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Frustration
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Lecture notes of 25 pages for the course Law of Contract at UoS (Frustration)
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Frustration of ContractsIntroduction
Event occurring after conclusion of contract may affect performance by one party.
Parties may provide for effect of such event in contract (force majeure clause).
Definition of Frustration
‘A contract is frustrated where, after the contract was concluded, events occur which
make performance of the contract impossible, illegal or something radically different
from that which was in the contemplation of the parties at the time they entered
into the contract’ – McKendrick.
Historical Development
Paradine v Jane (1647).
The plaintiff, Paradine, brought an action against the defendant, Jane, for the
rent arrears for the lands that Paradine had leased to Jane.
The defendant acknowledge that he owed the money for the rent.
However, the reason why he did not pay it was because the land was invaded
by the enemy of the King, his cattle was driven away and he was expelled
from the land, so effectively, he could not enjoy it.
Should a lessee who was expelled from his land be liable for rent for a period
in which he has been expelled from the land.
Where a party creates a duty or charge upon himself by virtue of a contract,
he is bound to perform the duty or pay the charge, notwithstanding any
accident. The reason why this is so, is because the party could have inserted a
clause in the contract, which prescribes what is to be done with the rent in
case of an accident.
In the absence of an express covenant, the lessee is equally liable as the rent
is an obligation created upon the reservation.
The lessee in the present case is bound to pay rent, despite the fact that the
house may have been burnt by lightning, thrown down by enemies and
although he may have been expelled from the land or the land may have
been inundated.
Tenant who was sued for rent arrears pleaded ‘that a certain German
prince, by name Prince Rupert, an alien born, enemy to the King and
his kingdom, had invaded the realm with an hostile army of men; and
with the same force did enter upon the defendant’s possession, and
him expelled, and held out of possession…whereby he could not take
the profits’.
Taylor v Caldwell (1863).
The claimant hired out a music hall in Surrey for the purpose of holding four
grand concerts – 27th May 1861, let for concerts on 17th June, 15th July, 5th
August and 19th August.
The claimant went to great expense and effort in organising the concerts.
However, a week before the first concert was due to take place the music hall
was destroyed by an accidental fire – 11th June.
, The claimant sought to bring an action for breach of contract for failing to
provide the hall and claiming damages for the expenses incurred.
The claimant's action for breach of contract failed.
The contract had been frustrated as the fire meant the contract was
impossible to perform.
Blackburn J – ‘In contracts in which the performance depends on the
continued existence of a given person or thing, a condition is implied
that the impossibility of performance arising from the perishing of the
person or thing shall excuse the performance…We find that the
parties contracted on the basis of the continued existence of the
Music Hall at the time when the concerts were to be given; that being
essential to their performance’.
Arguments against the implied term theory:
Court can only read into contracts what parties subconsciously intended.
Parties cannot have impliedly provided for something that never occurred to
them.
If it had occurred to them, they might have agreed on adjustment rather than
complete discharge of the contract.
Concept today – frustration discharges the contract by operation of law.
Doctrine of frustration ‘is really a device, by which the rules as to absolute
contracts are reconciled with a special exception which justice demands’ –
Lord Summer.
Hirji Mulji v Cheong Yue Steamship Co Ltd (1926).
By a charterparty, made in November 1916, the respondents
chartered their steamship to the appellants. The charter was
to commence on 1 March 1917 at the port of Singapore.
The appellants agreed to employ the vessel on specified terms
for ten months from the date she was delivered to them.
There was a term in the charterparty, stipulating that all
disputes arising out of it are to be submitted to arbitration in
Hong Kong.
Before the commencement of the period covered by the
charterparty, the steamship was requisitioned by the
government and was not released until February 1919.
The appellants then refused to take delivery of the steamship.
The arbitrator awarded the respondents damages for breach
of contract and they brought an action upon this award.
Was there a frustration of the contract by the requisition of
the steamship?
Did the arbitrator have jurisdiction to rule on the case?
The decision was in favour of the appellants.
The requisition of the steamship by the government before
the term of the charterparty commenced was a frustration of
the charterparty.
, The legal effect of the frustration of a contract does not
depend on the intention, opinions or knowledge of the parties
as to the event which has caused the frustration, but on its
occurrence in such circumstances as to show it to be
inconsistent with the further prosecution of the adventure.
The frustration of the charterparty brought an end to the
whole contract, including the requirement to submit disputes
arising under to contract to arbitration in Hong Kong.
Therefore, the arbitrator had no jurisdiction to rule on the
case.
‘Frustration occurs whenever the law recognises 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’ – Lord Radcliffe.
Davis Contractors Ltd v Fareham UDC (1956).
The appellants tendered for a contract with the respondents
to build 28 houses for 8 months.
The tender was accompanied by a letter which stated that the
tender was subject to adequate supplies of materials and
labour when required to carry out the work within the time
specified.
Later, the appellants entered into a contract with the
respondents to build the houses at a fixed price, subject to
certain adjustments.
The contract incorporated a number of preliminary
documents, listed in a clause.
The tender was specified to be one of them, but the letter was
not.
Due mainly to the lack of skilled labour, the work took 22,
instead of 8 months.
The appellants were paid the fixed price, plus the stipulated
increases and adjustments.
However, they claimed that they were entitled to more money
on the basis of quantum meruit.
The appellants also argued that the price in the contract was
not binding either because it was subject to an overriding
condition contained in the letter, or due to the delay in the
performance of the contract due to the shortage of labour
which frustrated the contract.
Are the appellants entitled to more money on the basis
of quantum meruit?
Was the contract overridden by the letter in the tender?
Was the contract frustrated due the shortage of labour that
caused a long delay in the performance of the contract?
The appeal was dismissed.
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