Judges Unwilling Declare Contract As Frustrated

‘I can identify the principal issues for research on a specific legal topic.’ I think I have achieved this outcome as I have conducted my research on a specific topic ‘frustration and breach’. I also have found the principal issues of research as required for this topic by formulating a research question.

I think the doctrine of frustration is not a sterile issue. The difficulties pose in the test and finding of this doctrine clearly indicates that it is worth a research topic. The slight difference between breach and frustration make it extremely grey issue which need careful consideration. With just a simple stance the party may not be able to invoke this defense.

The test for frustration while parties invoking it, is the significant issue needs careful consideration. The definition of breach, frustration and how these are operated need to be considered. I thought if I could find out the main difference between the breach and frustration then the answer to the research question can be found out. I found that some circumstances such as onerous contract, forseeability of frustrating event, self-induced frustration, courts’ reluctance in relation to frustration, force majure clause etc.

I realised that the case Davies v Fareham UDC is a significant step to identify the doctrine of frustration. The difference between breach and frustration can be identified from it. While dealing with the difference I came across various debatable issues where breach is more preferable to the courts. I found that court is so reluctant that frustration is used in a very limited fashion. According to the court the contracting parties should bare the risk of uncertainty, and should be prepare for all and should continue to perform. To avoid these entire complexity force majure clause is the proper solution.

While preparing my research I thought I need to start from the basic points of law of contract. Why we form a contract? Why contract is frustrated? How it is different from breach? In Davies it was clearly stated that nature of the obligation must be changed not only the circumstances. Furthermore it was also stated that material loss would make a contract frustrated rather it would be breach.

After Davies various new cases came into force and the doctrine of frustration has developed since and extended to lease also but those were not important for my research. The important part was the cases which suggested that courts are willing to declare a non performance as breach. And it causes problem for the parties to contract in vary difficult situation. To solve it new cases have developed the force majure clause and the hardship clause which I found very crucial to omit the complexity.

Evidence

The first and the second paragraph of my essay clearly indicate that I have demonstrated my skill in successfully identifying the principal issues. In my topic I have tried to identify the problems and complexity in relation to the application of the doctrine of frustration and tried to focus on the solution to it. I have identified various legal areas in the form of case law which are essential for my research work. Those are given below:

In National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 Lord Simon stated that ‘it takes place when the supervenes an event (without default of either party) which so significantly changes in the nature (not merely the expense) of the outstanding contractual rights and/or obligations from what the parties reasonably have contemplated at the time of the literal sense of its stipulation in the new circumstances. In such case the law declares both parties to be discharged form further performance.’

In Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 721–722, [1956] 2 All ER 145 at 153–154, HL, Lord Reid has laid down a three tried process: ‘1. to construe the contractual term in light of the contract and surrounding circumstances at the time of the formation of the contract. 2. To examine the new circumstances and decide what would happen if the consisting terms are applied to it. 3. To compare the two contractual obligations and see if there is radical or fundamental change.’ Accordingly it is the nature of obligation that must have changed and not the circumstances.

Lord Radcliffe in Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 729, [1956] 2 All ER 145 at 160, HL stated that ‘In the nature of things there is often no room for any elaborate inquiry. The court must act on a general impression of what its rule requires. It is for that reason that special importance is necessarily attached to the occurrence of any unexpected event that, as it were, changes the face of things. But, even so, it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.’ It clearly suggested that courts are reluctant to declare a contract as frustrated even if there is material loss.

in Walton Harvey Ltd v Walker and Homfrays Ltd [1931] 1 Ch 274, CA it was held that where, by reason of special knowledge, one party foresees the possibility of the event and conceals this from the other, the party with the special knowledge will not be discharged.

in Joseph Constantine Steamship Line Ltd v Imperial Smelting Corpn Ltd [1942] AC 154 at 163, [1941] 2 All ER 165 at 171, HL Viscount Simon LC held that ‘there can be no discharge by supervening impossibility if the express terms of the contract bind the parties to performance notwithstanding that the supervening event may occur. Discharge by supervening impossibility is not a common law rule of general application like discharge by supervening illegality. Whether the contract is terminated or not depends on its terms and surrounding circumstances in each case. Moreover, it seems to me that the explanation of supervening impossibility is at once too broad and too narrow. Some kinds of impossibility may, in some circumstances, not discharge the contract at all. On the other hand, impossibility is too stiff a test in other cases.’

