La1106 – Exam Notes

Lecture 4

Frustration

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  A completely unforeseen event makes the contract impossible
  
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  Situations where the doctrine of frustration will arise, the contract is terminated automatically
  
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  What did the party actually agree to
  
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  If the original intentions are fundamentally and radically different, the contract has been frustrated and cannot continue
  
• 
  Davis Contractors Ltd v. Fareham
  
  • 
    Also if the event was reasonably foreseeable by one or more of the parties to the contract
    
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  Event is not unforeseen if it was provided for in the contract.
  
  • 
    Claude Neon Ltd v Hardie [1970] Qd R 93.
    

A contract has been frustrated if:

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  There has been a supervening event
  
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  The event was
  
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    Unforeseen
    
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    Occurred after formation of the contract
    
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    Occurred through no fault of either party
    
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    Resulted in substantial impact
    
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  It would be unjust to hold each party to their obligation
  

Substantial Impact

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  Impossible to perform
  
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  Illegal to perform
  
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  Radically different
  

Categories of frustrating events

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  Illegality
  
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  Delay
  
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  Destruction of the subject matter
  
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  Unavailability of subject matter/person
  
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  Destruction of foundation of contract
  
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  Method of performance impossible
  

Illegality

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  Trading with the enemy.
  
  • 
    Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32.
    
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  Court order
  
  • 
    Codelfa Construction v State Rail Authority of NSW (1989) 149 CLR 337.
    
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  Change of law
  
  • 
    Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169.
    

Substantive Delay

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  Delay amounts to frustration only if:
  
  • 
    It seriously affects intended performance of the contract;
    
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    It is not due to fault of either party;
    
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    If was not envisaged by the parties.
    
  • 
    Davis Constructors Ltd v Fareham[1956] UKHL 3
    
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  Assessing delay:
  
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    Frustration can be claimed before the full extent of the impact is known.
    
  • 
    Bank Line Ltd v Arthur Capel & Co [1919] AC 435.
    
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  “… Concerning commercial contracts parties must not be asked to wait till the end of a long delay to find a contract or not. They must be entitled to act on reasonable commercial probabilities at the time when they are called on to make up their minds.”
  
  • 
    Embiricos v Sydney Reid [1914] 3 KB 45
    

Destruction/Unavailability of subject matter

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  ‘...Where, from the nature of the contract… the parties must from the beginning have known that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specified thing continued to exist … [then the contract is] subject to an implied condition that the parties shall be excused in case [where] before breach, performance becomes impossible from the perishing of the thing without default of the contractor…’
  

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  Blackburn J: Taylor v Caldwell [1883] 122 ER 309.
  

Unavailability of a person

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  The unavailability of a person to perform a contract for personal services frustrates the contract.
  

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  Chapman v Taylor [2004] NSWCA 456.
  

Destruction of the foundation of a contract

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  Destruction of Foundation/failure of a condition.
  
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  The frustrating event destroys the whole basis or purpose of the contract.
  
  • 
    Krell v Henry [1903] 2 KB 740.
    
  • 
    Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143.
    

Method of performance impossible

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  Contrast: Tsakiroglou & Co Ltd v Noblee Thorl [1962] AC 93.
  

Application to contracts for sale of land

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  Doctrine of frustration will apply but generally only to catastrophic events.
  
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  A purchaser incurs risk of loss once the contract is signed. ie: before settlement
  
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  Whether the doctrine will apply to leases is unclear.
  
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  Contrast: Firth v Halloran (1926) 38 CLR 261, National Carriers Ltd v Panalpina [1981] AC 675.
  

Fault

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  If there is fault by a party, this party cannot claim frustration but the innocent party can.
  
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  Includes situation when party makes the ‘wrong’ choice.
  
  • 
    Maritime National Fish Ltd v Ocean Trawler Ltd [1935] AC 524.
    
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  Onus to prove that frustration was self-induced falls on innocent party.
  
  • 
    Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154.
    

Can paid money be recovered?

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  Traditional Approach: “the loss lies where it falls”.
  
  • 
    Re Continental C&G Rubber Co (HC) (1919) 27 CLR 194.
    
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  However, where there has been a total failure of consideration – payments can be recovered.
  
  • 
    Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (HL) - Adopted in Baltic Shipping v Dillon (1993) 176 CLR 344.