that thing disappeared without their fault

          • Parties have implied condition that they intend to be excused if performance thereby becomes impossible.

• Failure of Supplies

  • S.7 Sale of Goods Act:

    • Where agreement to sell specific goods

      • Without any fault of seller or buyer

        • Goods perish before risk transferred to buyer

        • Contract is avoided

  • But where goods are unascertained, then risk will normally be on the seller to find alternative supplier, meaning contracts here rarely frustrated.

• Delay and Hardship of finding substitute

  • Must be caused by new and unforeseen event, however, not just within commercial risks undertaken

    • Davis Contractors v Fareham [1965]:

      • Lord Radcliffe:

        • Lack of Provision for shortages/delays within contract which are foreseeable in the trade do not make contract radically different.

          • Can’t just use frustration to get out of bad bargain.

  • Performance in new circumstances must radically alter the rights and obligations originally undertaken (question of degree)

    • Jackson v Marine Insurance Co Ltd [1879]: Ship meant to end up in San Francisco w/ cargo, ran aground and was delayed for several months. Z pulled out of charterparty, C could only claim insurance from D if contract frustrated, not for breach.

      • Bramwell B:

        • Although trip agreed could be made eventually, time gap between two trips indicated that latter trip was a new adventure

          • a voyage which Z and C had no intention of making when the contract was made

            • Thus, contract frustrated by delay leading to new obligations.

    • The Eugenia: D, if hadn’t broken war clause by entering Suez Canal, would have had to take ship round Cape of Good Hope rather than through canal, leading to 30 day longer journey.

      • Lord Denning MR:

        • Goods carried not needed at market place at exact time – could be delayed w/ little effect to price

        • Delay of 30 days capable of being performed by ship, and not unreasonable delay.

          • Therefore, performance different and longer, but not radically different from that originally agreed.

3. Purposeless

• Contract, while not impossible to perform or leading to unreasonable hardship

  • can still be frustrated when the intervening event has so undermined the purpose of the contract

    • that it should be discharged

• Krell v Henry [1903]: Rooms advertised as having view of coronation procession hired out to D, but procession cancelled before contract performance.

  • Vaughan Williams LJ:

    • First must ask: What is the substance of the contract?

      • If substantial contract needs for its foundation the assumption of the existence of a particular state of things.

        • Then contract is limited to performance if that state of things exists.

• BUT Herne Bay Steam Boat Company v Hutton: C hired to D a ship to take D’s customers to tour naval parade for coronation, but coronation and naval parade cancelled (fleets remained in place). D refused to pay.

  • Vaughan Williams LJ:

    • D had two objects to the contract:

      • Taking people to see the naval review

      • Taking people around the fleet

        • But just because these purposes became impossible does not mean that these were the foundation of the contract formation so as to frustrate the contract.

• Four different explanations for these Contrary decisions:

  • Chen Wishart: purpose of contract must be common to both parties –

    • in Krell rooms specifically hired out b/c location overlooked procession + hired for that reason

      • in Hutton hiring out of boat irrelevant to what purposes (touring w/ customers) D had in hiring it.

    • Vaughan Williams LJ in Krell:

      • Flat was linked to the purpose of the contract – the position of the flat and the procession under it is the foundation of the contract

        • Goold: price hike is significant here – ought to be looking at what each party has said (assumption of responsibility) – not just the broad purpose.

  • Stirling LJ in Hutton:

    • Not all purposes of contract frustrated – D can still take customers to tour fleet – it hasn’t gone anywhere.

  • Brownsword: Krell had a consumer disappointed, Hutton a businessman. Courts more likely to favour the consumer over the businessman.

Exceptions to Frustration Applying

• Construction: Where risk of the change of circumstances was expressly or impliedly allocated...