⇒ Frustration occurs if after formation, performance is:

• Impossible, illegal or radically different from expected
• Often through NO fault of either party (because of an event outside their control

⇒ It is similar to 'common mistake'

⇒ Consequences of frustration: Both parties are discharged from any unperformed obligations

⇒ When can frustration be pleaded?

• By B who is sued by A for breach of contract
• By B, suing for payment: Davis Contractors Ltd v Fareham UDC (1956)

⇒ There is no frustration doctrine historically: the court was not bothered about a contract that could not be fulfilled due to matters outside their control (Paradine v Jane (1647))

⇒ The doctrine of frustration began to develop in Taylor v Caldwell (1863)

⇒ NOW, frustration has a greater focus on the construction of the obligation, rather than implied obligations: Davis Contractors Ltd v Fareham UDC (1956)

• Lord Radcliffe stated that there is frustration when “the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract”

⇒ Leases can be frustrated, but it is rare: National Carriers Ltd v Panalpina (Northern) Ltd (1981)

1) SUPERVENING IMPOSSIBILITY:

⇒ If the subject matter is destroyed: Taylor v Caldwell (1863)

• So, if the subject matter that is fundamental to the contract's performance is destroyed then the contract will be frustrated
• The subject matter does not necessarily have to be completely destroyed e.g. in Asfar v Blundell [1896] the subject matter (some dates) had fermented but had not been completely destroyed, but it was held there had been frustration

⇒ Death or illness of a party

• Death of a party was the reason the contract was frustrated in Hall v Wright (1859)
• Illness led to frustration in Condor v The Barron Knights [1966]

⇒ Temporary impossibility

• For example, in Pioneer Shipping Ltd v BTP Tioxide Ltd (1982) strikes frustrated the contract

⇒ The subject matter is unavailable (Bank Line Ltd v A Capel & Co Ltd (1919)) even if the unavailability is only temporary (Jackson v Union Marine Insurance Co (1874))

2) SUPERVENING ILLEGALITY:

⇒ If the purpose of the contract becomes illegal after formation of the contract that is frustration → this is usually seen as excusing the contract because the obligations have radically changed

⇒ Often supervening illegality occurs because the government has made the activity illegal: see, for example, Fibrosa Spolka Akcyjna v Fairbairn (1943) and Denny, Mott & Dickson v James B Fraser & Co Ltd (1944)

3) FRUSTRATION OF THE COMMERCIAL PURPOSE OF THE VENTURE:

⇒ If the commercial purpose of the contract no longer exists, then the contract may be frustrated. See, for example, Krell v Henry (1903). However, contrast this case with Herne Bay Steamboat Co v Hutton (1903)

⇒ Mere commercial inconvenience will not frustrate the contract: Davis Contractors Ltd v Fareham UDC (1956)

⇒ Just because the obligations have to take longer or more expensive to fulfil does not necessarily frustrate: Tsakiroglou v Noblee Thorl GmbH (1962)

4) EVENT UNFORESEEN/UNFORESEEABLE:

⇒ Force majeure or hardship clauses → these exclude the parties from liability if there is an event beyond the control of both parties e.g. Great Elephant Corp v Trafigura Beheer BV (2013)

⇒ Why have force majeure clauses?

• Certainty
• Allocation of risk
• Contract may continue if parties wish it to
• Limitation of force majeure clauses: if the clause not full and complete, frustration can still apply

5) SELF INDUCED FRUSTRATION IS NO FRUSTRATION:

⇒ If one party could have controlled the situation, then there is no frustration and breach of contract can be claimed

⇒ So if the frustration is self-induced then the contract cannot be frustrated e.g. The Eugenia (1964)

• Also see the cases of Maritime National Fish Ltd v Ocean Trawlers Ltd (1935) and The Super Servant II (1989)

⇒ Parties are automatically discharged from the obligations under the contract: Hirji Mulji v Cheung Yue Steamship Co (1926)

⇒ Obligations under the contract before frustration must be performed because the contract is not void ab initio - If these obligations are not performed then damages for breach will be available

⇒ Loss lay where it fell: Chandler v Webster (1904)

• Any money paid prior to frustration cannot be recovered
• Any money payable prior to the time of discharge is still payable
• So in Chandler v Webster (1904), £141 was to be paid for the room (before the frustrating even occurred). The defendant had already paid £100, then the frustrating even occurred. Even though the frustrating even occurred the defendant was still required to pay the outstanding £41 as this was agreed before frustration occurred. However, this case was overruled...

⇒ Chandler v Webster was overruled by Fibrosa Spolka Akcyjna v Fairbairn (1943): money paid prior to frustration is recoverable ONLY IF there is a “total failure of consideration”

⇒ Aim: to give courts discretion to award losses caused by frustration by making orders of financial adjustments between the parties

⇒ The reason for this is to prevent unjust enrichment, for example:

• Where someone receives property or money and gives nothing
• Where someone receives a benefit without paying for it

⇒ S 1(2): this is about recovering money that has been paid/payable before the frustrating event occurs

⇒ o S 1(3): compensation for a valuable benefit obtained (partial performance)

⇒ Para 1: “All sums paid and payable to any party in pursuance of the contract before the time when the parties were discharged shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable cease to be so payable…”

• Thus, any money paid prior to frustration is recoverable
• Any money owed prior to time of discharge is not payable

⇒ Para 2: “Provided that if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers just to do so, having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid of payable, not being an amount in excess of the expenses so incurred”

• This gives the court discretion to allow the person receiving the money (payee) to keep some of the money if (1) payee has incurred expenses AND (2) the court thinks it is ‘just’ to do so

⇒ S 1(3): compensation for when there has been partial performance of the contract by one party, providing a benefit to the other party

• Where A, in performing the contract, has provided a ‘valuable benefit’ on B (not payment of money as per s 1(2)),
• Court has discretion to order B to pay A ‘such sum as the court considers just’ not exceeding the value of the benefit to B