用戶:Hinnia/Frustration

• Is the contract frustrated
  • Test
    • National Carriers
    • Sea Angel
    • Look at analogous cases
  • Limitations
    • Self Induced
      • Yes
        • What is the Effect
          • Immediate Discharge of Futute Obligations
          • Remedial consequences of Frustration
            • Common Law
            • Statute
              • Does it apply?
                • s1(2) sums paid/payable
                • s1(3) Voidable benefit

Introduction and Development  

• Doctrine Definition:
  • Discharges a contract where
  • After formation, an event occurs
  • Making performance impossible, illegal, or radically different from what the parties contemplated at the time of contracting.

Historical Development

• Paradine v Jane (1647), Aleyn 26
  • Facts: Tenant dispossessed for 2 years due to an act of the King’s enemies; refused to pay rent.
  • Issue: Is the tenant excused from paying rent due to supervening impossibility?
  • Held: No. The obligation was absolute; supervening impossibility did not discharge it.
  • Reasoning: Common law originally insisted on literal performance of absolute promises.
• Taylor v Caldwell (1863) 3 B & S 826
  • Facts: Contract for hire of music hall; hall destroyed by fire before performance.
  • Issue: Are parties excused from performance due to destruction of the subject matter?
  • Held: Yes. Contract discharged.
  • Reasoning: Blackburn J implied a condition that the continued existence of the hall was essential.
    • Doctrine moved away from absolute contracts; laid foundation for modern frustration.

The Doctrine

• Modern Test
  • Established in Davis Contractors v Fareham UDC
    • Frustration occurs when (without fault)
      • Contractual obligation becomes incapable of being performed
      • Because circumstances render it radically different from what was undertaken.

• Davis Contractors Ltd v Fareham Urban District Council [1956] A.C. 696
  • Facts: Building contract delayed by labour shortages; contractor sought extra payment arguing frustration.
  • Issue: Did the delay frustrate the contract?
  • Held: No.
  • Reasoning: Frustration not lightly invoked; event must make performance radically different.
    • Shortage was foreseeable and risk assumed by contractor.
  • Principle: an abandonment of the concept that frustration depends upon an implied term.

• National Carriers Ltd v Panalpina (Northern) Ltd [1981] A.C. 675
  • Facts: Lease of warehouse; only access road closed for 20 months.
  • Issue: Can a lease be frustrated?
  • Held: In principle, yes, but not on these facts.
  • Reasoning: Doctrine applies to leases, but closure was temporary and not radical enough.
  • Principle: Abandones view based on implied term It is the LAW that is discharging this contract from further performance
  • Test:
    • Supervening event
    • Without default of either party
    • Contract makes no sufficient provision
    • Significantly changes the nature

• Edwinton v Tsavliris (The ‘Sea Angel’) [2007] EWCA Civ 547
  • Facts: Charterparty delayed due to government detention of vessel.
  • Issue: Was contract frustrated?
  • Held: No.
  • Reasoning: Multi-factorial approach: consider contract terms, context, parties’ assumptions, and nature of supervening event.

• MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789
  • Facts:
    • Shipping contract where shippers failed to redeliver containers
    • Leading to a dispute over whether this amounted to a repudiatory breach
  • Issue:
    • Whether the shipper's inability to redeliver the containers constituted a repudiation of the contract of carriage.
  • Held:
    • The legal test for determining if the failure to redeliver amounts to repudiation is, in substance, the same as the test for frustration.
  • Principle/Reasoning:
    • Authorities (e.g., Universal Cargo Carriers Corp v Citati; The Hermosa)
    • Established that the test for repudiation in this context is fundamentally the same as for frustration.
    • Test: The court must ask whether the delay in performance (here, in redelivering the containers) was so significant
    • As to render the remaining contractual obligations radically different from those originally undertaken.
• For Continuing Delays: If the delay is ongoing
  • Question: whether a reasonable person in the parties' position would regard it as likely to last long enough to have that radical effect.
  • Application: In cases of delay of uncertain duration (e.g., due to a strike),
  • Assessment is one of fact and degree, on which reasonable opinions may differ (see The Nema).

