Contract - Frustration PDF

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Doctrine and Effects of Frustration...

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Difference between breach and frustration:

Paradine v Jane - high watermark for strict liability in contract - tenant didn't pay rent for farm to landlord, landlord sued him - tenant’s reason: couldn't access farm because was occupied by army hostile to king (English Civil law) Landlord: too bad, not an excuse not to perform the contract, you should have included that in the contract draft (exclusion clauses) **Blackburn loosened the absolute contracts rule in Paradine | Doctrine: Taylor v Caldwell Context: TOWER BRIDGE/SURREY MUSIC HALL Blackburn introduced a small exception, a condition (term) is implied that the impossibility

of performance arising from the perishing of the person or thing shall excuse the performance. (was relying on consent) Another case: coronation of King Edward was cancelled (people who bought tickets sued those who sold it) Vs Lack of thought in implied terms (they didn't think of it in the first place!) National Carriers Ltd 1. Frustration supervenes an event 2. Without default of either party 3. Contract makes no sufficient provision 4. Significantly changes nature of contractual obligations (incurring more cost is not significant enough) = effectively a different contract altogether, break in identity The Sea Angel - the multifactorial approach (factors to be considered) *courts very reluctant to discharge contract in event of FRUSTRATION

1. 2. 3. 4. 5. 6.

Terms itself Context Parties’ knowledge as to RISK Nature of supervening event Reasonable and objectively ascertainable calculations “Radically different” test (reaffirming National Carriers)

MSC v Cottonex Anstalt = test for frustration linked to fundamental breach Gold Group Properties Ltd v BDW Trading = not lightly invoked Bunge SA = difficulty, even if it was written off in insurance as ship totally wrecked, still assumed obligation to supply hence doesnt count as frustration Armchair Answercall = by operation of law, contract automatically comes to an end in event of frustration; however the way the parties behave after the event indicates the knowledge/expectations of the parties before entering the contract (multifactorial) **NEW CASE: Canary Wharf v European Medicines Agency [EMA] (2019) *is BREXIT a frustration? = EMA had ady listed in clause in event of Brexit, their rental lease in London would cease. Court: Brexit is not a frustration, EMA still held to its lease : in facts of EU law, it is an illegal supervention (can't hold office out of EU MS) but it isn't by way of English law : you have the EMA building, an asset which can be used in other ways **problem: price of property (esp commercial property) is dropping due to Brexit DOCTRINE OF FRUSTRATION 1. What is required for a frustrating event? What is the test for frustration? National Carrier & Sea Angel = shows difficulty in proving frustration 2. Compare your case with instances of frustration; reason by analogy a) destruction of subject matter/vital external element Taylor v Caldwell - music hall was essential to contract Appleby v Myers - installation of machines in factory; factory is vital external element, without factory you cant install machines in it (even though machines are not destroyed) b) Personal services contracts Cutter v Powell - has to perform all the way through; when he dies on the way back, he can't perform contract (death) Morgan v Manser - conscription in the war to join army, couldn't perform under his contract to perform in music hall (by law have to do something else)

Condor - partial performance? Court will assess the extent to which performance is required; Condor was a young drummer, had nervous breakdown because of too many tour stops; was hospitalised and Dr said could only perform say ⅖ nights. Court held this was frustration (by ill health reasons) c) Unavailability and interruption BP Exploration v Hunt - had rights to exploit oil wells in Libya, when Kadafi came to power, took BP and Hunt’s oil share; hence unavailability due to state appropriation. Jackson - delay of 7 months was so great that interruption = frustration Canada Carbide - war interrupts and effectively is now different contract FA Tamplin - outset of war, amount paid was greater than market price (shipping rates rose, hence gov was paying lower rates) parties were basically fighting over who should receive monies from gov. d) Failure of source Howell v Coupland - potato farm, crop fails due to plague and farmer discharged from performance; this works if party stipulates the source // implied term to both parties Blackburn Bobbin - if source is not stipulated in contract, failure of source does not end the contract [Timber from Finland, hard to come by] Court: irrelevant as to whether source is actually from Finland or not, Finland timber merely a description, can source from elsewhere; no frustration e) Method of performance The Eugenia - Suez canal was closed off, method was not stipulated in contract Court: even though it was more expensive to ship via other voyage to Europe, its not frustration. (if goods were perishable, then parties would have probably included it in the contract) **f) Supervening Illegality Fibrosa - ordered in Spring, delivery due in Autumn (outbreak of war, Poland occupied by enemies) = was illegal for English companies to engage with enemy companies (obvious public interest here - obedience of the law) = frustration LIMITS OF FRUSTRATION (FR) a) Contractual provision (force majeure clauses) b) Where contracting party assumes the risk CTI Group - wanted to buy cement to break cartel, one party agreed to sell to him knowing of the cartel and when delivery date came they tried to use cartel as FR.

