Frustration

CONTRACT LAW

Prof: MOHAMMAD MEHMOOD AHMAD

Compiled By: Muhammad Raees Malik
University of London

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Lect#19,20,21 Frustration 19-02-2022
Without fault --------------------------Frustration. With fault ----------------------------Breach.

Frustration:

 Subsequent unforeseeable event.

 Without fault of either party.
 Contract would not be performed at all or performance would be radically different from
what is originally expected under the contract.
 Frustration is being determined by multifactorial approach.

Impact of frustration: By frustration parties are relieved form their future obligations.

This chapter is influenced by common law as well as by law reforms (frustrated contract act 1943)

Three ambits of this chapter:

1st Ambit: Event of frustration.

2nd Ambit: Limitations on Frustration.

3rd Ambit: Effects of frustration.

1. 1st Ambit: Event of Frustration:
i. Physical destruction of subject matter.
ii. Failure of common venture. (commercial impossibility)
iii. Subsequent illegality.
iv. Death or incapacity.
2. 2nd Ambit: Limitations on Frustration. (must elaborate in paper whether asked or not)
i. Party at fault.
ii. Self-induced frustration.
iii. Increase in expense or inconvenience.
iv. Event to be foreseeable or anticipated.
3. 3rd Ambit: Effects of frustration.
i. Common law. (Old law).
 General rule:
1. Money paid is not recoverable.
2. Money payable remains payable.
 Exceptions: Total failure of consideration.
ii. Law reforms frustrated act 1943:
 Preamble: to prevent unjust enrichment.
 S-1(2) where money is paid prior to frustrating event.
 S-1(3) where services are rendered prior to frustrated event.

Collective:

 Defects of new law

 Analysis.

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 Frustration:

 Subsequent unforeseeable event.

 Without fault of either party.
 Contract would not be performed at all or performance would be radically different from
what is originally expected under the contract.
 Frustration is being determined by multifactorial approach.

Intro:

Frustration occurs where it is established that due to some subsequent unforeseeable event or change
in some circumstances the contract becomes impossible to be performed or if performed the
performance would be radically different from what was agreed.

National Carriers vs Panalpina: where there is a change in circumstances such that the performance of
contract would become radically different as intended originally, justice requires that court should treat
contract as having come to an end.

The Sea Angels Case: court may apply multi factorial approach in deciding what amount to frustration.

CTI Group vs. Transclear: in determining frustration, factors include terms of the contract, parties’
knowledge, parties’ expectations, and time of contract and nature of frustrating event.

MSC Mediterranean vs Cottonex: the test for determining the frustration may be arbitrary but pragmatic
(practical approach), (no proper reasoning).

Effect/Impact of frustration: By frustration contract renders void and parties are relieved form their
future obligations, or parties’ obligations under contract brought to an end.

This chapter is influenced by common law as well as by law reforms (frustrated contract act 1943)
Three ambits of this chapter:

1st Ambit: Events of frustration.

2nd Ambit: Limitations on Frustration.

3rd Ambit: Effects of frustration.

1. 1st Ambit: Events of Frustration:

i. Physical destruction of subject matter of contract.
ii. Failure of common venture. (Commercial impossibility).
iii. Subsequent illegality.
iv. Death or incapacity.

i. Physical destruction of subject matter of contract.

Taylor vs Caldwell: a contract of hire of music hall was held to be frustrated by destruction of music
hall by fire.

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 Appleby vs. Myers: a contract to make and erect machinery and to maintain it for two years was held to
be frustrated when accidental fire destroyed machinery and the factory.

S-7 of Sale of Goods Act 1979: states that where there has been an agreement to sell specific goods and
subsequently the goods without any fault of seller or buyer perished then contract to avoid.
Davis Contractors vs. Fareham DC: Lord Redcliff stated that frustration occurs whenever law recognizes
that without fault of either party contractual has become incapable to perform because circumstances
rendered things radically different from what was undertaken by the parties.
Asfer vs. Blundell: contamination of perishable goods was held to be a destruction of subject matter
thereby contract frustrated.

ii. Failure of common venture. (Commercial impossibility).

Krell vs. Henry: a contract for hire a room especially for purpose of viewing the coronation ceremony
of the king. The contract was frustrated when coronation procession was cancelled due to illness of
king, the purpose of the contract was to view the coronation process but not merely hire a room.

The court would look upon the precise obligation under contract and how important that obligation is
toward the contract.
North shore Venture vs. Anstead Holdings: the Krell reasoning was criticized and it was maintained
that decision in Krell is perhaps as for as the frustration should be pushed.
Herne vs. Hutton: it is the court to decide what exactly the precise obligation under the contract is.
Jackson vs. Union Marine: accidental running a ground of a ship constitute frustration.
iii. Subsequent illegality.
If the perf4omance of contract becomes illegal due to adoption of any statutory measure, directive or
regulation after the making of the contract then the contract becomes frustrated.
Amalgamated Investments vs. Johan Walker: listing of building as being of architectural and historical
interest could frustrate a contract for its sale.

iv. Death or incapacity.

