FRUSTRATION
If, after the formation of the contract, events occur without the fault of either party that render
further performance of the contract impossible, illegal, or radically different from what was originally
envisaged, the contract may be automatically discharged on the grounds of frustration and the parties
will be excused further performance of their contractual obligations.
Statute also provides for adjustment of obligations arising before frustration.
Hirji MuLji v Cheong Yue SS Co - A contract which is discharged on the ground of frustration is brought to
an end automatically by the operation of a rule of law, irrespective of the wishes of the parties
A contract can only be set aside on the ground of common mistake where the parties were laboring
under the mistake at the time at which they entered into the contract. Unforeseen events which occur
after the contract has been concluded cannot form the basis of claim for relief on the grounds of mistake
but in such a situation, a court may hold that the contract has been discharged by operation of the
doctrine of frustration.
The competing theories
Absolute obligation theory (old approach)
If, after entering into a contract, the continued performance of a contract becomes impossible as a result
of subsequent events, the question arises as to whether one or the other of the parties or neither of
them should be responsible for this failure of performance. A strict 'freedom of contract' approach might
lead to the answer that a party who has undertaken to perform obligations has also undertaken the risk
that performance of them will become impossible. On this view, failure to perform should therefore be
treated in the same way whether that failure is due to a deliberate action or arises from impossibility
caused by some supervening event after the contract has been formed In other words, both situations
involve a breach of contract and should be treated as such, This approach, of an absolute obligation, was
the original approach taken by the common law and can be seen in the decision in Paradine v Jane
Implied term theory (old approach)
It was originally considered that the doctrine of frustration was based on the implication of a term e.g.
an implied condition if the subject matter of the contract were to cease to exist then the contract would
be discharged. In Taylor v Caldwell (1863): On 27 May 1862, the claimants entered into a contract with
the defendants whereby the defendants agreed to let the claimants have the use of Surrey Gardens and
Music Hall on 17 June, 15 July, and 5 and 19 August for the purpose of giving a series of four grand
concerts and fêtes. On 11 June (before the first of these dates on which a concert was to be given), the
Hall was destroyed by fire, without the fault of either party. The concerts could not be given as intended.
The claimants argued that the defendants were in breach of contract in failing to supply the Hall and
they sought damages for their wasted advertising expenditure. Blackburn J held that this destruction
brought the contract to an end and discharged both parties from any further obligations under it. The
justification for this approach was that there was an 'implied condition' in the contract that the main
subject matter (the music hall) should continue to exist. When the subject matter ceased to exist, the
parties were discharged from further performance. The effect of the decision was to allow a contract to
be discharged but, at the same time, adherence to freedom of contract was maintained by the use of an
implied term.
The radical difference theory (modern approach)
The implied term theory was rejected by the House of Lords in the context of frustration in Davis
Contractors v Fareham Urban District Council [1956], in which contractors agreed to build 78 houses for
a local authority for £92,425 within a period of eight months. Without the fault of either party, adequate
supplies of labor were not available and the work took 22 months to complete. The contractors argued
that the contract was frustrated and that they could therefore claim on a quantum meruit basis (which
would be more than the contract price) for the houses that they completed. It was held that the contract
had not been frustrated. The shortage of labor had rendered the contract more onerous than expected,
but had not altered the fundamental nature of the contractual performance. It will be seen that the
contractors were seeking to profit from the frustration by using it to escape the contractual price that
they had agreed, and instead to claim a larger sum on a quantum meruit. Not surprisingly, the Court
denied that result. Lord Radcliffe's test was whether the frustrating event created 'a thing radically
different from that which was undertaken by the contract
First, it is important that the courts determine exactly what obligations were originally undertaken, in
order to decide whether the change in circumstances has made any of them radically different. Secondly,
it is quite possible for the parties themselves to make provision in the contract for what is to happen
should the performance of the agreement become impossible, or radically different, as a result of some
subsequent event for which neither of them is to blame. This is common in commercial contracts, which
frequently use what are known as 'force majeure' clauses. Where there is a clause of this type which
covers the situation which has occurred, then the courts will give effect to it. In essence this means the
event was foreseen.
The nature of a 'frustrating event
Lord Radcliffe stated in Davis Contractors Ltd v Fareham Urban District Council (1956):
Frustration occurs whenever the law recognizes 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.