Canary Wharf v European Medicines Agency [2019] EWHC 335 (Ch)

• Facts: Before Brexit, due to EU membership the EU discharged different functions in UK
  • Britain’s responsibility: Pharmaceutical
  • EU body rented property at Canary Wharf
  • Brexit
  • EMA argued Brexit frustrated its lease.
• Issue: Did Brexit frustrate the lease?
• Held: No.
• Reasoning: Not frustrating event
  • Cannot operate here
    • But can sublet
    • Still has high economic value
• High bar
  • Courts don’t like discharge contract through frustration
  • Very similar to mistake
  • Consequences cannot be governed by the court
  • Once say contract is at an end

Instances of Frustration

Destruction of the subject matter or a vital external element

• Taylor v Caldwell: Subject matter of contract (Music Hall) burnt down→ no contract with
• Appleby v Myers (1867) LR 2 CP 651: Factory and machinery destroyed by fire → contract for work frustrated.
  • Contract: install machines in factory
  • Subject matter: machines
  • Fine throughout contract
  • Factory burns down
    • Factory vital external element
    • Cannot put machines into non-existent factory
      • Isn’t subject matter
  • Vital external element
  • Discharged of further performance

Personal Services Contracts

• Morgan v Manser [1948] 1 K.B. 184
  • Facts: Performers
    • Manser is hired to sing in concert halls
    • Conscripted into the army
    • Doesn’t perform contracts
  • Issue: Whether contract was frustrated by the defendant’s call-up and prolonged absence in military service
    • Thereby discharging both parties from further performance.
  • Held: Contract was frustrated by the defendant’s call-up. The defendant was not liable for breach of contract.
• Legal Principle
  • Citing authorities including Tamplin Steamship Co. and Cricklewood Property Trust
  • “If there is an event or change of circumstances
    • So fundamental as to be regarded by the law as striking at the root of the contract as a whole
    • And as going beyond what was contemplated by the parties
    • And such that to hold the parties to the contract would be to bind them to terms
      • Which they would not have made had they contemplated that event
    • Then the contract is frustrated.
      • Frustration operates automatically
      • Irrespective of the parties’ intentions or continued conduct treating the contract as subsisting.
    • Discharges contract

• Condor v The Barron Knights [1966] 1 W.L.R. 87
  • Facts:
    • Touring band
    • Drummer has nervous breakdown
    • Psychiatrist at mental asylum:
      • Can perform 4 nights a week
      • or will have mental breakdown
    • Grp needs drummer to perform 7 nights a week
      • Changing the drummer from night to night was not in a business sense practical
    • P's contract provided for immediate dismissal on breach of its terms.
    • P was dismissed and brought an action against his employer for wrongful dismissal.
  • Held:
    • Contract was frustrated.
    • Plaintiff’s inability to perform the essential terms of the contract
      • Even though only partial
      • Performance had become impossible in a business sense.
    • No wrongful dismissal.
  • Reason:
    • Changes radically nature of what was promised

Unavailability and interruption

BP Exploration (Libya) Ltd v Hunt [1983] 2 A.C. 352

• BP and Mr Nelson Bunker Hunt (Texas oilman)
• Joint venture
• Exploit oil resources in Libya
• Coup d’etat
• Muammar Gaddafi new leader
• Doesn’t like western companies
• Expropriates BP’s interest and Hunt’s interest
• Under contract
• Frustrated
• Oil field intended to be exploited
• Expropriated by state

Jackson v Union Marine Insurance (1874) LR 10 CP 125

• Ship that was to perform contract
• Grounded
• Cannot sail
• Contract is at an end
• Cannot use the ship

Acetylene Co of GB v Canada Carbide Co (1922) 8 Ll L Rep 456

• Contract was for the shipment
• Case after WW1
• UK gov requisite ships
• Take ship from parties
• Disrupted calcium carbide supply so great
• After the war there was no longer a contract
• Discharged

The Nema [1982] A.C. 724

• Charter frustrated where delay made adventure radically different.

