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Frustration Notes

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Frustration refers to the situation when a supervening event occurs, for which neither party is responsible, with the result that the very basis of the contract is destroyed so that the venture to which the parties now find themselves committed is radically different from that originally contemplated. Frustration should not be used: 1. By a contracting party to escape what has turned out to be a bad bargain 2. Free to make contractual provision with respect to eventualities.

Elements of Frustration * The test: does the event make the performance of the contract now radically different? Radically different performance * Whether performance of the contract in the changed circumstances would be something radically different from that which was originally undertaken.

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The court will look at the supervening event and what performance would be like if the promise were to be enforced in the new circumstances and the circumstances that existed when the contract was made. It will compare both, and ask if they are radically diff from each other.

* Example – Davis Contractors v Fareham UDC (1956) * Neither party at fault * Discharge was to take place by operation of law.

If one party is at fault, it is likely that he has breached an express or implied term of the contract. Even in the absence of such a term, the law would not excuse a contracting party whose conduct leads to the event. * Time of Frustration * When a frustrating event occurs, the contract is discharged automatically. The frustrating event may discharge a contract prospectively, in that the time of performance has yet to arrive. (hence parties’ rights will not be left indefinitely in suspense, contract is frustrated as soon as a sensible prognosis of the commercial probabilities can be made).

Should not wait till the day of the scheduled performance in order to see how the event will affect the performance. * Foresight and Foreseeability * An event of frustration must be an unexpected event. Classifications of Frustration * General Impossibility * Destruction of subject-matter of contract (simply impossible) * Clear and obvious application of the doctrine of frustration. * Total destruction may not be necessary. It suffice if the thing is so seriously damage that, for commercial purpose, it has become something else, or that destruction of a part of the subject matter defeats the main purpose of the contract. destroying necessary things for the subject matters performance also will lead to frustration)

* Example – Taylor v Caldwell (1863) * In [SGA] different rules of discharge apply as if the risk is pass onto the buyer (buyer got the goods from supplier) and an event of frustration occurs, he still must pay. * However, for building contracts, risk of damage lies with builder until the work is completed. * Death or Incapacity * Contracts of personal nature – those where the promisor has to perform the obligations personally. Hence if the person dies, the contract is frustrated. However the critical factor is the personal nature of character of the contract. If the personal element is absent, the contract may still have to be performed) * In terms of incapacity, it depends on the likely duration of the incapacity or unavailability.

Temporary unavailability due to illnesses/government intervention resulting in frustration would again depend on the various factors such as the length of the anticipated unavailability period, the period of contract and the commercial purpose of contract. For eg, if I am sick and cannot come to work, employment contract not frustrated because Im sick for 3 weeks only while contract is for 3 years. * Unavailability * The above situation of illness of an employee may also fall within the sub-category of unavailability of the subject matter or the person or the thing essential to the performance of the contract. Eg. A charterparty may be frustrated by the seizure of the ship.

* Whether temporary unavailability results in frustration would agin depend on the various factors such as length of the anticipated unavailability. * Failure of Source of Supply If cannot get the supplies from the supplier. ( only if both parties agreed to getting it from that supplier) if only one party wanted from that supplier, than no frustration. * Method of Performance Impossible * Must assess is the alternative method very much different from the original. If both parites wanted to use that particular method, then frustrated. And if their choice is limited to that one method only. * Example – Tsakiroglou & Co Ltd v Noblee Thorl GmbH (1960) * Illegality * Where at the time of contract the performance is one which is already prohibited by law, the contract is void right from the start for illegality.

Eg. Wartime prohibition from trading with enemy. * Doctrine of frustration can be excluded by express agreement, but frustration by illegality cannot be excluded ever. Even if illegality if foreseeable, its still frustrated. * Radical Changes * Frustration of Purpose * Sometimes after a turn of event, the literal performance of a contractual obligation remains possible but the changed circumstances would not fulfil the original commercial purpose of the parties. This purpose has to be common purpose for both the parties.

The failure of purpose of one party alone does not frustrate the contract. * Example – Krell v Henry (1903) * Delay, unavailability * In order for a delay to constitute to a frustration, the delay must be so abnormal in its effect or expected duration as to fall outside what was the reasonable contemplation of the parties at the time of contract. * Impracticability, Increased Cost * Impracticability in itself is insufficient as men of business are taken to be cognizant of the risks and vicissitudes in the business environment. Impracticability or increased costs does not frustrate a contract. Example – Tsakiroglou & Co Ltd v Noblee Thorl GmbH (1960) * However if the supervening impracticability is so abnormal as to be outside the ordinary range of commercial risk, performance in the changed circumstances may be considered radically different performance. Self Induced Frustration A party to a contract cannot rely on self-induce frustration due to his own conduct.

