Frustration in English law
Encyclopedia
Frustration in English law is an English contract law
doctrine, which acts as a device to set aside contracts where an unforeseen event
either renders contractual obligations impossible, or radically changes the party's principal purpose for entering into the contract. Historically, there had been no way of setting aside an impossible contract after formation; it was not until 1863, and the case of Taylor v Caldwell, that the beginnings of the doctrine of frustration were established. Whilst the doctrine has seen expansion from its inception, it is still narrow in application; Lord Roskill stated that it is: "not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent bargains."
Early cases such as Paradine v Jane show the historical line that the courts took toward a frustration of purpose
in contract; here, the courts held that where land under lease to the defendant had been invaded by Royalist forces, he was still under obligation to pay rent to the land owner. It was not until the case of Taylor v Caldwell that a doctrine of frustration was formally recognised, alleviating the potential harshness of previous decisions. Here, two parties contracted on the hire of a music hall
, for the performance of concerts. Subsequent to contracting, but prior to the dates of hire, the music hall burned down. It was held the contract was impossible to perform; Judge Blackburn stated that the absolute liability set forth in Paradine v Jane would not apply in the instant case, as there was an implied condition
that the music hall would be in existence at the date of the planned concerts. This had the effect of excusing the parties from the contract. The implied term test was explained by Lord Loreburn:
Subsequent development occurred in the case of Krell v Henry, a case arising out of the coronation of King Edward VII
. The defendant here agreed by contract to rent a flat located at Pall Mall
from the plaintiff, for the purpose of watching the coronation procession of Edward VII scheduled for June 26 and 27. Despite the fact that there was no mention of the coronation ceremony in any of the parties written correspondence, the court held the contract frustrated in purpose by the cancellation of the coronation. It could be inferred from the dealings of the parties that the principal aim of the hiring was the witnessing of the coronation. This result can be contrasted with that of Herne Bay Steamboat Co v Hutton
, another coronation case. In this case, an individual hired a steamboat
for the purposes of travelling to Spithead to cruise round an assembled fleet, and to witness the naval review of King Edward's coronation. The courts subsequently held that following the cancellation of the coronation, the entire purpose of the contract had not been frustrated, as the cruise was still possible.
The test used in these two cases - finding a radical change in the intentions of contracting parties - has found favour over the implied term test, which has been criticised to the extent of being called a "grave threat to the sanctity of contract." A common objection to this test was that it was 'artificial'; in many cases, such as Davis Contractors v Fareham UDC, it would not be true to say that both parties would intend for an implied term to cover particular situations. Thus an implication of a term to discharge a contract may run contrary to the intentions of the contracting parties. As a result, a test of contractual purpose is preferred, as laid out in Davis Contractors v Fareham UDC, in the judgement of Lord Reid
:
:
However, where a contract does not provide 'specific' goods, as required for the Act to operate, it will fall under common law
rules. A contract will not be frustrated if generic goods are destroyed - or rendered commercially non-viable. The risk is assumed to pass with the seller.
may render certain trading or actions illegal, as was the case in Denny, Mott & Dickinson v James Fraser
. Changes in the law may render building work illegal, or the use of certain materials illegal. A contract for the construction of a reservoir was held to be frustrated following wartime building regulations.
Such principles apply equally where contractual obligations become illegal in foreign countries, if this is where they are to occur.
There has been more difficulty for the courts in deciding when contracts for employment may be frustrated. Notcutt v Universal Equipment Co shows that the inability of an employee to perform contractual duties - due to, in this case, a heart attack - frustrates his contract of employment. Such a principle terminates a contract for employment immediately; the employee is not entitled to the same protection under employment protection legislation, as demonstrated in Notcutt, where Mr Notcutt was not allowed to pursue sick pay under the Employment Protection (Consolidation) Act 1978
.