When deciding in a particular case whether or not a contract has been frustrated, the courts adopt what
has been termed a 'multi-factorial' approach (The 'Sea Angel') [2007]. Factors which the courts should
take into account include:
1. the terms of the contract itself,
2. its matrix or context,
3. the parties' knowledge, expectations, assumptions and contemplations, in particular as to risk, as at
the time of contract, at any rate so far as these can be ascribed mutually and objectively, and then
4. the nature of the supervening event, and
5. the parties' reasonable and objectively ascertainable calculations as to the possibilities of future
performance in the new circumstances.
Pre frustrating Event factors; terms of the contract, subject matter/ content, objective context of the
parties
Post frustrating Event factors; Nature of frustrating event, objective expectations of the parties in new
circumstances
BERMUDA CASE; if there is a break in identity between the pre frustrating event factors and post
frustrating event factors then the contract will be rendered void. The doctrine is that there must be a
break in identity between the contemplated and the new void performance and the courts will not
lightly conclude that there has been such a break.
Courts have consistently indicated that a contract will be frustrated only where there is a complete
change between what was undertaken in the contract and the circumstances in which it is called upon to
be performed. In CTI Group Inc. v Transclear SA [2008], the seller found that it had no sources of supply
and sought to argue that its contracts of sale had become "commercially impossible' to perform.
However, the Court of Appeal held that the supply risk rested with the seller. This was a case of breach
and not frustration.
Lord Radcliffe’s test in Davis Contractors Ltd v Fareham UDC above was applied in the context of the
UK's departure from the European Union ('Brexit') in Canary Wharf Ltd v European Medicines Agency
to hold that Brexit did not frustrate the EMA's lease of London premises. The EMA was not legally
required to be located in an EU country and so performance of the lease contract after Brexit was not a
radically different' thing from what was originally undertaken.
In all cases, however, it must be that the event has made the contract impossible, illegal or radically
different - it is not enough that the contract has simply become more difficult or expensive for one party.
In Davis Contractors Lid v Fareham Urban District Council builders who contracted to erect 78 houses
within eight months for £94,000 were not allowed to rely on frustration when construction took 22
months and cost the contractors £115,000.
Similarly, in Tsakiroglou. & Co v Noblee and Thorl (1962) the closure of the Suez Canal did not frustrate a
contract for the carriage of goods from Port Sudan to Hamburg. The contract had not specified the route
and the fact that the alternative route, via the Cape of Good Hope, would take much longer was not
sufficient to frustrate the contract. The contract was not frustrated by the closure of the Canal. The
House of Lords refused to imply a term that shipment should be made via the Suez Canal. The sellers
should have shipped the goods by the alternative route, which was not substantially different from that
envisaged by the contract.
In MSC Mediterranean Shipping Company SAV Cottonex Anstalt (2016), the Court of Appeal recognized
that the application of such a test 'may be arbitrary but it is pragmatic'.
Destruction of subject matter
The most obvious example is where the main subject matter of the contract has been destroyed, as in
Taylor v Caldwell (1863). If something central to the performance of the contract no longer exists, then it
is not surprising that the courts will find that the parties' obligations should come to an end. Full
destruction may not be necessary.
In Asfar v Blundell (1896), the contamination of perishable goods, which rendered them unusable, was
held to be equivalent to destruction
Section 7 of the Sale of Goods Act 1979
Goods perishing before sale but after agreement to sell.
Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the
part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.
Personal incapacity
Another clear case of frustration will be where both parties have agreed that the contract is to be carried
out by a particular individual, and that individual dies, of is too ill to perform (Condor v Barron Knights
The court will need to be satisfied however, that the contract was not simply for work to be done, but for
it to be done by the particular individual who is unavailable.
Non-occurrence of an event (CONTRACIS WIH DUAL PURPOSES)
If contract is of dual purpose, it cannot be frustrated even if one of the purposes is still intact.
Where the common purpose for which the contract was entered into can no longer be carried out
because of some supervening event the contract may be frustrated. Examples of frustration of purpose
are, however, extremely rare. The reason for this is that the courts do not wish to provide an escape
route for a party for whom the contract has simply become a bad bargain.
A rare case in which a plea of frustration of purpose succeeded is Krell v Henry [1903]. The defendant
hired a flat in Pall Mall from the claimant for two days. The object in entering into the contract was to
view the coronation procession of Edward VII, although this was not actually expressed in the contract.