The onus of proving that the frustration was self- induced lies with the party who asserts that it is so. This is a case whereby the other contracting party is entitled to rely on frustration induced by the other party. e. g. an employee commits an offence not related to his employment and got imprisoned. The employer is entitled to rely on the circumstances as frustrating the contract of employment – example in Harrington v Kent (1980)) A difficult point is whether a contracting party can rely on an event brought about by his own negligence as a ground of frustration. (However a party who has been negligent should not be able to escape liability since he is also at fault) The case here is that negligence can range from mere carelessness to gross negligence.

The central problem would be to establish the relationship between negligence and deliberateness. (However it is damn hard to prove deliberateness) Choosing between several Contracts A situation can arise whereby as a result of a supervening event, a contracting party is in a position where he is not able to perform all his contracts. For example an event may have reduced his supply. The super servant Two suggest that if the contracting party choose to perform some of the contracts, then he cannot reply on frustration for the contracts that he did not perform. This is unsatisfactoryand unfair.

Another solution is that all the contracts are partially frustrated and the contracting party can pro rate the delivery to all contracts. Partial Frustration This is a case if a supervening event put a contracting party in a position where, being unable to perform all of several contracts, has to choose which to perform. He is not discharged as regards the contracts which he chooses not to perform. (A form of self-induced frustration) * Example – Sainsbury v Street (1972) A reasonable threshold would be whether the contract is still substantially performable in the changed circumstances.

However the current legal position remains unclear. Express Provision These are cases whereby the supervening events do not frustrate a contract. Force majeure clauses could be used. (Whereby parties have made their allocation of risks with regard to possible supervening events) * Construction for it to be effective * Force Majeure Clauses have to be full and complete and intended to cover the supervening event in question. The more devastating or catastrophic the event, the more the courts would require particularly clear words to be used.

Example – Bank Line v Arthur Capel (1919) Foresight and foreseeability * Foreseen events For foreseen events the view is that the occurrence of such events does not frustrate a contract. * Foreseeable events A foreseen event is high on the scale of likelihood and should not be a frustrating event. Effects of Frustration The effect of frustration is that it brings the contract to an end from the time of the frustrating event. (Without any election) The Frustrated Contracts Act will determine what kinds of remedies are available. Based on [s 2(2) & s 2(3)] Future Obligation – Released * Accrued Obligation – Released * Sums Paid – Recoverable * Sums Payable – No Longer Payable * Expenses – Recoverable

* Benefit – Recoverable Remedies will be based on the courts discretion. Severable parts of the contract can be treated separately, so some parts can be frustrated while some remain. Frustration Contracts Act do not apply to contracts for the carriage of goods by sea, insurance contracts and contracts for the sale of specific goods where the cause of frustration is the perishing of the goods. s 3(5)] Outline for Frustration Some issues to take note of before writing on frustration * Observe the facts carefully * Note the timeframe of the facts Outline for Frustration General Principles – Frustration is a contractual obligation being made incapable of being performed due to changes in circumstances, causing the performance to become something radically different from what it was undertaken in the contract. To establish that a contract is frustrated, we need to establish the following elements.

An external event that occurred after the contracted formed * Neither contracting parties were at fault * The supervening event is cannot be foreseen or is not reasonably foreseeable by the contracting parties * Making the performance of the contract either impossible or radically different. Application 1 – From the case facts, we can observe that the event….. (Establish all the conditions, if it was to be a case on radical changes, the court will look at the supervening event and what performance would be like if the promise were to be enforced in the new circumstances. Application 2 – Since all the elements of frustration were present and judging from the facts that were given in the case, we can establish that the contract is frustrated on the basis of ….. (Classification of frustration – cite the appropriate case) Application 3 – With the contract being frustrated, we know need to establish the type of remedies in which a party can claim. Going in accordance to the Frustrated Contracts Act s 2(2) and s 2(3)…..

Cite this Frustration Notes

Frustration Notes. (2016, Oct 19). Retrieved from https://graduateway.com/frustration-notes/

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