The Doctrine of Frustration LECTURE OUTLINE Nature of the doctrine - origins and rationale What can 'frustrate' a contract? Limitations on the doctrine Effects under common law The Law Reform (Frustrated Contracts) Act 1943 Nature of the doctrine What happens if an unforeseen event seriously affects a contract, after it has been made but before it has been performed? - what are the rights and liabilities of the parties? Similarities with common mistake - analogy emphasised by The Great Peace But deals with events occurring subsequent to the contract coming in to existence Origins/rationale Paradine v Jane (1647) - freedom of contract Too harsh? Taylor v Caldwell (1863) - implied term Logically problematic ... Origins/rationale Davis Contractors Ltd v Fareham UDC (1956) 'frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstance in which performance is called for would render it a thing radically different from that which was undertaken by the contract' Lord Radcliffe What can frustrate a contract? Destruction of subject-matter Taylor v Caldwell (1863) Illness Condor v Barron Knights (1966) Non-occurrence of event Krell v Henry (1903) Government intervention Metropolitan Water Board v Dick Kerr (1918) Gamerco SA v ICM/Fair Warning Agency (1995) What can frustrate a contract? (cont) Supervening illegality Denny, Mott and Dickson v James Fraser (1944) Other possibilities Industrial action - Pioneer Shipping Ltd v BTP Tioxide Ltd (1982) Incidence of war - Finelvet AG v Vinava Shipping Co Ltd (1983)
Limitations Some performance still possible Herne Bay Steam Boat Co v Hutton (1903) Performance more difficult/expensive, but not impossible Tsakiroglou & Co v Noblee and Thorl (1962) 'Frustration' self-induced Maritime National Fish v Ocean Trawlers (1935) The Super Servant Two (1990) Effect of force majeure clause If parties have provided for the event - no frustration Jackson v Union Marine Insurance Co Ltd (1874) Metropolitan Water Board v Dick Kerr (1918) Effects of Frustration Common Law Future obligations removed Past obligations remain - Chandler v Webster (1904) Note effect of 'total failure of consideration' - Fibrosa Spolka Ackyjna v Fairbairn Lawson Combe Barbour Ltd (1943) Appleby v Myers (1943) - no compensation for benefits Law Reform Frustrated Contracts Act 1943 Section 1(2) - Money paid or payable is recoverable Expenses may be retained - at discretion of the court - where it is 'just' to do so Gamerco v ICM (1995) Operation of s 1(2) Contract for B to paint A's house, for £3,000: A pays £500, the rest payable on completion B buys paint for £100 House burns down A can recover £500, but B may claim to be able to retain £100 1943 Act Section 1(3) - Compensation may be payable in relation to a 'valuable benefit' provided 'benefit' must survive the frustrating event BP Exploration v Hunt (1982) Operation of s 1(3) Contract (A and B) to paint two houses, X and Y A pays £500, £2,500 payable on completion B paints X. Y is destroyed