The death of performing party will frustrate the contract or an illness which clearly last over the time
in which contract is to be performed will frustrate the contract.
Robinson vs. Davison and Condor vs. Barron Knights: the death of performing party frustrated the
contract.
Fibrosa Spolka: in the time of war government may make trading with companies bared in enemy
territory illegal so contract of such companies which were made prior to this action will be frustrated.
Metropolitan Water Board vs. Kerr: requisitioning of a property which had been allocated to a contract
may lead to frustration of that contract.
Finelvet vs Vinava Shipping: ship trapped in gulf war for log period due to war between Iraq and Iran.
Contract relating to charters of ships were held to be frustrated.
nd
2. 2 Ambit: Limitations on Frustration. (must elaborate in paper whether asked or not)

Lord Radcliff quoted that problem must arise without the default of other party.

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 i. Party at fault/fault of either party:
ii. No. Self-induced frustration.
iii. Frustration cannot be invoked on the grounds of Increase in expense or inconvenience.
iv. Event to be foreseeable or anticipated.

(If any of the ground is proved then it would be breach of contract.)

i. The happening of unforeseeable event must not have been brought about by the party
invoking frustration (no self-induce frustration)
Maritime vs. Ocean Trawlers: “the party on fault would be unable to rely on this doctrine of
frustration”.
ii. The event which frustrate the contract must be unforeseeable however if parties have
foreseen the happening of an event then it would not allow party to invoke the frustration.
Gold Corp. vs. BDW Trading: if the parties have clearly seen the possibility of frustrating event
occurring and made have provision for what is to happening in their contract then there would
be no frustration.
iii. The contract will not be frustrated if performance is simply made more difficult or expensive
or if a significant part of the contract survives the frustrating event.

The doctrine of frustration cannot be invoked on the grounds of inconvenience and increase
in expenses or loss of profits.
Davis Contractors: increase in expenses cannot be regarded as frustrating event.

3. 3rd Ambit: Effects of frustration.

The effect of frustration is that parties are relieved from their future obligations:
i. Common law. (Old law). Unjust law.
 General rule:
1. Money paid is not recoverable.
2. Money payable remains payable.
3. Payee can recover expenses incurred.

Hijri Mulji: Privy Council in this case stated that any attempt to affirm the contract favoring
frustrating event will be in effective. The same principle was endorsed in the super Servant II.

Chandler vs Webster: the general rule was laid down that:

i. Money paid or benefit conferred prior to frustrating event is not recoverable.

ii. Money payable prior to frustrating event remains payable. (The obligation to pay for a room
to watch procession arose before cancellation was maintained and entire loss by frustrating
event fell on him.
 Exceptions of common law: Total failure of consideration:

Fibrosa Spolka vs Fairbairn Barbour: the exception to the general rule was laid down that money
paid prior to frustrating event is recoverable only if there had been a total failure of consideration
(0% performance done under the contract).

ii. Law reforms frustrated contract act 1943: (new law)

 Preamble: to prevent unjust enrichment.

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  S-1(2) where money is paid prior to frustrating event.(recovery of money)
 S-1(3) where services are rendered prior to frustrated event.

This act intended to cure much of the harshness and injustice caused by common law in this regard and
overriding purpose of this act is to prevent injustice and enrichment of the parties.

S.1 (2): the effect of S.1 (2) is three fold:

i. Payee (recipient of money) may be entitled to set off (counter claim) against the money
received in advance on account of expenses which he has incurred before the frustrating
event.
ii. Money paid prior to frustrated event is recoverable.
iii. Money payable prior to frustrating event is no longer payable.

Gamerco SA: the discretion given to court is broader one. The case included frustration of contract to hold
POP concert because of stadium closure. Claimant sort to recover £ 412500, which had been in all
circumstances it was just that £412500 should be returned in full after deducting money which defendant
incurred as expenses.

S.1 (3): this section was made to deal with Appleby vs. Myres Situation but the case remained in its place
so it is poorly drafted legislation. Court has more discretion and difficulties in calculation of value of
services.

Appleby vs. Myer: the claimant entered in the contract to make and install machinery and to maintain it
for 2 years. Payment was to be made upon completion of work after part of the machinery was installed
and accidental fire destroyed the machinery and frustrated the contract. It was held that the claimant
would not be able to recover anything.