The courts have imposed several limits on where contracts will be frustrated, so as - in the interests of certainty - not to release parties from their contractual obligations too easily. An important limitation is that economic hardship, or a 'bad bargain', will not render a contract frustrated. Thus in Davis Contractors v Fareham UDC the courts declined to render a contract for building work frustrated purely because the price of labour and materials had increased. Lord Reid explained the distinction between a contract becoming more onerous, and being of a different kind:
Of importance in deciding whether a contract is frustrated is that the event cannot have been in any way induced by either of the parties. For example, a claim of frustration was denied in Ocean Tramp Tankers Corporation v V/O Sovfracht
, where a charterer for a ship allowed it to travel through the Suez Canal, and subsequently become stuck (following the closure of the canal during war time). Additionally, where a frustrating event is foreseeably induced, a claim of frustration may be denied. Maritime National Fish Ltd v Ocean Trawlers Ltd
exemplifies this principle. Maritime National Fish contracted to hire a steam trawler fitted with an otter trawl, from Ocean Trawlers Ltd. Both parties knew that the use of such a vessel without a license was illegal. Subsequently, Maritime National Fish applied for five licenses from the Canadian government, however, only three were granted. Maritime National Fish did not name the hired vessel from Ocean Trawlers as one of the licensed vessels, and refused to go through with the hire, on the grounds the contract was frustrated. Their appeal was rejected on the grounds that they themselves had taken on the risk that some licenses may be denied, and by thereby not allocating a license to their chartered steam trawler, the frustration was self induced.
demonstrates a classical establishment of this, where recovery of a pre-payment for the hiring of a flat under contract (which was subsequently deemed impossible) was unrecoverable. Additionally here, it was decided that as a further obligation to pay the entire balance had occurred prior to the frustrating event, this was also due. This rule was not effectively reconsidered until Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd, where the House of Lords
ruled that payments made in return for no consideration
should be recoverable:
This judgment was not however a complete solution to the problem. A remaining problem could be found in Whincup v Hughes, where a watch maker died after performing one year of his contractual obligations. None of the £25 paid could be recovered, despite just a small portion of the contractual obligations being fulfilled.
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
doctrine, which acts as a device to set aside contracts where an unforeseen event
Act of God
Act of God is a legal term for events outside of human control, such as sudden floods or other natural disasters, for which no one can be held responsible.- Contract law :...
either renders contractual obligations impossible, or radically changes the party's principal purpose for entering into the contract. Historically, there had been no way of setting aside an impossible contract after formation; it was not until 1863, and the case of Taylor v Caldwell, that the beginnings of the doctrine of frustration were established. Whilst the doctrine has seen expansion from its inception, it is still narrow in application; Lord Roskill stated that it is: "not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent bargains."
Development of the doctrine
Frustration of purpose
In the law of contracts, frustration of purpose is a defense to enforcement of the contract. Frustration of purpose occurs when an unforeseen event undermines a party's principal purpose for entering into a contract, and both parties knew of this principal purpose at the time the contract was made...
in contract; here, the courts held that where land under lease to the defendant had been invaded by Royalist forces, he was still under obligation to pay rent to the land owner. It was not until the case of Taylor v Caldwell that a doctrine of frustration was formally recognised, alleviating the potential harshness of previous decisions. Here, two parties contracted on the hire of a music hall
Royal Surrey Gardens
Royal Surrey Gardens were pleasure gardens in Kennington, London in the Victorian period, slightly east of The Oval. The gardens occupied about to the east side of Kennington Road, including a lake of about . It was the site of Surrey Zoological Gardens and Surrey Music Hall.The gardens were the...
, for the performance of concerts. Subsequent to contracting, but prior to the dates of hire, the music hall burned down. It was held the contract was impossible to perform; Judge Blackburn stated that the absolute liability set forth in Paradine v Jane would not apply in the instant case, as there was an implied condition
Implied terms in English law
Implied terms in English law refers to the practice of setting down default rules for contracts, when terms that contracting parties expressly choose run out, or setting down mandatory rules which operate to override terms that the parties may have themselves chosen...
that the music hall would be in existence at the date of the planned concerts. This had the effect of excusing the parties from the contract. The implied term test was explained by Lord Loreburn:
In most of the cases it is said that there was an implied condition in the contract which operated to release the parties from performing it, and in all of them I think that was at bottom the principle upon which the court proceeded.
Subsequent development occurred in the case of Krell v Henry, a case arising out of the coronation of King Edward VII
Coronation cases
The Coronation cases were a group of appellate opinions in English law cases, all arising out of contracts that had been made for accommodation for viewing the celebrations surrounding the coronation of King Edward VII, originally scheduled for June 26, 1902...