F.A. Tamplin Steamship Company v Anglo-Mexican Petroleum Products Company [1916] 2 A.C. 397

• Facts
  • Steamship requisitioned by the government
  • Fight between owner of vessel and party chartering vessel
  • Requisition payments higher than original charter fee
  • Argument: who got the requisition payments government made
• Issue: Whether the requisition of the vessel discharging both parties from further performance.
• Held
  • NOT Frustrated
  • Charter was a long-term charter for general use within limits
    • Not specific commercial adventure
    • Very close to an end
  • Interruption was only partial
    • If it was only partial
      • Not frustration
  • Not discharged from further performance

Failure of source

• Howell v Coupland (1876) 1 Q.B.D. 258
  • Facts:
    • Contract to grow potatoes
    • Farmer was going to supply certain amount
    • Land which intended to grow potatoes on floods
    • Cannot grow in sufficient quantity
  • Issue:
    • Court: contract discharged from further performance
    • If complete failure of source (the land growing potatoes)
      • Source has failed
    • Contract discharged from further performance

• Blackburn Bobbin Co Ltd v T.W. Allen Ltd [1918] 2 K.B. 467
  • Facts:
    • Bobbin: spindle of wood, use it to put thread around
    • Feed into sewing machine/textile manufacturing machine
    • Entered into contract with TW Allen
    • Supply wood to make bobbins
    • Timber in UK 2 main sources:
      • Baltic or Canada
      • Wood to make bobbins is from Baltic
    • WW1
      • Difficult to get timber out of country
    • BB sues Allen when they no supply wood
      • Allen: super expensive to get timber
  • Held:
    • Contract not discharged of perfoemance
    • Can still buy timber
    • Just more expensive to perform
    • No failure of source
    • Increased expense

Method of Performance

• Tsakiroglou & Co v Noblee Thorl GmbH [1962] A.C. 93
  • Silent about method of performance
  • Parties anticipate certain kind of performance
  • Shipping case
    • Goods meant to be shipped to Europe thru Suez
    • Egypt blocked canal
      • Nth could go through
      • Refused to allow further shipping
  • Are they discharged thru further performance
  • Held:
    • Can still use cape of good hope
    • Not frustration

Supervening Illegality

• Almost always find a contract frustrated
• At the time legal
  • Subsequently becomes illegal
• Illegality affecting substantial part → frustration.
• Court will invariably find contract discharged
• Reason that contract will be discharged
  • In order to perform contract must break law
• Fibrosa Spolka Ackcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] A.C. 32
  • English company
  • Contracted to provide polish company with flat hacking machines
  • Autumn 1939 set for delivery
  • WW2 broke out
    • Poland invaded and occupied
  • Parliament passed Trading with the Enemy Act
    • Illegal to send anybody or anything within enemy territory
  • Contract is at the end
• Denny Mott & Dickson v James B Fraser & Co [1944] A.C. 265
  • Facts:
    • Fraser & Co: timber merchants
    • Agreement with Denny Mott
      • A trading agreement for the sale of timber (Clauses 1-4).
      • A lease of a timber yard to facilitate that trade (Clause 6).
      • Option granting Fraser right to purchase yard
        • Exercisable only in the event of foregoing trading agreement terminated by either party
    • Control of Timber (No. 4) Order 1939
      • Further transactions between the parties became impossible from the end of September 1939.
    • Denny continued to occupy the timber yard.
    • Fraser sent a letter purporting to give notice to terminate the agreement
      • Also of their intention to exercise the option to purchase the yard.
  • Held:
    • The House of Lords held that the contract had been frustrated by the 1939 statutory order.
    • Consequently, Fraser's attempt to exercise the option failed.

Limits to frustration

Contractual Provision

• ‘force majeure’ and similar clauses may well replace the common law and statutory rules on frustration
• Narrow interpretation generally given to such clauses
• Mass adverse circumstances clause
• Force majeure 不可抗力
• IF contract ends
• One party has to refund X percent
• Express clause (e.g., force majeure) governs → frustration excluded

Where the contracting party assumed the risk

• If event foreseeable and risk assumed → no frustration
• CTI Group Inc v Transclear SA [2008] EWCA Civ 856
  • One party agreed to sell cement
    • Does not actually have cement
    • Could not buy cement
    • Says contract is frustrated
  • Company assumed the risk under the contract
  • Courts will look at allocation of risk
    • If contract allocates risk to contracting party
    • Contract not discharged through frustration