. In Maritime National Fish Ltd v Ocean Trawlers [1935] AC 524, PC it was held that he doctrine of frustration is in all cases subject to the important limitation that the frustrating circumstances must arise without fault of either party. According to Salmon LJ in relation to frustration ‘This was a doctrine evolved by the courts to meet the case in which a contract became impossible of performance through some supervening event, not reasonably foreseeable when the contract was made and for which neither contracting party was in any way responsible.’

In The Nema [1982] AC 724, 752 the attitude of the modern court was summed up by Lord Roskill as he stated that the doctrine of frustration should be dealt seriously and it should ‘not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent bargains.’

In Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323 it was stated that ‘In case of unexpected event many contracts provide some clauses so that the contract is not treated as breach. Many contracts expressly provide for performance to be excused if rendered impossible by unavoidable cause such as act of God, the Queen's enemies, act of state, force majeure or vis major. Stipulations to that effect are effective; provided that they are not uncertain in their terms and that there is compliance with any notice requirement’

Outcome 2:

Locate and retrieve relevant information on a specific topic using primary and secondary legal sources, in paper or electronic media (including use of the world-wide web).

Claim

I can locate and retrieve relevant information on a specific topic namely frustration and breach, using primary and secondary legal sources, in paper or electronic media (including use of the world-wide web).’ In doing the research I first studied my law of contract text-book written by ‘Ewan McKendrick.’ There I have gone through the frustration chapter, the relevant paragraphs and studied the relevant materials. At this stage I have found necessary information which helped me to get the initial ideas. I went through Lexis Nexis: Haulsbury’s Law of England via online law library. There I browsed the chapter frustration and this helped to identify the potential research materials. I also went through Westlaw for the cases on frustration. First I have studied the definition of frustration as laid down by the case law. Then I have picked the exact definition which is important and I put it in my research. I also studied the examples of frustration or the areas which can be regarded as frustration and I felt that some of those were important for my research as they dealt with frustration and breach. I have then studied the difference between frustration and breach which was very crucial and also have gone on study the limitation of frustration which is basically the main part of my research. I have picked the part which I felt important and wrote my research accordingly.

I also looked at some relevant books available in my academy law library; however I decided not to include them in my project as this would mean going into much greater detail than was required for present purposes. I knew from the very beginning that if I go through the text book and Lexix Nexis I would be able to locate these materials important for the research.

Evidence

The first step in my work on this project was to search for all necessary cases and other supporting materials. From reading the subject guide and resource books I identified the most important cases for my research. I have gone through the cases on my text book and the subject guide. Apart from this I have extensively studied academic arguments, which helped me lot to build my research. In my research I have used the online sources. I have used both the Lexis-Library and Westlaw. I went for arguments there. I also studied the secondary sources and organize my research accordingly.

The bibliography of my research essay lists the primary and secondary sources I located for my research. The case summaries (see evidence for Outcome 1 above) verify that I found primary legal sources relevant to my research task.

Outcome 3:

Use sources in a critical and reflective way.