After the contract had been concluded, the coronation of Edward VII was postponed because of the
illness of the King. The Court of Appeal held that the contract was frustrated
Krell must, however, be contrasted with Herne Bay Steam Boat Co v Hutton in which the defendant
hired a ship from the claimant 'for the purpose of viewing the naval review and for a day's cruise around
the fleet'. After the contract had been concluded, the naval review was cancelled because of the illness
of Edward VII. Nevertheless, the court held that the contract was not frustrated.
Vaughan Williams LJ in Krell, the 'foundation of the contract' was the viewing of the coronation.
However, the contract in Krell was an extremely unusual one. The rooms were hired out by the day,
excluding the night, and the only purpose which both parties had in entering into such an unusual
contract was to hire the rooms for the purpose of viewing the coronation. So interpreted, the contract
was frustrated. On the other hand, in Herne Bay Steamboat Co v Hutton the defendant could still see the
fleet and, although the defendant's motive in entering into the contract might have been to see the
naval review, it could not be said that that was the 'common foundation of the contract.
Illegality
If after contracting, the performance of the contract becomes illegal, then this can constitute a
frustrating event.
Supervening illegality can operate to frustrate a contract. In Fibrosa Spolka Akeyjnav Fairbairn Lawson
Combe Barbour Ltd [1943], the respondents agreed to manufacture the loss caused by the machines for
the appellants and to deliver them to Gdynia in Poland. However, before the respondents had completed
the manufacture of the machines, Gdynia was occupied by the German army. It was held that the
contract was frustrated because in time of war it is against the law to trade with the enemy. The public
interest in ensuring that no assistance was given to the enemy in time of war outweighed the fact that it
remained physically possible to manufacture and deliver the machines. In this context the concern of the
court is not simply with the allocation or distribution of supervening event, but with public policy
considerations, particularly in ensuring that the law is observed (Islamic Republic of Iran Shipping Lines v
Steamship Mutual Underwriting Association (Bermuda) Ltd [20101)
Where the illegality is only temporary or partial, the contract will be frustrated only if the illegality affects
the performance of the contract in a substantial or fundamental way (Denny, Mott & Dickinson v James
B Fraser & Co Ltd and Cricklewood Property Investment Trust Ltd v Leighton's Investment Trust Ltd).
Effects of War
In time of war a government may make trading with companies based in enemy territory illegal.
Contracts with such companies which were made prior to this action will be frustrated. (Fibrosa Spolka
Akeyjnav Fairbairn Lawson Combe Barbour Ltd [1943])
Similarly, the requisitioning of property which had been allocated to a contract may lead to the
frustration of that contract: Metropolitan Water Board v Dick Kerr (1918) and FA Tamplin v Anglo-
American Petroleum (1916) (although in this case the requisitioning of a ship as a troop ship was held
not to have frustrated a charter of it, because the requisitioning was not of sufficient length to defeat the
whole purpose of the contract).
The frustration need not result from direct government action. In Finelvet AG v Vinava Shipping Co Ltd
(1983), the continuing war between Iran and Iraq trapped certain ships in the Gulf for a lengthy period.
Contracts relating to the charter of these ships were held to be frustrated.
Leases
National Carriers Ltd v Panalpina (Northern) Ltd (1981) (HL)- A warehouse was leased to the defendants
for ten years from 1 January 1974. The lease contained a covenant that the premises should be used
only as a warehouse. The only vehicular access to the warehouse was by a street, which the local
authority closed on 16 May 1979 in order to demolish a dangerous building. The street was likely to be
closed for 20 months and the defendants were not able to use the warehouse that period. The claimants
brought an action for unpaid rent, but the defendants claimed that the lease was frustrated, so that they
were discharged. It was held that on the facts, having regard to the period of the lease that would
remain after the interruption ceased, compared to the ten-year term of the lease, the defendants could
not rely on frustration as a defense.
Other government action
Government action not related to war can frustrate a contract.
In Gamerco SA VICM/ Fair Warning Agency (1995) a stadium which had been booked for a pop concert
was closed for reasons of health and safety. It was held that the contract for the hire of the stadium was
frustrated
It is also implicit in Amalgamated Investment and Property Co Ltd v Jehn Walker & Sons Ltd (1976) that
the listing of a building as being of architectural and historical interest (thus limiting the possibilities for
its development) could frustrate a contract for its sale (though on the facts it did not).
Other frustrating events
A contract may also be frustrated where the subject-matter of the contract is unavailable for the purpose
of carrying out the contract. For example, a charterparty was held to be frustrated when the ship was
requisitioned and so was unavailable to the charterer. Temporary unavailability of the subject-matter
may also frustrate a contract.