. The defendant here agreed by contract to rent a flat located at Pall Mall
Pall Mall, London
Pall Mall is a street in the City of Westminster, London, and parallel to The Mall, from St. James's Street across Waterloo Place to the Haymarket; while Pall Mall East continues into Trafalgar Square. The street is a major thoroughfare in the St James's area of London, and a section of the...
from the plaintiff, for the purpose of watching the coronation procession of Edward VII scheduled for June 26 and 27. Despite the fact that there was no mention of the coronation ceremony in any of the parties written correspondence, the court held the contract frustrated in purpose by the cancellation of the coronation. It could be inferred from the dealings of the parties that the principal aim of the hiring was the witnessing of the coronation. This result can be contrasted with that of Herne Bay Steamboat Co v Hutton
Herne Bay Steamboat Co v Hutton
Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 is a case on the subject of frustration of purpose. It is one of a group of cases arising out of the same event, known as the coronation cases.-Facts:...
, another coronation case. In this case, an individual hired a steamboat
Steamboat
A steamboat or steamship, sometimes called a steamer, is a ship in which the primary method of propulsion is steam power, typically driving propellers or paddlewheels...
for the purposes of travelling to Spithead to cruise round an assembled fleet, and to witness the naval review of King Edward's coronation. The courts subsequently held that following the cancellation of the coronation, the entire purpose of the contract had not been frustrated, as the cruise was still possible.
The test used in these two cases - finding a radical change in the intentions of contracting parties - has found favour over the implied term test, which has been criticised to the extent of being called a "grave threat to the sanctity of contract." A common objection to this test was that it was 'artificial'; in many cases, such as Davis Contractors v Fareham UDC, it would not be true to say that both parties would intend for an implied term to cover particular situations. Thus an implication of a term to discharge a contract may run contrary to the intentions of the contracting parties. As a result, a test of contractual purpose is preferred, as laid out in Davis Contractors v Fareham UDC, in the judgement of Lord Reid
Lord Reid
Lord Reid may refer to :* James Reid, Baron Reid, a Scottish Unionist politician and judge .* John Reid, Baron Reid of Cardowan, a Scottish Labour politician, cabinet minister and chairman of Celtic F.C....
:
The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not, then it is at an end.
Destruction of the subject matter
Where an item or building essential to the contract - which has been expressly identified - is destroyed, through no fault of either party, it can be set aside as impossible to perform, as established in Taylor v Caldwell. Such principles differ however when considering the sale of goods. The agreement of the parties is important when considering whether it has been frustrated. If it is agreed that goods from a specific source will be provided, the contract falls under Section 7 of the Sale of Goods Act 1979Sale of Goods Act 1979
The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
:
Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.
However, where a contract does not provide 'specific' goods, as required for the Act to operate, it will fall under common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
rules. A contract will not be frustrated if generic goods are destroyed - or rendered commercially non-viable. The risk is assumed to pass with the seller.
Supervening illegality
Where a law subsequent to contracting is passed, which renders the fundamental principle of contracting illegal, the contract will be found to be frustrated. There are several situations in which this may occur. Events such as warWar
War is a state of organized, armed, and often prolonged conflict carried on between states, nations, or other parties typified by extreme aggression, social disruption, and usually high mortality. War should be understood as an actual, intentional and widespread armed conflict between political...
may render certain trading or actions illegal, as was the case in Denny, Mott & Dickinson v James Fraser
Denny, Mott & Dickinson v James Fraser
Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265 is an English contract law case, concerning the frustration of an agreement.-Facts:...
. Changes in the law may render building work illegal, or the use of certain materials illegal. A contract for the construction of a reservoir was held to be frustrated following wartime building regulations.
Such principles apply equally where contractual obligations become illegal in foreign countries, if this is where they are to occur.
Incapacity or death
A contract may become frustrated where a person or group under contract become unavailable (either through death, illness or unavailability). This generally occurs only for the performance of personal services, and not for generic commercial services such as building work, which could be performed by numerous individuals. Robinson v Davison involved a piano player who became ill prior to a concert he was contracted to play in; the contract was held to be frustrated. A similar result can be seen in Condor v The Baron Knights.There has been more difficulty for the courts in deciding when contracts for employment may be frustrated. Notcutt v Universal Equipment Co shows that the inability of an employee to perform contractual duties - due to, in this case, a heart attack - frustrates his contract of employment. Such a principle terminates a contract for employment immediately; the employee is not entitled to the same protection under employment protection legislation, as demonstrated in Notcutt, where Mr Notcutt was not allowed to pursue sick pay under the Employment Protection (Consolidation) Act 1978
Employment Protection (Consolidation) Act 1978
Employment Protection Act 1978 was a UK Act of Parliament that formed a central part of UK labour law. Its descendant is the Employment Rights Act 1996. It consolidated two pieces of legislation, the Contracts of Employment Act 1963 and the Redundancy Payments Act 1965.-External links:**...
