A contract is a legally binding agreement between two or more parties. For the contract to be valid, there has to be evidence of the contract made. However, problems may arise, for instance, due to one party not being able to carry out the duties of the contract. Therefore, a doctrine of frustration was developed to provide a solution for when a situation occurs. The frustration of contract is when the contract terminates because of a reason deemed by the law. A significant case from the seventh century showed that a circumstance where the incidents were beyond the control of both parties had no effect on each other’s obligations. However, courts soon announced that a contract should be implied with terms.
The frustration of the contract can be applied in various situations. The frustration of contract was formally accepted when the case of Taylor v Caldwell 1863 aroused. In this case, a music hall where the claimant agreed to hire from the defendant burnt down before the hall was to be used. Neither of the party was responsible for the fire that happened. Judge Blackburn stated that since there was an implied requirement in which the music hall was to be extant on the day of the concert, both the parties were exempted from the contract as the subject matter no longer existed.
Another reason where the frustration of contract is relevant is when the contract becomes illegal to carry out. For example, in the case of Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd 1944, the parties had made a deal to buy wood and lease a timber yard. However, due to the result of Control of Timber (No 4) Order 1939, the contract was frustrated. Moreover, in the case of Ertel Bieber v Rio Tinto 1918, they agreed to sell ore. In the contract, they had decided to end the contract if a war broke out. It was hindered as the policy elucidated to not to trade with enemies.
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A contract may also be frustrated when one of the parties becomes ill or dies. For instance, in Robinson v Davison 1871 case, the contract to play piano at a concert was held unfulfilled as the pianist became ill prior to the occasion. In a similar case, Condor v The Barron Knights [1966], the worker became ill and was no longer able to work in accordance to the contract.
A delay in execution may also frustrate the contract. Bank Line Ltd v Arthur Capel and Co 1919 – an agreement was made to charter a steamer to the plaintiffs. The steamer was used by the government and released only 5 months later. The contract was frustrated as the performance was late. Furthermore, in an event where the contract is alleged to take place fails, the contract becomes meaningless and be frustrated. In the Krell v Henry 1903 case, the defendant agreed to hire a flat from the plaintiff in which coronation processions would take place. However, as the processions did not take place on the declared days, the offender declined to give the outstanding rent. The contract was frustrated as it did not include any terms concerning the coronation process.
There are restrictions to the frustration of a contract. An important limitation is that financial hardships will not cause a contract to be frustrated. In Davis Contractors Ltd v Fareham Urban District Council 1956 case, Davis Contractors agreed to build 78 houses for £92,425 in eight months. Nevertheless, it took them 22 months to finish as they were deficient in labor and supplies. The house of lords claimed that as the events were unforeseeable, the contract was not frustrated. In the Ocean Tramp Tankers Corp v V/O Sovfracht 1964 case as well the contract was not considered frustrated as the ship was trapped due to the blocking of the Suez Canal.
Additionally, in an event where the result is self-induced, it will not make a contract frustrated. Maritime National Fish Ltd v Ocean Trawlers Ltd 1935 case shows that they applied for five licenses for the five trawlers they were handling. As only three of the five licenses were permitted, the contract was not stated as frustrated.
An event where the consequence leads to the change in the obligations of one party, frustration of contract would not be held. In Blackburn Bobbin Co Ltd v Allen (TW) & Sons Ltd 1918 case, the defendants had not delivered any timber when World War I broke out. Therefore, it became impossible for them to deliver the goods as there was a commotion with the transportation. The contract had not been terminated due to the outbreak of war hence, the defendants were completely liable for the compensations of timber not sent.
In addition, there are some legal effects of frustration. Hirji Mulji v Cheong Yue Steamship Co Ltd 1926 case shows that the contract comes to an immediate end even though it was not the result the parties expected. As a result of the financial implications of the frustration of an event, Law Reform (Frustrated Contracts) Act 1943 was introduced. In 1943, Fibrosa SA v Fairbairn Lawson Combe Barbour Ltd, an English company agreed to sell machinery for £4,800 for a Polish company. At this time, the war was declared upon Germany by Great Britain and the English company decided to not transport the materials. The Polish company wanted to recover the £1,000 they deposited. The frustration of contract was not avoided and the Polish company got permission to regain the money. In these cases, no party is allowed to sue for breach.
To conclude, a frustration of contract makes it void and the parties are cleared of the responsibilities they are obliged to. In Davis’s case, Lord Radcliffe stated “it is not a hardship, or inconvenience or material loss itself which calls the principle of frustration into play”.
References
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- LawTeacher. November 2013. Taylor V Caldwell [1863] 3 B&S 826 Case Summary. [online]. Available from: https://www.lawteacher.net/cases/taylor-v-caldwell.php?vref=1 [Accessed 31 March 2019].
- Webstroke Law (2014) Webstroke Law. Available from: https://webstroke.co.uk/law/cases/ertel-bieber-v-rio-tinto-1918 [Accessed 31 March 2019]
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- LawTeacher. November 2013. Krell v Henry [1903]. [online]. Available from: https://www.lawteacher.net/cases/krell-v-henry.php?vref=1 [Accessed 31 March 2019].
- LawTeacher. November 2013. Blackburn Bobbin Co Ltd v Allen (TW) & Sons Ltd. [online]. Available from: https://www.lawteacher.net/cases/blackburn-bobbin-v-allen.php?vref=1 [Accessed 31 March 2019].
- LawTeacher. November 2013. Fibrosa SA v Fairbairn Lawson Combe Barbour Ltd. [online]. Available from: https://www.lawteacher.net/cases/fibrosa-v-fairbairn-lawson.php?vref=1 [Accessed 31 March 2019].
- LawTeacher. November 2013. The Development of The Doctrine Of Frustration. [online]. Available from: https://www.lawteacher.net/free-law-essays/contract-law/the-development-of-the-doctrine-of-frustration-contract-law-essay.php?vref=1 [Accessed 31 March 2019].