Claim

‘I can use sources in a critical and reflective way.’ In paragraphs 3-16 of my research essay I

Demonstrate a critical and reflective analysis of a range of cases addressing the issue of the doctrine of frustration. I identified those cases by analysing the relevant sections of the text book, subject guide and commentary in Lexis-Library

and then used the Westlaw database to find the cases and download full case report I have read the cases, found out the specific information addressing the issue of the doctrine of frustration and breach, their differences, links and courts willingness to use breach not frustration and also tried to find the solution to the complexity regarding this area. While preparing my research I always check whether the topic which I have studied has any impact on my research. I have particularly checked Davies v Fareham UDC case and cases related to it. At the time of studying I checked whether any issue deals with frustration and breach, their differences and links. I have asked myself whether the issues which I was reading have anything to deal with breach and can help me to find that the distinction between breach and frustration is very small. For me an issue would be relevant if it anything to deal with frustration and breach. I have gone through the conflicting decisions and their arguments in favour of those. And I got idea for my research.

I have come to the knowledge that an argument is important if it has relevancy and used for proper purposes. In my research the legal arguments which I have given has strength and weakness. Whenever an argument has the persuasive power in relation to the topic and it can clearly put the picture to the reader then that argument has strength and if it is vague and unclear then the argument is unclear. In this regard I have tried to provide with the proper argument which put the clear picture to us.

Evidence

In my research essay I display my capability to use both primary and secondary legal sources and reference materials in a critical and reflective way. The case summaries as goven in the evidence for outcome 1 illustrate my aptitude to assess the primary legal sources judging their relevance and importance for my research.

Outcome 4:

With limited guidance, and using a range of legal resources, plan, research and produce an original piece of legal writing some of which should address areas of law not previously studied

in depth.

Claim

‘I can, with limited guidance, and using a range of resources, plan, research and produce an original piece of legal writing some of which addresses areas of law not previously studied in depth.’ I completed a research essay using primary and secondary legal resources as I already mentioned in outcome two earlier. I had previous idea on law of frustration. With those minimal ideas I started my work. I have attended few group works and personal session with my teacher. I planed my research with these and the oral presentation helped me a lot to complete the research.

I have gone through the test of frustration and its increasing use in various aspect of contract law. I studied the force majure and hardship clause. I also studied the issue of supervening illegality and other grounds of frustration. While reading breach I have read the impact of breach and its difference with frustration and thus eventually I have studied the effects of frustration both under common law and under the statute (Law Reform (Frustrated Contracts) Act 1943. In dealing with all these issues I have found that the university subject guide does not provide us with material information on this area.

Evidence

My research eassay clearly indicate that this area has not been studied in depth. In our class frustration chapter was dealt in a very short time and we did not have the opportunity go in depth with our teachers. The research essay is my original piece of work.it is a genuine writing on a particular legal issue. I am stating that this is my original work. I received limited guidance while doing it. I am aware of the penalties for plagiarism. My claim that this work goes beyond my previous learning is absolutely based on the case analysis I have done while doing my research eassay.

Outcome 5:

Make an accurate assessment of your progress and the quality of your work and, using feedback, identify areas for improvement.

Claim

Outcome 6:

Produce a word-processed portfolio, with footnotes, using appropriate formatting tools, and communicate and exchange documents by email.

Claim

I can word-process text, with footnotes, using appropriate formatting tools, and communicate and exchange documents by email. I officially state that the full portfolio I have submitted was word-processed by me. The full assignment was completed in Microsoft Word software. I have used font Arial in size of 12 point. I also designed my headings, subheadings etc by using bold and underline format. In my whole legal research I have used 1.5 lines spacing to build it easier to read. the each outcome are in bold and size 18 point, the question of outcome are in 14 point and normal, the heading of claim and evidence are in 16 point size and with underline. In various tome to do my legal research I have faced many sort of problem, in that moment I have take very much support from my teacher and friends. They help me to solve the problem to how can my research essay become well.

Without internet this research can not be possible to complete well. I have try my best to utilize this opportunity by using my University of London portal. After completing my research I have exchanged my research with my teacher friends by email. And I also take suggestion by this email.

Evidence

The provided legal research essay is the best and appropriate evidence of my achievement. The use of word processed portfolio, footnotes, screen shots of the emails I have exchanged, using a variety of formatting tools etc showed that I have completed this achievement.