In Jackson v Union Marine Insurance Co Ltd (1874), a ship was chartered in November 1871 and was
required to proceed with all possible dispatch from Liverpool to Newport, and there load a cargo for
carriage to San Francisco. On her way to Newport in early January 1872, the ship ran aground and Was
not fully repaired until the end of August 1872. It was held that the contract was frustrated because the
ship was not available for the voyage for which she was chartered. A voyage to San Francisco in late
August 1872 was performance radically different from that originally contemplated, Where the contract
is one of fixed duration and the unavailability of the subject matter is only temporary, the court must, in
deciding whether the contract has been frustrated, consider the ratio of the likely interruption in
contractual performance to the duration of the contract. The higher the ratio, the more likely it is that
the contract will be frustrated.
In The Nema |1982] (above) a charterparty was frustrated when a long strike closed the port at which
the ship was due to load so that, of the six or seven voyages contracted to be made between April and
December, no more than two could be completed.
As indicated above, however, the categories of frustrating event are not closed. It will always be possible
to argue that some novel occurrence has frustrated a contract, provided that it has had the required
effect on the obligations of either or both parties.
Limitations on the doctrine
There are two principal limitations on the doctrine of frustration. The first is where the frustrating event
has been foreseen and provided for in the contract; the second is where the alleged frustrating event has
been 'self-induced' by one of the parties, since, as indicated in the quotation from Lord Radcliffe given in,
the problem must arise 'without default of either party.
1. Force Majeure Clouse (Essay Question)
we all know that the future is uncertain; prices may suddenly increase, inflation may rise, labor disputes
break out. Contracting parties are expected to foresee many such possibilities when entering into a
contract and guard against them in the contract. Contracts today often make provision for the impact of
unexpected events upon contractual performance. A clause which is frequently employed for this
purpose is known as a 'force majeure' clause, In Channel Island Ferries Ltd v Sealink UK Ltd [1988], the
contract between the parties contained the following force majeure clause:
A party shall not be liable in the event of non-fulfilment of any obligation arising under this contract by
reason of Act of God, disease, strikes, lock-outs, fire, and any accident or incident of any nature beyond
the control of the relevant party
What advantages can be obtained by the use of such clauses?
1. The first is the provision of a degree of certainty. It is often difficult to know whether or not a contract
has been frustrated, to an extent this uncertainty can be reduced by the parties agreeing a list of events
which are to constitute force majeure or hardship events.
2. The second is that frustration operates within very narrow limits (both in terms of the events which
constitute frustrating events and the width of doctrines such as self-induced frustration which deny to a
party the ability to argue that the contract was frustrated. On the other hand, force majeure gives to the
parties the opportunity, should they want to avail themselves of it, to agree that a wider class of events
shall constitute force majeure or hardship events,
3. The third advantage is that the parties can make provision for the consequences of the occurrence of
a force majeure. Frustration operates too drastically because it terminates the contract, irrespective of
the wishes of the parties. Very often the parties want to continue their relationship but to adapt the
terms to meet the new situation. This cannot be done under the doctrine of frustration. But force
majeure clauses often provide for a period of suspension of the contract (to allow more time for
performance or to enable the parties to wait for the supervening event, such as bad weather or a strike,
to subside) before resorting to the more drastic remedy of termination.
In Severfield (UK) Ltd v Duro Felguera UK Ltd (2017) it was said obiter dicta that in modern times the
court should avoid recourse to the doctrine of frustration whenever the parties have made contractual
provision for the event that has occurred. Thus, as noted at the beginning of this chapter, in the
commercial area 'force majeure' and similar clauses may well replace the common law and statutory
rules on frustration.
As per Chitty’s on contract in the case of David Maritime v Bhd, this case has caused doubts over
whether a force majeure clause can be construed as an exemption clause. The debate appears to be 3
fold;
1. strict rules of interpretation apply to exemption clauses whereas courts insists of using clear words
for force majeure clauses.
2. Where force majeure clause takes shape of an exemption clause, the party relying on it has to prove
that it would have been able and willing to perform its contractual obligations had the force majeure
event not occurred.
