Frustration (Copy)

Introduction to Frustration

• Definition:
  • Frustration occurs when unforeseen events, outside the control of both parties, make the performance of a contract impossible or radically different.
  • Discharges both parties from their contractual obligations.
  • Prevents liability for breach where frustration is successfully claimed.
• Purpose:
  • To address fairness and justice when performance becomes unreasonable or unattainable due to external circumstances.

Types of Frustrating Events

1. Impossibility of Performance:
   • Destruction of Subject Matter:
     • If the specific object necessary for the contract’s performance is destroyed, frustration applies.
     • Example: Taylor v Caldwell (1863):
       • A music hall burned down before the contract’s performance date, discharging both parties.
   • Unavailability of Parties or Resources:
     • If a key individual or item becomes unavailable (e.g., through death or illness), frustration may arise.
     • Example: Whincup v Hughes (1871):
       • A watchmaker’s death terminated a six-year apprenticeship contract.
2. Supervening Illegality:
   • Performance becomes illegal due to changes in law or government intervention.
   • Example: Metropolitan Water Board v Dick Kerr (1918):
     • A government order during wartime halted a contract for resource allocation, frustrating it.
3. Change of Circumstances:
   • If an event removes the commercial purpose of the contract without fault of either party, it may be frustrated.
   • Example:
     • Krell v Henry (1903):
       • A room was rented to view a coronation that was canceled. The contract was frustrated as its purpose was nullified.
     • Contrasting Case: Herne Bay Steam Boat Co. v Hutton (1903):
       • A steamboat hire contract to view a naval review was not frustrated since other purposes of the hire remained valid.
4. Government or Local Authority Intervention:
   • Authorities may impose restrictions or requisition resources, making performance impossible or unlawful.
5. Death or Personal Incapacity:
   • Contracts involving personal service (e.g., entertainers or specialists) may be frustrated by the death or incapacitation of the individual.

Limitations to the Doctrine of Frustration

1. Contractual Provisions:
   • If parties anticipate potential frustrations and include provisions, such as force majeure clauses, frustration cannot be claimed unless the clause fails to address the specific event.
2. Increased Expense or Hardship:
   • Frustration does not apply if the contract becomes more difficult or expensive, but not impossible, to perform.
   • Example: Davis Contractors v Fareham Urban District Council (1956):
     • Increased costs and delays in construction did not constitute frustration.
3. Foreseeability:
   • Events that were foreseen or foreseeable at the time of contract formation are not grounds for frustration.
4. Self-Induced Frustration:
   • A party cannot claim frustration if their own actions caused the frustrating event.
   • The burden of proof lies on the party alleging self-induced frustration.

Effects of Frustration at Common Law

1. Automatic Discharge:
   • Contracts are automatically discharged upon frustration, without regard to the wishes of the parties.
2. Loss Allocation:
   • Historically, losses lay where they fell:
     • Money paid before frustration could not be recovered.
     • Obligations due before frustration remained enforceable.
     • Obligations due after frustration were discharged.

Law Reform (Frustrated Contracts) Act 1943

1. Purpose:
   • Addresses inequities of common law by reallocating losses more equitably after frustration.
2. Key Provisions:
   • Section 1(2):
     • Sums paid before the frustrating event are recoverable.
     • Sums payable before the frustrating event cease to be due.
     • Courts can allow deductions for expenses incurred before the frustrating event.
   • Section 1(3):
     • Courts may award compensation for valuable benefits conferred before frustration.
3. Case Example:
   • Gamerco SA v ICM/Fair Warning (1995):
     • A rock concert was canceled due to a license withdrawal. The advance payment was recoverable under the Act.

Evaluation of the Doctrine of Frustration

1. Strengths:
   • Ensures fairness by relieving parties from obligations impossible to fulfill.
   • Prevents unjust enrichment through statutory remedies.
2. Limitations:
   • Narrow application to avoid abuse or excessive reliance.
   • Courts are cautious to apply frustration, especially in cases of mere inconvenience or hardship.
3. Judicial Trends:
   • Modern courts emphasize maintaining contractual obligations unless performance is truly impossible or radically altered.