Outcome 7:

Briefly and accurately present and discuss, orally in English, legal information from standard textbooks, leading cases or statutes in a way that responds relevantly to the question asked or topic set and is understood by the audience.

Claim

Outcome 8:

Work as an active and effective member of a team contributing productively to the group’s task.

Claim

I can work as an active and effective member of a team and contribute productively to the group’s task. To do research I have took help from two of my associates. They help me very much. They help me to sort out what was the problem of my research, how can I prepare my power point slide, what is the mechanism of screen shots of the emails I exchanged are included as Appendix B. I also improve my research by taking help from my teacher. He also plays a very effective role as a guide of mine.

Evidence

In my legal research Appendix B and Appendix C I have tried to show my evidence that I have described above. These two appendixes’ is a mirror of my take help and group work with my teacher and friends. These also provide that how much I have afforded in a group work.

Appendix A: Research essay

Some legal systems accepts that changes of circumstances may justify modifying a contract where to maintain the original contract would produce intolerable results incompatible with justice. But many legal systems including English law concerned that modification would undermine certainty and alter the risk allocated by the contract, make provisions for the discharge of a contract only where after its formation, a change of circumstances makes contractual performances illegal or impossible. This is a clear indication that only on exceptional circumstances UK courts are willing to regard a contract as frustrated otherwise for the sake of certainty the non-performance of the contract is treated as breach

A contract is frustrated where after the formation of the contract some events occur which make it impossible for the contract to be performed, illegal or radically different from that which was in the reasonable contemplation of the parties at the time they entered into the contract. It is always difficult to determine frustration as the development in the area of frustration makes it extremely rigid to call a contract as frustrated. The test and the use of frustration clearly show that the courts are extremely reluctant to use this doctrine and the little case law is evident to it. Non performance of contract generally leads to breach of contract and the injured party can bring action for all losses and damage. It is general idea that whenever a party is entering into a commercial transaction he must bear some risk in relation to it. But if a non performance simply regards as frustration than many people entering into contract may find this as an opportunity to avoid their obligation under the contract and would take shelter of this doctrine, which is unjustifiable.

The doctrine of frustration operates in situation where it is established that the subsequent change in circumstances the contract rendered impossible to perform or it has become deprived of its commercial purpose by an event not due to the or fault of either party. In National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 Lord Simon stated that ‘it takes place when the supervenes an event (without default of either party) which so significantly changes in the nature (not merely the expense) of the outstanding contractual rights and/or obligations from what the parties reasonably have contemplated at the time of the literal sense of its stipulation in the new circumstances. In such case the law declares both parties to be discharged form further performance.’ [1] 

The doctrine of frustration operates to excuse from further performance where: (1) it appears from the nature of the contract and the surrounding circumstances that the parties have contracted on the basis that some fundamental thing or state of things will continue to exist [2] or that some particular person will continue to be available, or that some future event which forms the basis of the contract will take place; and (2) before breach, an event in relation to the matter stipulated in head (1) above renders performance impossible or only possible in a very different way from that contemplated. In more recent times, five propositions have been set out as the essence of the doctrine. [3] 

In Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 721–722, [1956] 2 All ER 145 at 153–154, HL, Lord Reid has laid down a three tried process: ‘1. to construe the contractual term in light of the contract and surrounding circumstances at the time of the formation of the contract. 2. To examine the new circumstances and decide what would happen if the consisting terms are applied to it. 3. To compare the two contractual obligations and see if there is radical or fundamental change.’ [4] Accordingly it is the nature of obligation that must have changed and not the circumstances.

Professor Treitel (1999) has defined a breach of contract in the following terms ‘a breach of contract is committed when a party without lawful excuse fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing.’ [5] Breach of contract and frustration are very much related as both of these involved non performance of the contract. The definition of breach clearly indicates that if non performance occurs due to lawful excuse than it is not a breach. As such where the contract is frustrated there is no liability for breach of contract as parties have lawful excuse to show. The question whether or not a particular contract is breached largely a question of facts and depend on the terms of the contract. Court is generally very interested to declare breach rather than frustration.