Court: nope, not FR, you have assumed the risk by agreeing to sell to him c) Impracticality is insufficient Davis v Fareham UDC - Increased cost is not enough FR = event that makes contract impossible to perform, illegal or radically different to that originally agreed to (modern definition of doctrine) **these 2 cases were heard at the same time at COA but had contradicting judgments Herne Bay Steamboat Company v Hutton - same time as procession going on, also a Steamboat reveal so Hutton wanted to rent a boat to bring people to circle the steamboat and watch the reveal. With the coronation cancelled so was the boat reveal, Hutton never showed up for the rented boat and Company sued him. Hutton claims FR as coronation was cancelled. COA: contract NOT discharged for FR, while yes it may be more impractical to perform there is still some meaning/purpose left in contract (while no reveal, can still see the fleet assemble as it was grand and had ships from all over the world) Hence, Hutton is found in breach of contract. Krell v Henry - Henry rented room with intention of watching King Edward’s coronation procession, nothing in contract stated purpose of rental but was clear from way Henry examined the room that the purpose was to have a view to watch the procession. COA: Contract was discharged by FR, contract was for room with a view, once view is removed, contract becomes radically different. d) Imprudent bargains The Nema - contract for shipment of titanium slag from Canada to UK Court: if entered poor bargain, cannot discharge contract for FR. e) Foreseeability - if you can see sth coming, and you didn't put into contract, does that prevent you from using event as FR? US law = YES dev UK law = both yes and no W.J. Tatem Ltd v Gamboa - if parties could foresee event, not FR **preferred authority by UK law Ocean Tramp Tankers Corp (The Eugenia) - simply foreseeing does not prevent FR - what is important is that no contractual provision made

Denning: “It doesn't matter if parties could foresee event, what matters is no contractual provision. Hence a foreseen event can be a FR as long as no contractual provision for that event.” f) FR not self-induced Maritime National Fish Ltd - privy council decision from Canada - 5 boats, to fish you need license - company owned 3 boats and chartered 2 boats, had licenses for all 5 initially but then gov removed 2 licenses - company decided to cancel one of the chartered boats as its now useless cos no license and used FR, but they still maintained 1 of the licensed charter boats and tried to be fair and cancelled one of their own boats. Court: this is NOT FR, you CHOSE to not put license on 1 of the chartered boats. This is in fact a breach of contract on your part. The Super Servant Two - 2 exact same boats, owner to choose 1 of the boats to tow claimant’s oil rigs. They decided to use SS2 to perform the contract, SS1 is sent to perform another contract with another party. There was a disaster and SS2 sunk. Is this FR? Court: NO, you had the election/choice to use SS1 or SS2, by choosing SS2 you cannot then say sinking = FR because contract made clear you could have chosen SS1. But if owner used SS1 they would have been in breach of the other contract. Court held this is irrelevant, once you have chosen SS2 and SS1 still exists = form of self-induced FR. **now owner in tough position, will face BREACH of contract no matter which side. How to rationalise: owner of ships have reserved benefit to themselves to choose ship and because of that, they had to face detriment of having that benefit. Bunge SA - contract had provision that owner will maintain insurance of vessel, the vessel was so badly damaged (not fault of either party) that the insurer wrote off the vessel and said not worth repairing. Owner said was FR because vessel so badly damaged. *normally would probably be FR but because there was contractual obligation on the owner, court held that no FR, owner still obliged to deliver vessel. ANY ELEMENT OF CHOICE UNDER CONTRACT TERMS = UNLIKELY TO BE FR

EFFECTS OF FRUSTRATION a) Severability (where court tries to identify one point which obligations after cease and obligations before survive)

b) CL (very few cases) Appleby v Myers - if perform in part, cannot recover anything cos his payment was due at the end of contract Fibrosa - when $ paid in advance, you can claim $ back if total failure of consideration as said in [Whincup] **if you receive ANY benefit still, you cannot claim back $ in time of FR c) Statute (bulk of cases) **must know s.1 !! | S.1 (2) “sums paid or payable” Gamerco S.A. v I.C.M./Fair Warning - Guns & Roses case! Gamerco = Spanish promoters for rock concerts, paid ICM for Guns & Roses band to perform in Madrid in their tour; promoter makes $ back through ticket sales and merch. FR = Authority had given them permit to use stadium but then cancelled the permit. Promoter is unable to find another stadium, wants money back from ICM and sued for contract to be discharged by FR as permit now cancelled. Under s.1(2) - all sums paid/payable are recoverable ICM: NO, if look at expenses incurred by us, we can set our expenses to a ceiling level as the $ level you are claiming. Court: doesn't like ICM, rules that they couldn't show that the expenses incurred was for the MADRID leg of the tour. The defendant had to establish: (1) that they had incurred expenses paid or payable (2) before the discharge of the contract by reason of the frustrating event (3) in performance of the contract (not applicable here) or (4) for the purposes of performance of the contract (5) it is just in all the circumstances to allow them to retain the whole or any part of the sums so paid or payable. = awarded at DISCRETION OF THE COURT **note: just expenses cannot > amounts paid/due before the date of FR

S.1(3) - conferment of valuable benefit other than $ BP (Exploration) Libya v Hunt (THE ONLY CASE) - BP says conferred valuable benefit to Hunt as for a period of time (before Gaddafi came to power) you were able to exploit an oil field. 2 stages: 1. The identification and valuation of the benefit; 2. The award of the just sum...