3. Whether force majeure clause attracts the application of UCTA 1977 two questions need to be
resolved
a) whether this falls within the scope of section 3
b) whether the force majeure clause satisfy the reasonableness test
2. Self-Induced Frustration (Essay Question)
existence of choice can amount to self-induced frustration when you opt otherwise
if your event is due to your own fault the force majeure clause will be inoperable and self-
induced frustration will be established
A party cannot invoke the doctrine of frustration where the alleged frustrating event is brought about
through his own conduct or the conduct of those for whom he is responsible. This inability to invoke
frustration is generally referred to as 'self-induced frustration. It is, however, important to be clear about
the consequences of concluding that the 'frustration' was 'self-induced'. Frustration is generally invoked
by a defendant who has not performed his contractual obligations as a defense to an action for breach of
contract. But where the 'frustration' is held to be 'self-induced', the consequence is that the defendant is
unable to rely on frustration and so, in the absence of any other defense, will be found to be in breach of
contract
In (The 'Super Servant Two) [1989], Hol I defined self-induced frustration as a label!' which has been
used by the courts to describe 'those situations where one party has been held by the courts not to be
entitled to treat himself as discharged from his contractual obligations".
Thus, a negligent act by the defendant will generally amount to self-induced frustration because such an
event is not 'altogether outside the control of the defendant. On the contrary, it is within his control,
notwithstanding the fact that his negligence is a result of his unreasonable failure to exercise that control
(Joseph Constantine Steamship Line Ltd v, Imperial Smelting Corp Ltd). Some insight into the scope of
self-induced frustration can be gleaned from an analysis of the following two cases:
The first case is Maritime National Fish Ltd v Ocean Trawlers Ltd [1935]. The Privy Council held that the
contract was not frustrated as a result of the defendants' failure to obtain a license for the vessel; this
was a case of self -induced frustration. But the ratio of the decision remained unclear. On the one hand,
it could be argued that it was the fact that the defendants elected to allocate the licenses to their own
vessels which led the Privy Council to conclude that this was a case of self-induced frustration. On the
other hand, it could be maintained that the mere fact that the defendants had a choice as to the
distribution of the licenses was sufficient to constitute self-induced frustration
Our second case is (The 'Super Servant Two') [1990], where the Court of Appeal adopted the latter of
our two possible interpretations of the Maritime National Fish case. The defendants agreed to transport
the claimants' oil rig using, at their option, either Super Servant One or Super Servant Two (both of
which were self-propelling barges especially designed for the transportation of rigs). Prior to the time for
performance of the contract the defendants made a decision, which they admitted was not irrevocable,
to allocate Super Servant Two to the performance of the contract with the claimants and to allocate
Super Servant One to the performance of other concluded contracts. Unfortunately, after the contract
had been concluded but before the time fixed for performance, Super Servant Two sank while
transporting another rig. The contract could not be performed by Super Servant One because of its
allocation to the performance of other concluded contracts and so the contract was eventually
performed by another, more expensive method of transportation. The claimants brought an action for
damages against the defendants, alleging that they were in breach of contract in failing to transport the
rig in the agreed manner. The defendants denied liability on two grounds:
1. The first was that they argued that the contract had been frustrated as a result of the sinking of
Super Servant Two. This argument was rejected. The Court of Appeal held that the cause of the non-
performance of the contract was not the sinking of Super Servant Two but the choice of the
defendants to allocate Super Servant One to the performance of other contracts. The existence of
such a choice was held to be sufficient to turn the case into one of self-induced frustration.
2. But at this point it is important to turn to the defendants' second defense, which was that they were
entitled to terminate performance of the contract without incurring any liability under the terms of a
force majeure clause contained in the contract. One of the force majeure events listed in the
contract was 'perils or dangers and accidents of the sea' and the Court of Appeal held that this
phrase was apt to encompass the sinking of Super Servant Two provided that its sinking was not
attributable to negligence on the part of the defendants or their employees. So, provided there was
no negligence on the part of the defendants, the force majeure clause gave to the defendants an
effective defense to the claimants' claim for damages.
Super Servant Two demonstrates that a contracting party who wishes to be released from his
obligations to perform in a wider range of circumstances must bargain for the inclusion of a force
majeure in the contract.
**Discuss all 3 theories of frustration
The effect of frustration
Common Law (apply to questions of good and services)
One common law rule which operates even where the Act is also applicable is that a frustrating event
terminates the contract automatically, without any need for action by either party. This is in contrast to
the position following a repudiatory breach of contract where the innocent party has the option of
continuing with the contract or bringing it to an end. It follows that any attempt to affirm the contract
following frustration will be ineffective. This was confirmed in Hirji Muljiv Cheong Yeong Steamship Co
Ltd (1926) and The Super Servant Two (1990).
