Frustration

Under the doctrine of frustration, a contract may be automatically discharged if, during the
currency of the contract, and without the fault of either parry, some event occurs which
renders further performance an impossibility, renders it illegal or brings about a radical
change in the circumstances so that the contract becomes something essentially different from
that which was originally undertaken. The reason why the court is reluctant to allow
frustration is that it does not want to allow the doctrine to act as an escape route for a bad
bargain. The second reason is that some supervening events can be forseen and can be dealt
with in the contract. the important issue to consider is whether both parties have made a
shared assumption of the purpose of the contract.

Development
1. At the past most contractual duties were regarded as absolute, in the sense that
supervening events provided no excuse for non-performance.

2. The doctrine of absolute contracts probably never applied where a contract called for
personal performance by a party who died or was permanently incapacitated, and
another early exception to it was recognized in cases of supervening illegality. The
doctrine of frustration started to be established following the case of Taylor v
Caldwell.

3. The doctrine later extended to cases in which performance became impossible

otherwise than through the perishing of a specific thing, and even to cases where
performance did not become impossible at all but the commercial object, or purpose
of the contract was frustrated. See Krell v Henry. The doctrine of frustration also
applied to cases where the event which renders the contract incapable of performance
is the cessation or non-existence of an express condition or state of things, going to
the root of the contract, and essential to its performance.

4. In Krell’s case, the defendant would have suffered unacceptance hardship if he had
been held to the contract in the altered circumstances. But the courts have refused to
extend the doctrine beyond this point, for to do so might enable a party to claim relief
merely because circumstances had changed so as to turn the contract into a very bad
bargain. Also, events which temporarily prevented one of the parties from putting the
subject-matter to its intended use were not sufficiently serious to frustrate the
contract.

5. The doctrine of frustration seems to have been narrowing. The tendency of

businessmen to draft out possible causes of frustration by making their own express
provisions for obstacles to performance. Performance merely became more onerous
for the party alleging frustration does not invoke frustration.

Application
Impossibility
Destruction of a particular thing
1. An agreement for the sale of specific goods is similarly avoided if, without the fault of
either party, the goods perish before the risk has passed to the buyer. Destruction
needs not amount to total annihilation.
 2. Taylor v Caldwell shows that a contract may be frustrated by the destruction of only
part of the subject-matter. Partial destruction which does not defeat the main purpose
of the contract will not frustrate it, though it may provide one party with an excuse for
not performing in full or give the other party the option to terminate.

3. A contract may be frustrated where what is destroyed is not its subject-matter but
something essential for its performance. For example, a contract to install machinery
in a particular factory can be frustrated by the destruction of the factory, even though
its subject-matter is the machinery. The question whether something is essential
depends on the terms of the contract.

4. Even the destruction of the subject-matter of the contract will not necessarily frustrate
it. In certain types of contract, it will instead be governed by rules which determine
when the risk of loss passes from one party to the other. When these rules apply, the
contract will not be frustrated by the destruction of the subject-matter, though it may
be frustrated by other events such as delay or illegality.

5. Risk in sale of goods: Under a contract for the sale of goods, the general rule is that
risk passes with property (unless otherwise agreed). If the goods are destroyed after
the risk has passed, the contract is not frustrated. On the contrary, the statement that
the risk has passed means that the buyer must still pay the price, while the seller is
discharged from all his obligations. The seller is not necessarily discharged from all
his obligations. He may have expressly or impliedly undertaken to transfer the benefit
of insurance on the goods to the buyer, and this obligation would survive their
destruction. If goods are destroyed before the risk has passed, the contract is frustrated
if the goods are specific, or if they are to be taken from a particular source and all the
goods from that source are destroyed. If, on the other hand, the sale is of
unascertained goods by description, the contract is not frustrated merely because the
particular goods which the seller intended to supply under the contract were destroyed
before the risk had passed.

6. Risk in building contracts: Under a building contract, the risk of the work is on the
builder until the agreed work is completed. Thus a contract to build a house or a
factory would not be frustrated by destruction of the building before completion. On
the other hand, where a builder agrees to do work on an existing building (install a
machinery in a factory). If, before the work is finished, the factory is destroyed, the
contract is frustrated. But if on the only the machinery is destroyed there is no
frustration and the builder will remain bound to complete the installation without
extra charge.

