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Lecture notes Contract Law LLB - Frustration
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-Full notes and summary of the doctrine of frustration
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Frustration - Generally-Doctrine of frustration (started by taylor v caldwell 1863), applicable where performance of a
contract becomes impossible or ‘radically different’ after it was made not as the result of any
fault by either party (Davis Contractors Ltd v Fareham Urban District Council (1956)). It is
exceptionally rare as it only applies where the parties have not made provision for the changed
circumstances in their contract, and it was unforeseen.
-Frustration only applies when an event occurs for which the parties have not allocated the risk
in their contract. Commonly, a contract will expressly provide what is to happen when something
unlikely occurs, for example by means of a force majeure clause, or else it is possible to imply a
term allocating the risk to one party or the other. In such cases, there is no room for the doctrine
of frustration, which is why in practice cases of frustration are very rare.
-There is therefore a three stage test for deciding if frustration can apply
-The contract must not allocate the risk of the event occurring, and it must be unforeseen
-Performance of the obligation would be radically different from that which was
undertaken
-The occurrence of the event must not be due to the fault of either party
-Goes against the general rule in paradine v jane that you must perform contractual obligations
regardless of accident
Force majeure clause
-A clause commonly used to provide provisions for what is to happen in the event of unexpected
eventualities. provides a comprehensive list of events and problems, and a contractual regime
for dealing with them. -This ousts the doctrine of frustration
-This could be a right of cancellation, suspension or change in price, it provides certainty
and allocates risk
-These avoid the common law and statute law effects of frustration as the clause will provide for
the remedy
-This is a type of exemption clause and so is governed by the rules of incorporation etc covering
these clauses. If they are part of a standard form contract then they are governed by the
reasonableness test of UCTA
Radical difference test - Where frustration does and does not apply
-How the radical is the change in reference to the parties obligations - how radically different is
the contract and its performance now than when it was formed.
-Generally revolves around whether just one parties assumptions are frustrated or changed, or
whether it is a common purpose or common assumption amongst both parties
Frustration of common purpose - Failure of a fundamental event to take place
-One situation is where an event fails to occur that both parties assumed would occur, which
renders performance pointless Following two cases are borderline but give an idea of how the
doctrine operates
-Krell v Henry (1903). Rule: The contract must be based on/formed around an assumption by
both parties that the event would happen. Defendant agreed to hire a flat from the claimant for
, the time when the Kings coronation procession was scheduled to take place along the street.
The flat offered a good view. Contract contained no express reference to the coronation, it did
say the defendant could only use the room during the day. A deposit was paid and then the
procession was postponed, and the defendant refused to pay the balance of agreed rent.
-Court of appeal held that both parties understood that the contract was founded on the
basis of the coronation procession, so therefore the contract was frustrated and the
defendant did not have to pay the balance.
-Vaughan williams LJ, said that the claimant advertised the room on the basis that it had
a good view of the procession, and this induced the defendant. Therefore the room was
let and taken for the purpose of seeing the procession, so its a license to use the room
for a particular purpose.
-Cab example used by vaughan williams LJ, if someone hired a cab at an enchanted
rate to take them to epsom on derby day and then the derby was cancelled, it would still
be in effect and not frustrated. Because the cab was not specially suited or selected for
this purpose and any other cab or driver would have done just as well.
-As per the cab example it seems that it is not enough that one party entered into the
contrast on an assumption that an event would happen that is then incorrect. And that
even if the other party knows of this assumption it is still not enough
-Therefore the crucial ingredient in krell is that both parties made the contract on the
assumption the procession would take place (room advertised as such and only for the
day not night) and therefore their common purpose was frustrated
-Herne bay steam boat co v hutton (1903), Contrasted to Krell. A royal naval review (to take
place by the king who was then ill) was due to take place, both parties agreed that the claimants
steamship should be at the disposal of the defendant to take passengers from herne bay for the
purpose of viewing the naval review and a days cruise around the fleet. The review was
cancelled, the defendant did not pay.
-Court of appeal held that the contract was not frustrated, as the purpose of the hire only
expressed the defendant's motive (hutton). The assumption was not a joint one as the
boat company was in the business of hiring out a boat and did not care what hutton used
it for.
Destruction of subject matter of the contract/Impossibility
-Where the subject matter of the contract does not exist. Generally the parties both assume that
the subject matter of the contract will continue to exist.
-Taylor v caldwell (1863) Authority for the above. Contract to hire out premises for a
performance, premises burnt down the day before the performance. And it was held that the
parties contracted on the basis the premises would exist so the contract was frustrated
-However still a matter of construction of the contract as to where the risk is placed. Bunge SA v
Kyla shipping co ltd, a chartered ship was damaged whilst chartered, but as the owner was
promising to supply a seaworthy vessel and had insurance for the cost of repair, the contract
placed the risk on the owner and was not frustrated.
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