There are some limitations on the doctrine of frustration. The first is that a contract is not frustrated where the parties have made express provision for the incidence of the alleged frustrating event in their contract. The effect of the express provision is to exclude the operation of the doctrine of frustration because the contract on its proper construction will be held to have covered and made its own provision for the event which has occurred. But the courts have generally have subjected to a narrow interpretation clauses which it alleged make provision for what would otherwise be a frustrating event. A good example of this restrictive approach is provided by the decision of the House of Lord in Metropolitan Water Board v Dick, Kerr and Co. [1980] AC 119. Even though the express provision has very narrow application still it is an indication that court tries to give effect to breach.

Whatever the alleged source of frustration, a contract is not discharged under the doctrine of subsequent impossibility and frustration merely because it turns out to be difficult to perform or onerous. [6] Lord Radcliffe in Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 729, [1956] 2 All ER 145 at 160, HL stated that ‘In the nature of things there is often no room for any elaborate inquiry. The court must act on a general impression of what its rule requires. It is for that reason that special importance is necessarily attached to the occurrence of any unexpected event that, as it were, changes the face of things. But, even so, it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.’ It clearly suggested that courts are reluctant to declare a contract as frustrated even if there is material loss.

In Greenway Bros Ltd v SF Jones & Co (1915) 32 TLR 184 rise in prices caused by outbreak of war held not to constitute impossibility. [7] In British Movietonews Ltd v London and District Cinemas Ltd [1952] AC 166, [1951] 2 All ER 617, HL the contract for supply of newsreels to cinemas made more difficult by wartime restrictions on use of film however it was held that depreciations of currency or unexpected obstacles to the execution of the contract would not make the contract frustrated. [8] Furthermore in Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 3) [1989] 1 Lloyd's Rep 582, CA it was identified that where the change of circumstances is insufficiently serious to frustrate a contract, the party unsuccessfully claiming frustration remains liable to perform his promises.

The definition of frustration clearly indicates that frustration occurs because of a supervening unforeseen event and therefore if an event can be found within the reasonable contemplation of the parties than for that event non performance of the contract can not be stated as frustration. In The Eugenia [1964] 2 QB 226 at 239, [1964] 1 All ER 161 at 166, CA, per Lord Denning MR ‘It has frequently been said that the doctrine of frustration only applies when the new situation is “unforeseen" or “unexpected" or “uncontemplated", as if that were an essential feature. But it is not so. It is not so much that it is “unexpected", but rather that the parties have made no provision for it in their contract. The point about it, however, is that: If the parties did not foresee anything of the kind happening, you can readily infer that they have made no provision for it. Whereas, if they foresaw it, one would expect them to make provision for it.’ [9] But in Walton Harvey Ltd v Walker and Homfrays Ltd [1931] 1 Ch 274, CA it was held that where, by reason of special knowledge, one party foresees the possibility of the event and conceals this from the other, the party with the special knowledge will not be discharged. Again in Joseph Constantine Steamship Line Ltd v Imperial Smelting Corpn Ltd [1942] AC 154 at 163, [1941] 2 All ER 165 at 171, HL Viscount Simon LC held that ‘there can be no discharge by supervening impossibility if the express terms of the contract bind the parties to performance notwithstanding that the supervening event may occur. Discharge by supervening impossibility is not a common law rule of general application like discharge by supervening illegality. Whether the contract is terminated or not depends on its terms and surrounding circumstances in each case. Moreover, it seems to me that the explanation of supervening impossibility is at once too broad and too narrow. Some kinds of impossibility may, in some circumstances, not discharge the contract at all. On the other hand, impossibility is too stiff a test in other cases.’ [10] 