Impracticality is not sufficient

• Davis v Fareham UDC
• Facts:
  • Building contract
  • Agrees to build housing for Fareham council
  • All kinds of problems
    • Post war shortages
    • Difficulty in getting labour
    • Very bad and freezing winter
  • Cannot build houses on Scedule
• Held
  • While more impractical and expensive to build
  • Not enough to frustrate contract
• Herne Bay Steamboat Company v Hutton [1903] 2 K.B. 683
  • Facts:
    • Hutton contracted to hire a steamship (Cynthia)
    • following a public announcement that a Royal naval review was to take place at Spithead on that day.
    • Contract was "for the purpose of viewing the naval review and for a day's cruise round the fleet".
      • King fell ill
      • Cancelled naval review
    • Defendants refused payment
      • Stating the contract was frustrated in purpose.
  • Held:
    • Contract was not frustrated, and the balance in full was due to the plaintiff.
    • May seem contradictory to Krell v Henry
      • Can be explained by reference to the agreement the parties reached
      • Hiring was not merely to witness the naval review, but also for a cruise around the fleet.
        • This purpose was still entirely possible

• Krell v Henry [1903] 2 K.B. 740
  • Room with view at corner
  • Procession has to slow at corner
  • Krell agrees to rent out Henry room with view
  • Promised excellent view of the procession from the room.
  • However, Procession cancelled
    • King fallen ill with appendictis
  • Took decision in Taylor and Cladwell
    • Extended to non-happening of events
  • Contract is discharged on basis of implied term

Imprudent bargains

• The Nema (Pioneer Shipping Ltd v BTP Tioxide Ltd (No 2)) [1982] A.C. 724
  • If entered into bad bargain
  • More expense
  • Not going to discharge contract

Forseeability

• W.J. Tatem Ltd v Gamboa [1939] 1 K.B. 132
  • Facts:
    • A ship was chartered for 30 days to evacuate civilians from the Spanish Civil War
    • Seized by the opposing faction and detained for nearly two months.
    • Charterer stopped paying hire after the seizure.
  • Held: The contract was frustrated. Foreseeability does not automatically bar frustration.
• Reasoning:
  • Frustration applies when the foundation of the contract disappears, making performance radically different.
  • Critical question not whether the parties foresaw the event
    • But whether they made a contractual provision for it.
  • Seizure was a foreseeable wartime risk,
  • Charterparty did not contain terms allocating the consequences of a long-term detention.
  • High hire rate reflected general risk, not a specific bargain for this outcome.
  • Seizure destroyed the core purpose of charter, fundamentally altering the contractual obligations.
• Ocean Tramp Tankers Corp v V/O Sovfracht (The Eugenia) [1964] 2 QB 226
  • Parties could see Suez was gonna be blocked
    • Couldn’t agree on what to do
    • Contract was silent
  • Denning:
    • No frustration of the contract.
    • Charterers could not rely on any self-induced frustration as ground
    • For arguing the contract was frustrated.
    • If they had not tried the Suez canal
      • Would have had to sail around the Cape
      • Would not have rendered the contract radically different.

Frustration must not be self-induced

• Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] A.C. 524
  • Case from Canadian Privy Council
  • Fishing case
  • Fish boats owned by the company
    • Own three rent two
    • Have to have fishing license to operate boat
    • 5 boats
  • Gov withdraws 2 licenses
  • Take license off one rented and one owned
    • Then say contract is frustrating
    • Couldn’t get license
    • Cannot use boat
  • Court: have 3 licenses
    • 2 boats are rented
  • Self induced frustration
    • Their own problem

• The Super Servant Two [1990] 1 Lloyd's Rep 1
  • Renting of two boats
    • Super servant 1 and 2
    • Boats that tow oil rigs
  • Party could use one or the other to perform contract
    • Used 2 to tow rigs, 1 for another contract
  • Super servant 2 sunk
  • Cannot finish contract
    • Frustrating?
  • Had a choice between the two
    • Self induced
    • Choice in contract was theirs
  • Their decision to use 1 for anothe contract

Effects of frustration

Two Sets of Rules

• Common Law Rules: The default position.
• Law Reform (Frustrated Contracts) Act 1943 ("the Act"): Amends the common law in most cases, but does not apply to all contracts (see s.2(5)).

