Frustration

Front 1

Frustration is:

Back 1

Frustration is
•Termination by operation of law
•On emergence of fundamentally different situation, unforeseen by the parties and without the fault of the parties.

Where some intervening event has fundamentally changed the situation then the contract will be frustrated. (Davis Contractors v. Fareham UDC)

Front 2

Test for frustration

Back 2

1
(a) an outside event not foreseen by the parties
(b) which renders performance something radically different from what the parties contemplated
(2) without the fault or default of either party (Hannah Blumenthal; Codelfa)

Front 3

process of comparison

Back 3

to establish whether the new circumstance is radically different, we may apply a process of comparison between the performance that was contemplated and the new situation or obligation (Codelfa)

Front 4

Supervening Impossibility?
- consider floods

Back 4

Implied term at common law that performance is excused if subject matter is destroyed, codified in SOGA,s10.

Taylor v. Caldwell

before date for performance of concert arose, hall burned down.
Parties must have intended that hall would continue to exist
Implied term that performance is excused if subject matter is destroyed.
Subsequent cases where courts have tried to see where a case could be frustrated

Front 5

Supervening illegality?

Back 5

Fibrosa SA v Fairbairn, Lawson Ltd [1943] AC 32
Approved in Codlefa and Baltic v Dylan
Contract for sale of machinery between Polish and English comp. in late 1930’s
Hitler invaded Poland – meant illegal to trade w enemy.
If illegal to perform, then classic example of frustration

Front 6

A contract may become frustrated where the commercial purpose is defeated - was the sole purpose of the contract do do x?

Back 6

(Krell v Henry)

Imagine the situation where all TV channels desperate to get into film royal wedding
Esentially what happened here
Someone rented flash room to watch the coronation.
King got ill, and coronation cancelled.
Whole commercial purpose was to have in effect a viewing platform for the coronation – if couldn’t take place, then contract was frustrated.
This case is the exception – point is that if you had an event – like a war - flood – cancellation of coronation
Flood in Bris – effect tonnes of contracts – separate issues for each.

Front 7

If contract not for specific purpose that has changed, then contract will not be frustrated

Back 7

Herne Bay v. Hutton

- Coronation is the centre piece
- P wants to take punters to go and see fleet and watch the king.
- King cant make it
- Hirer says contract frustrated
- Boat owner says ‘ hang on a minute – I don’t care why you wanted it - we didn’t contract with regard to king
- Fleet still there etc
- Contract was to hire a boat – what it was for didn’t come into it.

Front 8

Mere fact that contract becomes more expensive or onerous for one party is not enough to frustrate the contract

Back 8

–Tsakiroglou v. Noblee Thorl [1962] AC 93
•Sale of Sudanese (non-perishable) goods to Hamburg
•No date fixed for delivery
•S refuses to ship, as obliged to carry via Cape (S. Africa)
•S extra expense not enough to frustrate
• Your risk – can still get it there - just going to cost more. Exemplified in Eugenia
–The Eugenia [1964] 2 QB 226

Front 9

The Eugenia [1964]
-self induced

Back 9

•Hire contract (daily rate) Italy – Black Sea (load iron) - India
•Aware of Suez Canal closure risks (1956 nationalisation)
•No term agreed, but normal War Clause
–“Charterer not to order to war zone”
•Arrived Port Said, firing, but Charterer ordered into Canal -Ship gets in – full scale war breaks out in 1956 Ships in the canal were blocked – ship doesn’t get out until April.
From hirers point of view - boat had been in canal for months contract frustrated
- issue that the hirer had order the ship into the Canal
- “ self induces frustration.” Not frustration.
–31 Oct War: Egypt blocks canal trapping ship until January
–South not unblocked until April
–[Ship undamaged]
•Charterer wanted frustration by war in January
–Charterer paying per day – presumably stopped paying in January
–If wrong, charterer in repudiation
Was the extra voyage radically different?
o Hirer’s said should only look at where picked up cargo and put it down
• Held:
1.War Clause: Charterer breach by allowing into Canal
•Voyage via Canal was not required by contract
•Construction – no term saying must go via Canal
•Could have ordered via Cape (more expensive)
2.Frustration
-Being trapped was self-induced – no frustration if own fault/choice
-Blocking causing frustration?
-Canal would have been blocked anyway
-Even if Charterer not in breach; i.e. ship waited outside
-Time to judge? By November, all considered blocked indefinitely
-Was extra voyage via Cape “radically different”?
-Depends on comparison of contract, and new, obligations
-Mere fact that more expensive or onerous not enough
-Not a perishable cargo
-Which comparison of delays?

Front 10

limits to frustration?

Back 10

self induced frustration operates as a bar to frustration (The Eugenia)

Cannot claim frustration if event brought about
By own choices
By own breach, or faults
In effect P may be in
Repudiation, or
Fundamental breach

Front 11

What if there is an express clause covering the event?

Back 11

Fibrosa; - was a clause that said an extention of time will be granted is the performance of the contract is hindered by war (but clearly wasn’t intended to cover something as drastic as WWII lasting 6 years) Codelfa


–AGL Sales (Qld) v Dawson Sales [2009] QCA 262
- interruption in gas supply – for some reason wells not producing enough gas – dawson Sales tried to use ‘Force majeure’ claues
- Key wording was that where there was interruption’ “Interruption” of gas supply not apt to describe any diminution in supply, even slight
‘Force majeure’ clause
- virtually every commercial contract will have one of these

Front 12

Following a frustrating event, what rights and payments can be enforced?
Accrued rights/ Rights not yet accrued
Payments Due Before/ Payment Due after
Payments made before/Payment made after

Back 12

Accrued rights = enforceable

Rights not yet accrued = not enforcable
Payments Due Before: Must pay unless total failure of consideration
Payment Due after: No obligation to pay
Payments made before: not returnable, unless total failure of consideration
Payment made after: Not due

Front 13

Total failure of consideration?

Back 13

Consider Fibrosa - total failure
Baltic Shipping - not total failure

Front 14

What can be claimed if payment is due after discharge, where benefit received but not paid for before discharge?

Back 14

If A obtains "valuable benefit”
e.g. Tenant use of room before cancellation in Krell
B can recover sum:
Up to value of benefit, at Court discretion
Subject e.g. to expenses incurred by A
e.g. sums paid by A for room cleaning in Krell

Front 15

Frustration Summary

Back 15

Supervening event
- not self induced
Automatic termination
Future obligations ended
-prior obligations may have accrued
-unless total failure of consideration
Legislation may regulate some consequences if:
- advanced payments
/ payments due after event