Death or incapacity
1. Certain personal contracts of employment, or apprenticeship are discharged by the
death of either party. The same rules apply where a party is permanently incapacitated
from performing such a contract. Thus a contract to write a book is frustrated by the
supervening insanity of the author. A contract may likewise be frustrated where it is
the capacity of a party to receive performance that is affected by the supervening
event, e.g. where a person who had booked a course of dancing lessons was so
seriously injured that he could no longer dance. A contract can also be frustrated by
the death of a third party, e.g. contract between A and B to paint a portrait of C could
be frustrated if C died before work on the portrait had begun.
Unavailability
1. A contract may be frustrated if its subject-matter, or a thing or person essential for the
purpose of its performance, though not ceasing to exist or suffering permanent
incapacity, becomes unavailable for that purpose.

2. A person or thing essential for performance may, as a result of the supervening event,
be unavailable at the time fixed for performance, but become available later. Such
temporary unavailability will most obviously frustrate the contract where it is clear
from the terms or nature of the contract that it was to be performed only at, or within
the specified time, and that time of performance was of the essence of the contract.
Thus a contract to play in a concert on a particular day is frustrated by the performer’s
illness on that day. The contract may also be frustrated due to this issue even no fixed
date is expressly specified. In such a cases, it depends on the length of the delay in
performance.

Method of performance impossible

1. A contract may be discharged if it provides for a method of performance which
becomes impossible.

2. And the difference between the stipulated method and the new method should be
fundamental. The two methods in Tsakiroglou’s case are not fundamental enough to
frustrate the contract.
3. In one case the contract was not frustrated even though the voyage actually
accomplished was twice as long as the that originally contracted for and in another
added nearly a third to the shipowner’s anticipated costs.

Impossibility and impracticability

1. See Taylor v Caldwell case. If the court change from impossible to impracticable, it
seems the doctrine of frustration is widened as impracticability includes extreme and
unreasonable difficulty, expense, injury or loss. And the weight of English authority
rejected this view. If has been said in the house of lord that “the argument that a man
can be excused from performance of his contract when it becomes commercially
impossible seems to me a dangerous contention which ought not to be admitted unless
the parties have plainly contracted to that effect.

2. A number of English cases illustrate that impracticability is not generally sufficient to

frustrate a contract. See Davis’s case. In Suez cases, the court said that an increase of
expense is not a ground of frustration.

Possible exceptions
Impracticability combined with impossibility or illegality:
1. For cases which performance may be long delayed due to the wartime restrictions,
and it was held that performance need not be resumed in the totally altered conditions
which prevailed when those restrictions were removed, it could be said that
performance at the later time was impracticable, but that is only one of the factors, the
other being that the wartime conditions made performance actually impossible.
 2. Where a supervening change in the law makes it illegal to perform a contract to
render a service unless additional safety precautions are taken by the party who is to
render it. The extra expense to be incurred by that party in taking those precautions
may then be regarded as a kind of impracticability, leading to the discharge.

3. In other words, commercial impracticability alone not sufficient to frustrate the

contract.

Express contractual provision

1. There are cases in which contracts were discharged, not under the doctrine of
frustration, but under express contractual provisions which excuse one party, if a
specified event prevents performance.
2. This clause does not protect a party where he can perform in alternative ways and
only one of them becomes impossible. This rule is subject to an exception which
applies where it would be unreasonable to require the seller to perform in this way as
it may be impracticable and commercially unsuitable. This approach may be invoked
when it falls short of the requirement of frustration. 係 frustration 既定義，單靠
improbability 不能 frustrate contract，但若有 clause， improbability 可以 discharge contract.

Frustration of purpose
1. Frustration of purpose is, in a sense, the converse of impracticability. Impracticability
is normally said to arise when a supplier of goods alleges that supervening events
have made performance much more burdensome that he should no longer be bound to
perform it. However, frustration of purpose often arises where the recipient of the
goods. It is that supervening events have so greatly reduced the value to him of the
other party’s performance that he should no longer be bound to accept it and to pay
the agreed price.

2. See Krell and Herne. Even though the case of Krell can be justified on the grounds of
above, the case has scarcely been followed in English. Normally, a contract is not
frustrated merely because supervening events have prevented one party from putting
the subject-matter to the use intended by him, even though that use was also
contemplated by the other.

3. In Amalgamated Investment & Property, it was held that a contract for the purpose of
property for redevelopment was not frustrated when the buildings on the land were
listed as being of special architectural or historic interest, so that redevelopment
became more difficult or impossible and the property lost most of its value. This case
shows that frustration of purpose is difficult to establish.

