Frustration

Frustration

A contract may be frustrated where there is a change in circumstances, after the contract was made, which is not the fault of either of the parties, which renders the contract impossible to perform or deprives the contract of its commercial purpose
1. Where a contract is found to be frustrated, each party is discharged from future obligations under the contract and neither party may sue for breach.
Examples of Frustration
1. Destruction of subject matter
  1. Taylor v Caldwell
    1. FACTS: Claimant hired out a music hall to hold 4 concerts. A week before the first concert was due to take place the music hall was destroyed by an accidental fire. The claimant sought to bring an action for breach of contract for failing to provide the hall and claiming damages for the expenses incurred.
      1. HELD: The claimant's action for breach of contract failed. The contract had been frustrated as the fire meant the contract was impossible to perform.
2. Personal incapacity will generally render the contract frustrated
  1. Condor v Baron Knights
    1. FACTS: A 16 year old agreed to play the drums for the defendant band for 7 nights a week for 5 years. The claimant suffered a mental breakdown and was told by his doctor that he should not perform more than 4 nights per week. The band dismissed him. He brought a claim for wrongful dismissal.
      1. HELD: The claimant's action was unsuccessful as his medical condition made it impossible for him to perform his contractual obligations and the contract was thus frustrated.
3. Where the contract becomes illegal to perform it will frustrate the contract
  1. Fibrosa Spolka v Fairbairn
    1. FACTS: A English company that manufactured textile machinery agreed to supply some machines to a Polish company. The machines were to be delivered in 3-4 months. £1,600 was payable up front and the balance of £3,200 payable on delivery. 1st of Sept Germany invaded Poland and on 3rd Sept Great Britain declared war on Germany. Orders in Council made Poland an enemy territory making it illegal for British companies to trade with Poland.
      1. HELD: The contract was frustrated as it was no longer possible to perform the contract because of the supervening illegality.
4. Where a contract can not be performed in the specified manner
  1. Nicholl and Knight v Ashton, Eldridge & Co
    1. FACTS: The parties agreed that a cargo of cotton seed was to be shipped from Egypt to England. The contract specified the ship, The Orlando, which was to carry the cargo. This ship became damaged and was in for repairs when the contract was due to be performed.
      1. HELD: By naming the exact ship which was to carry the cargo, the contract was frustrated as it was impossible for this ship to carry the cargo within the contractually agreed period.
5. A contract may also be frustrated where it is deprived of its commercial purpose
  1. Krell v Henry
    1. FACTS: The defendant hired a flat on Pall Mall for the sole purpose of viewing King Edward VII's coronation. The price agreed was £75 for two days. The defendant paid £25 deposit. Due to illness of the King the coronation was cancelled. Consequently, the defendant did not use the flat. The claimant sought to claim the outstanding £50.
      1. HELD: The contract was frustrated as cancellation of the procession deprived it of its commercial purpose. The claimant's action for breach of contract was thus unsuccessful.
6. However, the contract must be deprived of the whole commercial purpose to amount to frustration:
  1. Herne Bay Steam Boat v Hutton
    1. FACTS: The defendant hired out the claimant's steamship. The purpose was to take passengers to view the Naval Review which (part of King Edward VII's coronation). The defendants were also offering a day’s cruise for the passengers. The Naval Review was cancelled as the King was ill. The defendant did not use the steamship and the claimant brought an action for the agreed contract price. The defendant argued the contract had become frustrated due to the cancellation of the Naval Review.
      1. HELD: The contract was NOT frustrated. The contract had not been deprived of its sole commercial purpose as it was still possible to perform the days cruise. The Naval Review was not the only commercial purpose of the contract.
Examples of No Frustration
1. A contract will not be frustrated when:
  1. It is more difficult or expensive to perform
    1. Davis Contractors v Fareham UDC
      1. FACTS: Davis Contractors agreed to build 78 houses for Fareham UDC within 8 months for an agreed price of £85,000. Due to a shortage in skilled labour the contract took 22 months to complete and was more expensive than anticipated. Davis Contractors were paid the contractually agreed price but brought an action for more money based on the fact that the contract had become frustrated.
        HELD: The contract was not frustrated. The fact that a contract becomes more difficult to perform or not so profitable is not sufficient to amount to frustration. It was still possible to perform the contrac
  2. Impossibility of performance is the fault of either of the parties
    1. Maritime National Fish v Ocean Trawlers
      1. FACTS: The claimant owned fishing vessels 1 was chartered to the defendants. The vessels were all fitted with otter trawler nets that required licences to be held. The claimant applied for 5 licences but was only granted 3. He had to name which vessels the licence would be used on. He named the vessels and excluded the vessel which the defendant was using. So the defendant was unable to use the vessel. The claimant sued the defendant.
        HELD: The contract was not frustrated since the claimant had chosen to keep the three licences granted for himself rather than using one to fulfil his contractual obligation. He had therefore induced the frustrating event and was therefore in breach of contract.
  3. Where there is a force majeure clause
    1. Jackson v The Union Marine Insurance Co Ltd
      1. FACTS: The plaintiff ship owner, contracted under a charterparty to proceed with all dispatch to Newport. He insured the cargo. The ship ran aground before the cargo could be collected, and was delayed. The charterers threw up the charterparty and contracted elsewhere for the delivery of the goods. The plaintiff claimed under his insurance (force majeure clause).
        HELD: The delay had been so long as to put an end to the contractual obligations.
  4. Where the frustrating event could be foreseen
    1. Walton Harvey Ltd v Walker & Homfrays Ltd
      1. FACTS: A hotel owner entered a contract with an advertising agency enabling them to put illuminated adverts on the roof of their hotel. The hotel was then purchased by the Local Authority and demolished. The advertising agency sued for breach of contract and the hotel argued the contract had become frustrated.
        HELD: The contract was not frustrated as the hotel owners were aware that the Local Authority were looking to purchase the hotel at the time they entered the contract. They should have foreseen the fact that this could happen in the life time of the contract and made provision in the contract for such an eventuality.
Affects of Frustration
1. Where a contract is found to be frustrated, both parties are released from their obligations under the contract and neither party may sue for breach.
2. The allocation of loss is decided by the Law Reform (Frustrated Contracts) Act 1943. This provides:
  1. s.1(2) All money payable under the contract ceases to be payable and any money already paid may be recovered. Where expenses have been incurred this may be deducted from the amounts payable or paid. This is at the discretion of the court and is subject to what is just and equitable in the circumstances of the case. There is no provision allowing expenses to be recovered which exceed the amounts paid or payable.
  2. S. 1(3) - Where a valuable benefit has been conferred this must be paid for.

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	Created by Loren Ward over 8 years ago