Frustration Allow a contract to end where the parties both make an important assumption when contracting that is later shown to be incorrect. Difference between mistake and frustration - for mistake, parties must be mistaken to some feature at the time of contracting, whereas for frustration, the parties' joint assumption must be shown to be false by events occurring after the contract has been entered into. Test for frustration Davis Contractors Ltd v Fareham UDC (1956) Agreed to build 78 houses over eight-month period for a fixed fee of £92,425. Building work ended up taking 22 months due to shortage of labour and materials and cost C's £115,233. C's tried to argue that the contract was frustrated, and they should not be restricted to the contract sum. HL dismissed appeal, claiming that the delays did not cause frustration. Lord Radcliffe Frustration occurs when the court 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. "This is not what I promised to do". Must be such a change in the significance of the obligation that the thing undertaken would be different than what was contracted for. Cause of delay was not any new state of things which the parties could not have reasonably foreseen. Not right to treat possibility of delay as the same significance for each party. D protected this with a penalty clause and C had opportunity to take into account the delay when he was bargaining. Test has three elements: 1. Radical change in the obligation. 2. Contract must not distribute the risk of the event occurring i.e. if contract resolves the occurrence of such an event, then frustration unavailable. 3. Occurrence must not be due to either party. Force majeure clauses - provides contractual remedies to problems that may occur. Alternative to Frustration Construction/implied terms approach - circumstances which frustrate the contract and how it is to be resolved can be done by implying terms but no longer in favour.
National Carriers Ltd v Panalpina (Northern) Ltd [1981] D rent warehouse from C. Road to warehouse closed for 20 months due to warehouse opposite being demolished. D did not pay rent for the 20 months. HL held that it was possible for a lease to be frustrated but the circumstances in this case were not sufficiently grave. Lord Hailsham Hard to tell what the 'officious bystander' would say at the moment the contract was made since parties knew that there was derelict building opposite. Approved construction theory by Lord Radcliffe. The Sea Angel (2007) Salvage firm chartered a ship called the Sea Angel from Global to help with salvage operations concerning oil pollution. Agreed that the ship would be returned by 20 days, but the port of Karachi kept the ship by refusing to issue the necessary certificate. Ship returned three months late and CA refused