Severability

May be possible to sever the contract that is remove the bit that would be frustrated and enough left to be performed in the whole

At common law

• Law Reform (Frustrated Contracts) Act 1943, s. 2(5)
  • This Act shall not apply—
    • (a) to any charter party, except a time charterparty or a charterparty by way of demise, or to any contract (other than a charterparty) for the carriage of goods by sea; or
    • (b) to any contract of insurance, save as is provided by subsection 5 of the foregoing section; or
    • (c) to any contract to which [section 7 of the Sale of Goods Act 1979] (which avoids contracts for the sale of specific goods which perish before the risk has passed to the buyer) applies, or to any other contract for the sale, or for the sale and delivery, of specific goods, where the contract is frustrated by reason of the fact that the goods have perished.
• Common law starts from the position that all future obligations were discharged, but that obligations incurred prior to the frustrating event survived.
  • Loss lies where it falls. Who bears the financial loss depends entirely on the contract's terms (e.g., when payment was due). This could lead to unjust results.

• Common Law resolution
• Appleby v Myers (1867) LR 2 CP 651
  • Principle: If a party works under an entire contract and partially performs
    • But fails to complete due to frustration (not breach)
    • Recover nothing for the work done. The loss lies where it falls.
• Fibrosa Spolka Ackcyjna v Fairbairn Lawson Combe Barbour  Ltd [1943] A.C. 32
  • Money paid in advance can be recovered if there is a total failure of consideration (the payer received no part of the expected benefit).
  • The payee cannot deduct for expenses incurred in preparation. Mitigates the harshness of Chandler v Webster.
• Whincup v Hughes (1870-71) LR 6 CP 78
  • If the payer has received any part of the benefit expected by him under the contract.
  • The failure of consideration is regarded as partial and not as total
  • Money cannot be recovered back merely because the consideration for the payment fails in part.

LAW REFORM (FRUSTRATED CONTRACTS) ACT 1943

• Purpose: To provide more flexible, restitution-based solutions to adjust losses and prevent unjust enrichment after frustration.
• Scope: The Act applies to most frustrated contracts governed by English law, BUT NOT to:
  • Certain charterparties and contracts for the carriage of goods by sea (s.2(5)(a)).
  • Contracts of insurance, except as provided (s.2(5)(b)).
  • Contracts for the sale of specific goods which perish before risk passes (s.2(5)(c)) – these are governed by Sale of Goods Act 1979, s.7.

Section 1(2): Adjustment of Money Payments

• Rule: All sums paid before discharge are recoverable, and all sums payable cease to be payable.
• Proviso (The "Expenses" Exception):
  • Court may allow a party who incurred expenses in performing the contract to retain or recover all or part of the sums paid/payable
    • Up to the amount of expenses incurred.
• Test for Applying the Proviso (from Gamerco): The party claiming expenses must show:
  • They incurred expenses (paid or payable).
  • They did so before the time of discharge.
  • The expenses were incurred in, or for the purpose of, performing the contract.
  • It is just in all the circumstances to allow retention/recovery.
• Case: Gamerco S.A. v I.C.M./Fair Warning (Agency) Ltd [1995] 1 WLR 1226
  • Facts: Concert contract frustrated. Promoter (P) had paid $412,500 to artist's agent (D). Both sides had incurred expenses.
  • Holding: P entitled to full recovery of the prepayment. D failed to satisfy the test of justice
    • Expenses were not a sufficient reason to allow retention in the circumstances.

Section 1(3): Adjustment for Non-Money "Valuable Benefit"

• Rule: Where a party ("the plaintiff") has conferred a valuable non-money benefit on another ("the defendant") before discharge
  • Court may award a "just sum" to the plaintiff, recoverable from the defendant.
• Limit: The "just sum" cannot exceed the value of the benefit obtained by the defendant.
• Two-Stage Process (from BP v Hunt):
  • Identify and Value the Benefit: Determine what benefit the defendant obtained and its objective value.
  • Assess the "Just Sum": Award a fair sum, considering all circumstances, especially:
    • (a) The expenses incurred by the defendant.
    • (b) The effect of the frustrating event on the benefit.
• Case: BP (Exploration) Libya v Hunt [1979] 1 WLR 783
  • Facts: Contract for oil exploration frustrated. BP had provided services and equipment, conferring a benefit on Hunt.
  • Holding (Robert Goff J): The court must first identify and value the end product or benefit received (e.g., an oil concession).
  • "just sum" is then assessed, which is typically the reasonable value of the plaintiff's performance (a quantum meruit)
  • Capped at the benefit's value and adjusted for fairness.