If there is any fault on part of the parties of the contract then this doctrine would not be applied according to the definition of the doctrine. In Maritime National Fish Ltd v Ocean Trawlers [1935] AC 524, PC it was held that he doctrine of frustration is in all cases subject to the important limitation that the frustrating circumstances must arise without fault of either party. [11] According to Salmon LJ in relation to frustration ‘This was a doctrine evolved by the courts to meet the case in which a contract became impossible of performance through some supervening event, not reasonably foreseeable when the contract was made and for which neither contracting party was in any way responsible.’ [12] Although the concept of self-induced frustration is clearly established in the cases the courts have never established its limits with any degree of clarity. In J Lauritzen AS v Wijsmuller BV, The Super Servant Two [1990] 1 Lloyd's Rep 1, Hobhouse J in relation to self-induced frustration and breach stated that ‘it is a level used by the courts to describe those situations where one party has been held by the courts not to be entitled to treat himself as discharged from his contractual obligations.’ [13] On his analysis frustration was self-induced where alleged frustrating event was caused by a breach or anticipatory breach of contract by the party claiming that the contract has been frustrated, where an act of the party claiming that the contract has been frustrated broke the chain of causation between the alleged frustrating event and the event which made performance of the contract impossible, and where the alleged frustrating event was not a supervening event, by which he meant ‘something altogether outside the control of the parties.’ Thus a negligent act by the defendant will amount to a self-induced event and frustration. [14] 

According to Ewan McKendrick [15] there are two principle reasons which help explain the reluctance of the courts to invoke the doctrine of frustration. The first is that the courts do not want to allow the doctrine to act as an escape route for a party for whom the contract has simply become a bad bargain. In The Nema [1982] AC 724, 752 the attitude of the modern court was summed up by Lord Roskill as he stated that the doctrine of frustration should be dealt seriously and it should ‘not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent bargains.’ This approach was adopted practically in Davies Contractors Ltd v Fareham UDC [1956]AC 696. In this case Lord Radcliffe stated that it was not ‘hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would if performed be a different thing from that contracted for.’ [16] 

The second reason for the narrowness of the doctrine of frustration is that we all know that the future is uncertain: prices may suddenly increase, inflation may rise, labour disputes break out. Contracting parties are expected to foresee many such possibilities when entering into contract and guard against them in contract. [17] 

In case of unexpected event many contracts provide some clauses so that the contract is not treated as breach. Many contracts expressly provide for performance to be excused if rendered impossible by unavoidable cause such as act of God, the Queen's enemies, act of state, force majeure or vis major. Stipulations to that effect are effective; provided that they are not uncertain in their terms and that there is compliance with any notice requirement. [18] A force majeure clause (as such a stipulation is usually called) must be construed in each case with due regard to the nature and general terms of the contract and, in particular, with regard to the precise words of the clause. Anther clause which is often found in commercial contract is known as a hardship clause. Such a clause will generally define what constitutes hardships (usually by an economic variety) and will lay down a procedure to be adopted by the parties in the event of such hardship occurring.

There are number of advantages to these clauses. First, these will provide with a degree of certainty. It is often difficult to know whether a contract is frustrated. This can be reduced by providing list of events which may amount to force majure or hardship events. Second, the frustration operates in a very narrow limit as discussed earlier however force majure and hardship clauses can be extended a lot and it provides with the opportunity to the parties to be flexible. Third, parties can make provision for the consequences of the occurrence of a force majure and hardship event. Frustration operates vary drastically and terminates the contract even if the parties want to continue, the force majure and hardship clauses solve this problem. Thus it is of my contention that to avoid the complexity rendered by the doctrine of frustration and reluctance of the court to use breach rather it would be possible to cure by the contracting parties themselves by providing force majure and hardship clauses.

At the end I am stating that it is evident that courts are giving priority to breach and it creates complexity. To avoid this express force majure or hardship clause need to be applied.

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