4. However, in cases where premises were leased as a warehouse and supervening

events made their use as such impossible for the whole period of the lease, it seems
that the contract might be frustrated. The rule is the contract would be discharged,
even though performance had not become impossible, because the supervening event
had destroyed some basic, though tacit assumption on which the parties had
contracted.

Illegality
 1. A contract may be discharged by a supervening prohibition if the prohibition
would have made the contract illegal, had it been in force when the contract was
made.

2. Trading with the enemy: even though performance may be possible, in light of
public interest, the contract is mostly frustrated. See Fibrosa case.

3. Other prohibitions: a contract for the sale of timber was frustrated by a wartime
prohibition against dealing in goods of the contract description. Contracts can also
be frustrated by prohibition of export or import, or by restrictions on the
movement of capital. Such prohibitions will not frustrate the contract if they can
be overcome by a license. In these cases, the contract can be frustrated if it
provides that the goods are to be exported. Also, frustration can be excluded by
express contractual provisions.

4. If the length of time of illegality is short enough, the contract may not be
frustrated and the parties will simply have to wait out the period of time before
continuing the contractual obligations. for example, in the case of National
Carriers Ltd v Panalpina Ltd, there was a contract which allowed access to a
warehouse for ten years, and the council banned access to the warehouse for only
twenty months. In light of the ten-year term, the twenty months was not a
significant period of time to amount to illegality.

5. The famous academic, chitty, has suggested that in order for a delay to frustrate a
contract, the delay must be so abnormal, so that it falls outside what the parties
could reasonably contemplate at the time of contracting. The “Sea Angel” case
also suggested that the court may look at 3 factors: 1.how did the delay arises. 2.
Was the delay forseeable. 3.how does the contract distribute the risk in other
similar circumstances.

Limitation
Self-induced frustration
1. Event brought about by one party’s conduct: The doctrine of frustration obviously
does not protect a party whose own breach of contract actually is the frustrating event,
nor does it protect him if the breach is only one of the factors leading to frustration.

2. Deliberate acts not amounting to a breach: where the allegedly frustrating event
results from one party’s deliberate act, that party cannot rely on it as a ground of
frustration, even though the act is not in itself a breach of the contract, but the other
party may be able to rely on it for this purpose. For example, when an employee has
been imprisoned for a criminal offence, the employer can rely on this circumstance as
a ground of frustration. In contrast, if an employee sets up the imprisonment as a
ground of frustration, in an action against the employer would fail, on the ground that
Wthe employee could not rely on self-induced frustration.

No frustration as a consequence of negligence

1. Lord Simon has put the case of a prima donna who failed to perform a contract
because she had lost her voice through carelessly catching cold. He seemed to incline
 the view that she could rely on frustration so long as the incapacity was not
deliberately induced in order to get out of the engagement.

2. The plea should have failed in Taylor v Caldwell if the fire had been due to the
negligence of the defendants, for in such a case it would be unjust to make the other
party to bear the loss. The scope of negligence also includes “ an event which the
party relying on it had means and opportunity to prevent but nevertheless caused or
permitted to come about.

Express provision: the contract is not frustrated where the parties have made express
provision for the occurrence of the alleged frustrating event in the contract. but if the
frustrating event is illegal, the provision cannot exclude the doctrine. The court uses a strict
approach in interpreting the express words.

Forseen and forseeable event: given that a frustrating event is a supervening, unforeseen
event, the doctrine ought logically not to apply to an event which is within the contemplation
of the parties at the time the contract is concluded.

Effects of frustration
In general
1. Contract automatically terminated at the time of frustrating event: the court may
hold that the contract was frustrated even though the parties for some time after the
event went on behaving as if the contract still existed. The views are that the parties
beliefs are not determinative, but nor are they irrelevant.

2. No requirement of election: as frustration operates automatically, it is generally

thought to terminate the contract without any election by either party. In this respect it
differs from breach, which enables the victim to choose whether to treat the contract
as discharged. If follows that frustration can be invoked by either party, and not only
by the party likely to be adversely affected by the frustrating event. An example is
that a ship under charter is requisitioned so that the charter does not receive the
promised performance. Frustration may be claimed by the shipowner as the
compensation paid by the government may exceeds the service charge. The court is
reluctant to allow the doctrine of frustration to be used in this way. Thus the rejection
of the plea of frustration in the Tamplin case has been explained precisely on the
ground that the house of lords saw no good reason why the shipowner should be
allowed to make a profit of the kind just described. There is a view that frustration can
only be used by the person who is prejudiced by the supervening event. The exception
is in the cases related to self-induced, the party inducing the event cannot invoke
frustration, but the other party can.

