#19850 - Frustration Pq Notes - Contract Law

(1) Impossibility; (2) Frustration of Purpose; (3) Supervening Illegality.

Taylor v Caldwell is authority, where a hall rented out by C was burned down before he could use it. The subject matter of the contract is destroyed. The thing need not be completely destroyed: Afsar v Blundell. In that case a cargo of dates was sunk and soaked with water and sewage such that for business purposes it was something else. Note it was still sold for money, but the contract was frustrated nonetheless.

The thing destroyed can be essential for the performance of the contract even if it is not the subject matter of the contract. For example, a contract to install machinery in a factory was frustrated by the destruction of the factory: Appleby v Myers. But where an agency agreement related to goods manufactured or sold, the destruction of the factory was not enough because the agreement with things sold still could operate: Turner v Goldsmith.

Risk of destruction can be allocated under the contract, such that there will be no breach. For sake of goods, the risk of destruction passes with the property: s.20(1) Sale of Goods Act 1979. So, if the goods are destroyed after delivery, there is no frustration. With building contracts, if a builder is building a building from scratch, the risk of the building being destroyed whilst being built is on him, so no frustration where building is destroyed. If he’s working on an existing building, and it’s destroyed before he finishes, there is frustration: Appleby v Myers.

Death will frustrate a contract of personal service: Cutter v Powell. As will incapacity – an example given in Jackson v Union Marine was a contract to write a book was frustrated by the author going insane. Relatedly, a personal service contract will be frustrated where continued performance would be a serious health risk: Condor v The Barron Knights.

If the subject-matter or thing needed for performance of contract is unavailable, even if not destroyed, this may frustrate the contract. A contract for sale of goods will be frustrated where the goods are requisitioned (Re Shipton, Anderson). A charterparty will be frustrated where the ship is detained: The Adelfa; or where the crew at the loading port go on strike: The Nema.

If the thing is only temporarily delayed, this will only frustrate the contract if it was time-sensitive in the sense that time of performance was essential to the contract (Robinson v Davison).

This is where the subject-matter was to be obtained from a particular source which has become unavailable through no fault of either party. This only works if there is express reference to the source: Howell v Coupland. In that case a contract to sell potatoes which were grown on specified land was frustrated when the crop mostly failed. But where the contract refers to multiple sources, the failure of one will not frustrate: Turner v Goldsmith. In general, where only one party intends a specific source be used, the failure of that source will not frustrate the contract: Blackburn Bobbin v TW Allen.

The contract need not be technically impossible. In Taylor v Caldwell, the hall probably could have been rebuilt in time if D had spent huge amounts of money. However, the courts do not like to frustrate a contract because it is more onerous to perform: in British Movietonews v London and District Cinemas an abnormal change in prices was not enough.

Impracticability is never enough. In Davis Contractors v Fareham DC, a contract to build houses in 8 months for 94,000 was not frustrated when it cost 22 months and 115,000 because of labour shortages. Hardship does not trigger frustration, nor material loss. There must be a ‘break in identity’ between what was contracted for and what performance would realistically entail in the new circumstances (Rix LJ in The Sea Angel). As upheld in Tsakiroglo v Noblee Thorl, an increase in expense is not frustrating.

However, this principle is softened at the extreme. In Braeur v James Clarke, a contract to get an export licence was frustrated where to get it would have cost 100x more than the contract price.

Krell v Henry is explained as a contract to provide facilities for viewing the coronation, not as simply a hire of the flat. As such, frustration makes sense when the coronation procession was delayed. Here, the fact the flat was not usually let out was important, as it was not a regular business transaction. It was special for a special event.

It is a little difficult to square this with Herne Bay Steam Boat v Hutton, where a pleasure boat hired for the purpose of seeing the navy and for a day’s cruise around the fleet was not frustrated where the ships didn’t turn up because of a delay to coronation. It was construed simply as a contract to hire the boat. Perhaps justifiable on the grounds that the fleet was still there, but not being reviewed.

Leiston Gas v Leiston DC supports this: a contract to provide and maintain street lamps was not frustrated when wartime regulations prohibited such lamps from being lit. The lamps could still be maintained.

Krell v Henry has extremely limited application. The approach is that a frustration of one of the party’s purposes does not frustrate the contract. Thus, a contract to buy goods is not frustrated where the buyer is no longer able to export them onwards due to restriction: McMaster v Cox McEwen. And a lease for premises as an EU agency headquarters was not frustrated by Brexit: Canary Wharf v European Medicines Agency. Perhaps harshly, the purchase of buildings for redevelopment was not frustrated when such buildings were listed as special interest so couldn’t be touched: Amalgamated Investment v John Walker.

This is where a supervening prohibition, had it been in existence at the time of the contract, would have made the contract illegal. Easy examples:

• Trading with the enemy – contract becomes illegal because of a wartime prohibition: Fibrosa v Fairburn

• Prohibition on moving capital or goods. If you can get a licence but don’t try, there will be no frustration, unless you can show no licence would have been obtained: Dalmia Dairy v National Bank of Pakistan.

Parties can allocate risk in the event of frustration by expressly or impliedly including a term in the contract. These provisions will completely exclude the common law doctrine of frustration: Joseph Constantine v Imperial Smelting. Even if an express term doesn’t precisely cover the exact event, it will likely have effect as it shows the parties contemplated the allocation of risk of that type of event: Bangladesh Export Import v Sucden Kerry.

However, such provisions still need to be construed. In Metropolitan Water v Dick, the clause said delays ‘however occasioned’ would allow the contractors more time to complete. A Government Order to stop construction would have technically fallen within the clause, but the HL construed it to not apply here as it was meant to deal with things like labour shortages and bad weather.

These allocate the risk of certain events beyond the control of the parties. This is a high hurdle: Great Elephant v Trafigura. The clause is usually constructed to protect the party relying on it, and the ‘beyond control’ is met if the party has taken all reasonable steps to avoid operation of the event or to mitigate its results: Channel Island Ferries v Sealink. The clause will say what happens if the event occurs, and so neither frustration nor the Law Reform (Frustrated Contracts) Act 1943 will apply: Agrokor AG v Tradigrain.

These will not lead to frustration: Williams LJ in Krell v Henry; supported by much CA dicta including Davis Contractors v Fareham DC. However, the event must be pretty foreseeable – Rix LJ in The Sea Angel thought the less foreseeable, the more likely there would be frustration. However, it both parties...