As to the distribution of losses following frustration, the common law started from the position that all
future obligations were discharged, but that obligations incurred prior to the frustrating event survived.
(Chandler v Webster) Where the loss fell would therefore depend entirely on what the contract said
about when payment was to be made, or when work was to be done. Thus, in Chandler v Webster
(1904), which was one of the 'coronation' cases, the full obligation to pay for a room to watch the
procession arose before the cancellation (in contrast to Krell v Henry (1903) where only a deposit was
payable). The hirer of the room was therefore required to make full payment and the entire loss caused
by the frustrating event fell on him.
**obligations before frustrating event always stand but after frustrating event get dissolved
It was held in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] (overruling
Chandler v Webster [1904] where it had been held, essentially, that the loss lay where it fell) that money
paid prior to the frustration of the contract was recoverable upon a total failure of consideration. A total
failure of consideration arises where the party seeking recovery has got no part of what he has
bargained for. In Fibrosa, the appellants sought to recover the €1000 they had paid to the respondents
on the signing of the contract. The House of Lords held that the consideration for the payment had
wholly failed because the machines had not been delivered to the appellants and that they were entitled
to the recovery of their payment
Two principal defects remained:
1. The first was that the payer could only money paid upon a total failure of consideration; where the
failure was only partial, he could not recover (Whincup v Hughes (1871)).
2. The second defect was that the payee could not set off against the money any expenditure which he
had incurred in the performance of the contract. For example, on the facts of Fibrosa, (failure of
consideration) the respondents had incurred expenditure in making the machines (although it,
admittedly, unclear whether that expenditure had been wasted), yet they were unable to retain any
portion of the £1000 which represented their expenditure upon the machines recover to be e repaid
any it was, this position has been rectified by the enactment of section 1(2) of the Law Reform
(Frustrated Contracts) Act 1943.
Before 1943, goods and money are to be dealt under common law
After 1943, only monetary aspect dealt with statute, goods still under common law
Law reform Act does not apply to shipping contracts
The Law Reform (Frustrated Contracts) Act 1943
Money paid already will be reverted
Money due cease to be payable
If any party has incurred costs for performance, the other party can claim that money and can
deduct the expense incurred for the performance if the courts allows, which the courts usually
doesn’t allow to do.
There are some contracts to which the 1943 Act does not apply. These include contracts of insurance,
some charters of ships (principally charters for a particular voyage) and contracts for the carriage of
goods by sea. The exclusion of the shipping contracts exists because there are special rules under
shipping law which deal with the situation. The most important exclusion from the effects of the Act is,
however, in relation to contracts for the sale of specific goods. In relation to these contracts the common
law rules as to the effects of frustration will apply.
The two main provisions in the 1943 Act are;
s.1(2), which deals with money paid or payable prior to the frustrating event, and
s.1 (3) which deals with benefits conferred prior to that event. (EXAMINATION NOTE; always
look at the description of the parties)
Section 1(2): money paid or payable prior to frustration
Section 1(2) provides that where money was paid or payable prior to the frustrating event, it should be
returned (if paid, or should cease to be payable (if not paid but owing). Unlike the common law, this is
not dependent on there being a total failure of consideration. Not all the money may be recoverable,
however. The section provides that if expenses have been incurred towards the performance of the
contract, some of the money paid or payable may be retained or recovered, to the extent that a court
considers it just in all the circumstances. The amount concerned cannot exceed the amount of the
expenses incurred, nor can it exceed the amount paid or payable under the contract (even if the
expenses are greater than this).
The discretion given to the court is a broad one, as confirmed by Gamerco SA v ICM/ Fair Warning
Agency (1995). The case concerned the frustration of a contract to hold a pop concert because of the
closure of the specified stadium on grounds of safety. The plaintiffs sought to recover some $412,500
which had been paid. Although the defendants could point to expenses which they had incurred, the
judge concluded that in all the circumstances it was just that the $412,500 should be returned in full. It
does not follow, therefore, that simply because a party has incurred expenses that it will automatically
be allowed to deduct these from sums returnable under s.1(2). The overall justice of the case must be
taken into account. Section 1(2) provides that where money was paid or payable prior to the frustrating
event, it should be returned (if paid), or should cease to be payable (if not paid but owing). Unlike the
common law, this is not dependent on there being a total failure of consideration. Not all the money may
be recoverable, however. The section provides that if expenses have been incurred towards the
performance of the contract, some of the money paid or payable may be retained or recovered, to the
extent that a court considers it just in all the circumstances. The amount concerned cannot exceed the
amount of the expenses incurred, nor can it exceed the amount paid or payable under the contract
(even if the expenses are greater than this).