.
Limits of the doctrine
Of importance in deciding whether a contract is frustrated is that the event cannot have been in any way induced by either of the parties. For example, a claim of frustration was denied in Ocean Tramp Tankers Corporation v V/O Sovfracht
Ocean Tramp Tankers Corporation v V/O Sovfracht
Ocean Tramp Tankers Corp v V/O Sovfracht [1964] 2 QB 226 is an English contract law case, concerning the frustration of an agreement.-Facts:...
, where a charterer for a ship allowed it to travel through the Suez Canal, and subsequently become stuck (following the closure of the canal during war time). Additionally, where a frustrating event is foreseeably induced, a claim of frustration may be denied. Maritime National Fish Ltd v Ocean Trawlers Ltd
Maritime National Fish Ltd v Ocean Trawlers Ltd
Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] is a case on the subject of frustration of purpose, specifically establishing that foreseeable or self-induced frustration will not render a contract frustrated.-Facts:...
exemplifies this principle. Maritime National Fish contracted to hire a steam trawler fitted with an otter trawl, from Ocean Trawlers Ltd. Both parties knew that the use of such a vessel without a license was illegal. Subsequently, Maritime National Fish applied for five licenses from the Canadian government, however, only three were granted. Maritime National Fish did not name the hired vessel from Ocean Trawlers as one of the licensed vessels, and refused to go through with the hire, on the grounds the contract was frustrated. Their appeal was rejected on the grounds that they themselves had taken on the risk that some licenses may be denied, and by thereby not allocating a license to their chartered steam trawler, the frustration was self induced.
Apportionment of losses
A contract rendered frustrated ends obligations following the frustrating event. Under previous common law rules, this had the effect of producing potentially inequitable results, for example if a pre-payment was paid by one party to the other, it could not be recovered. Such a rule was generally agreed to be contrary to the principles of equity. Chandler v WebsterChandler v Webster
Chandler v Webster [1904] 1 KB 493 is an English contract law case, concerning frustration. It is one of the many coronation cases, which appeared in the courts after King Edward VII fell ill and his coronation was postponed.-Facts:...
demonstrates a classical establishment of this, where recovery of a pre-payment for the hiring of a flat under contract (which was subsequently deemed impossible) was unrecoverable. Additionally here, it was decided that as a further obligation to pay the entire balance had occurred prior to the frustrating event, this was also due. This rule was not effectively reconsidered until Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd, where the House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....
ruled that payments made in return for no consideration
Consideration
Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from...
should be recoverable:
This judgment was not however a complete solution to the problem. A remaining problem could be found in Whincup v Hughes, where a watch maker died after performing one year of his contractual obligations. None of the £25 paid could be recovered, despite just a small portion of the contractual obligations being fulfilled.
Law Reform (Frustrated Contracts) Act 1943
The issue of financial obligation and recovery of pre-payments was effectively put to rest with the enactment of the Law Reform (Frustrated Contracts) Act 1943, a result of the Law Reform Commission's Seventh Interim Report. Under the act, payments can be recovered in full or in part, in a manner which the courts deem equitable. Additionally, as demonstrated in BP Exploration Co (Libya) Ltd v Hunt (No. 2), where a party has had a considerable benefit conferred upon them prior to the frustrating event, the courts can apportion some or all of this benefit to the other party, again where it is deemed equitable.See also
- Paradine v Jane
- Taylor v Caldwell
- Krell v Henry
- Cooper v Phibbs [1867] UKHL 1, (1867) LR 2 HL 149
- Law Reform (Frustrated Contracts) Act 1943Law Reform (Frustrated Contracts) Act 1943The Law Reform Act 1943 is an Act of the Parliament of the United Kingdom which establishes the rights and liabilities of parties involved in frustrated contracts...
- English contract lawEnglish contract lawEnglish contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...