S.1 (3): involves two steps:

i. the identification and valuation benefit conferred by the court.

ii. The just sum which the court considers appropriate and just with respect to circumstances. (This leaves
the room for judicial direction)

British Petroleum vs. Hunt: it was held that while calculating the value the benefit conferred that there
court should take into account the value of end product. Robert Goff J. Stated that the two circumstances
in which court had regard to value of services rendered in identifying benefit are:

i. Where the services by its very nature does not result in an end product.
ii. Where the services rendered results in an end product but does not have an objective value.

It was also held that where the end product is destroyed by frustrating event the provider of services has
no claim under S.1(3) because the value of benefit had been reduced to 0 by the frustrating event. This
means that the result in Appleby vs. Myres would be unaffected by 1943 act as claimant work was
destroyed by fire so did not result in any end product.

Severefield vs Duro Felguera: court in obiter stated that in modern times the court should whenever
possible uphold any contractual provision or mechanism agreed by the parties and avoid a recourse to
frustrating doctrine.

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Collective:

 Defects of new law

Defects of S.1 (2):
i. It does not make it clear that whether payee is entitled to deduct all of his expenses or
some of his expenses incurred from frustrating event.
ii. It is not clear that what if expenses incurred by the payee before the frustrating event are
more than advance payment.
 Analysis.
Academic article:
N.R Weiskoff: stated that doctrine of frustration allows that contract to come to an end due to
some supervening event and as result party is allowed not to follow effected contract.

W.J Conlen: Frustration article:

The American courts have been slow to adopt the phraseology of the English courts. The term
“frustration” is not found or at least not frequently found in the language of the American courts
dealings with this phase of contract law. However in the opinion of the very able District Judge in
the case first above mentioned reported the title “the Isle of Mull” the court after speaking of the
contract as having become “in substantial sense impossible” proceed to inquire if there has been
“an actual frustration either of their mutual purpose or of the purpose of either of them” and
later adverse to a conclusive presumption of law involving “a constructive frustration” and still
later in the opinion speaks of the “modem doctrine of frustration”.

N.A. Nwafor: Elements of Frustration under English Law:

The doctrine of frustration under common law has had a trajectory progression. What started a
the doctrine of absolute obligations of contractual duties has now been ameliorated to
incorporate the doctrine which exonerates a party whose performance of the contract is hindered
by uncontrollable supervising circumstances and which make performance impossible. Obviously
the doctrine of absolute liability unconscionable and fraught with injustices in some cases if it
would permit a party to tender performance where it is practically impossible. The growth of the
doctrine of frustration emanated from the weakness, limitations and many criticism suffered by
absolute liability.
Absolute liability never applied where a contract called for personal performance by a party who
died or was permanently incapacitated or in the situation of supervening illegality. This exception
paved the way for judicial activism that brought about the birth of doctrine of frustration in
common law. The doctrine of frustration under English common law predicated ion the fact that
the contract is discharged because by the implication the parties have agreed that it will now
longer be binding if the frustration event occurs. This approach was adopted by Black Burn J. in
Taylor vs. Coldwell and is called the implied term doctrine. It is therefore important to note that
unlike the CIGS and the UNIDROIT principal or even the sale of goods act of 1979, there is no
clearly compartmentalized elements of frustration under the common law however what exist is
a gamut of judicial reasoning and analysis which is entrenched on common sense of what equity
and fairness ought to be should a situation of frustration arises.

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The whole idea and discussion is convoluted and revolves around such questions as, if frustrating
event is a supervening impossibility, if the parties have control or anticipated it or at fault and if
it cannot be said that the loss, destruction or the fortuitous event is substantial and significant
enough to serve further obligations to perform by the parties thereby not falling with in the
normal commercial risks associated with trades and commerce. The questions are originally
related and act in unison in defending the spheres and application of frustration under the
common law.
N.R Weiskoff: Frustration of Contractual Purpose- doctrine or Myth?
Should a contractual promise to pay for goods or services be excused by operation of law because
supervening events have destroyed the utility of the bargain for the party slated to receive them?.
Many will recall law classroom debate on whether the bride-to-be must take and pay for her
wedding dress even though the prospective groom has met a sudden and tragic pre-nuptial end,
or on whether the blind person who suddenly recovers sight must honor the commitment to pay
for Seeing Eye lessons for his dog. Does the bargain binds, even the event of such exceptional and
unexpected supervening events?
The seemingly apparent answer, provided by the so-called doctrine of frustration of purpose is
that the total or virtual thwarting of a party’s bargaining motivation due to exceptional
supervening circumstance should permit that party to avoid the affected contract unless the
parties have otherwise explicitly or implicitly agreed. Such avoidance would typically be subject
to the obligation to compensate in restitution for part performance already rendered to and
received by the avoiding party.