Section 1(3): compensation for a 'valuable benefit'
Section 1(3) deals with the situation where a party has received a benefit other than money prior to the
point at which the contract was frustrated. In that situation the section allows the party to recover from
the other party such sum...as the court considers just, having regard to all the circumstances of the case.'
In particular the court should take into account any expenses incurred by the benefited party and 'the
effect, in relation to the said benefit of the circumstances giving rise to the frustration of the contract.
This final consideration which the court must take into account has been interpreted in a way which has
significantly reduced the scope for recovery for the provision of benefits. In BP Exploration Co (Libya) Ltd
v Hunt (No 2) (1979), (courts usually don’t allow unjust enrichment) Goff J (as he then was), having held
that the purpose of the Act was the prevention of unjust enrichment rather than the apportionment of
losses, ruled that the value of any alleged benefit under s.1(3) must be assessed in the light of the
frustrating event itself. Where, therefore, the frustrating event has had the effect of destroying the
benefit, nothing will be recoverable under s.1(3). This interpretation of the Act has been the subject of
much criticism though this is mainly focused on the poor drafting of the legislation rather Goff J's
interpretation of it. This is a poorly drafted section and the courts never allow unjust enrichment.
PROBLEM QUESTION
Introduction
Davis Contractors Lid v Fareham Urban District Council
(The 'Sea Angel'
BERMUDA case
Canary Wharf Ltd v European Medicines Agency
Destruction, so Taylor v Caldwell + s7 of sales of Goods Act 1979
Firstly, we will look that the effects of frustration under common law. It is important to note here
that this position governs monetary aspect of the contract before the law reform act 1943. However,
the goods agreed under the contract are still dealt under common law. The starting position is in the
case of Chandler V Webester. Contractual obligations prior to frustrating event they survive and post
frustrating event are discharged. Charly is bound to pay 2000 pounds upon delivery as this obligation
arises prior to the frustrating event and he has to pay the remaining 1500 pounds. In Fibrosa’s case
Chandler v Webster was effectively overruled and the courts stated that there has been a failure of
consideration. As a result of a frustrating event the painting has been destroyed by fire and Charly is
no longer bound to pay for the delivery and the remaining balance of 10,000 pounds. The courts are
inclined to follow the Law reform act 1943. s1(2) has a threefold effect: Money paid should be
returned or should cease to be payable (if not paid but owed), if any party has incurred expenses
towards the performance of the contract, some of the money paid or payable may be retained or
recovered to the extent that the courts consider just in all the circumstances. 500 pounds paid by
Charly should be retuned back to him, remaining 1500 pounds along with 10,000 pounds shall cease
to become payable. Anthany has incurred an expense of 3000 pounds, whether he can retain the
500 pounds to account for the expenses that remains at the discretion of the court. In Gamerco SA v
ICM/ Fair Warning Agency it has been seen that the courts rarely allow the parties to retain any
money incurred as expenses towards the performance of the contract.
Q4.
Allan had contracted with Liverpool is for 2 purposes (match + Norman), Second purpose stands
unfulfilled however first purpose is still intact hence the contract is not frustrated (krell v henry) &
Herne Bay Steam Boat Co v Hutton
Anticipatory breach of contract, at time of match and performance he will not show up and breach
AFTER CONCLUSION;
As stated above, frustration is self-induced. As a result of which Liverpool FC would be unable to reply on
doctrine of frustration, therefore, Allan would be successful in bringing a claim for breach of contract.
The remedies for breach of contract will directly depend on the term that has been breached. If there
has been a breach of condition, or a serious breach of innominate term then Allan will have a right of
election, either he can terminate the contract and claim damages or he can affirm the contract and claim
damages. If It classified as a less serious breach of innominate term or warranty then Allan will have no
right to terminate the contract and he can only claim damages. Damages provided, will be assessed
under Hadley v Baxandale. Allan could also resort to equitable remedies (specific performance &
injunction) but he would have to waive of his rights to claim damages but these remedies are off little
use here since the subject matter has cease to exist.