Problems of adjustment
1. The common law starts with the principle that frustration discharges the parties only
from the duties of future performance. It sometimes cases hardship and has been
mitigated both by common law developments and by statute.

Rights accrued before frustration

1. Common law: the rule that rights which had accrued before frustration remain
enforceable can be illustrated by supposing that in Taylor v Caldwell the fire had
occurred after the first, but before the second, of the four specified days. The rest of
 the contract would then have been discharged, while each party would have remained
liable for any failure to perform obligations which had fallen due on the first day. But
the application of this principle could lead to injustice where one party’s performance
under the contract had become due before the frustrating event while that of the other
was only to be rendered thereafter. 一方的 duty 在 frustration 前完，另一方面卻在 frustration 後，
但後者卻可以 discharge duty，前者不可以。

2. Defects in the common law: the solution was defective in two ways. First, it applied
only where the consideration had wholly failed. Second, to allow the payor to recover
back the whole of his advance payment might in turn cause injustice to the payee,
who might use the advance payment to finance the initial stages of the contract.

3. To remedy the defects just described, the law reform act lays down 3 rules.
1. All sums payable under the contract before the time of discharge cease to be payable
on frustration.

2. All sums actually paid in pursuance of the contract before the time of discharge are
recoverable from the payee as money received by him to the use of the payor. As it does
not refer to total failure of consideration, this statutory right to recover back money
arises even where the failure is only partial.

3. if the party to whom sums were paid or payable in pursuance of the contract has
before the time of discharge incurred expenses in or for the purpose of the performance
of the contract, the court may allow him to retain or recover the whole or any party of the
sums so paid or payable; but the court cannot allow him to retain or recover more than
the actual amount of his expenses. The burden of proof is on the payee. This applies only
if the contract contains a stipulation for pre-payment: a party who incurs expenses
without asking for a pre-payment, or who incurs greater expenses than the amount of the
pre-payment, does so at his own risk. Whether or not the court award is subject to two
upper limits: the award must not exceed either the amount of expenses incurred, or the
amount of the stipulated prepayment.

In exercising its discretion under s.1(2), the court can also take account of the fact that
expenses have been incurred by the payor.

Rights not yet accrued

1. Common law: rights not yet accrued at the time of frustration are unenforceable. If a
builder agrees to build a house for 100000 payable on completion he cannot recover
100000 if the contract is frustrated before completion. This rule is perfectly
reasonable it would be unjust to make the building-owner pay the full price for an
unfinished house. But further, at common law the builder could not recover anything
at all for partial performance before frustration.

2. Where any party to the contract has, by reason of anything done by any other party
thereto in, or for the purpose of, the performance of the contract, obtained a valuable
benefit before the time of discharge, there shall be recoverable from him by the said
other party such sum, not exceeding the value of the said benefit to the party
obtaining it, as the court considers just, having regard to all the circumstances of the
case. And in particular to (a) the amount of any expenses incurred by the benefited
 party before the time of discharge. (b) the effect, in relation to the said benefit, of the
circumstances giving rise to the frustration of the contract.

3. Definition of valuable benefit (other than a payment of money which is governed

by s.1(2): it follows from the definition of valuable benefit as an end product that
s.1(3) will not apply merely because the claimant has incurred trouble and expense for
the purpose of the performance of the contract. In the case of a contract to paint a
house, there would be a benefit if the contract was frustrated by illegality after half the
work had been done. In such cases the improvement to the defendant’s property can
be said to be an end product. However, for contract regarding hire of a chattel, such a
contract is not intended to leave any end product in the hands of the hirer, who can
nevertheless be said to have benefit4ed if he has had the use of the chattel for part of
the agreed period before the contract is frustrated. It would be unfortunate if s.1(3)
were held to be inapplicable in such a case merely because of the definition of
valuable benefit adopted in the different context of BP’s case.

4. Destruction of the benefit: in a case where the subject-matter is destroyed by a fire,

there is no end product. It would be unfair if this Act cannot apply to these cases.
Another interpretation of valuable benefit is that it will apply where the valuable
benefit has been obtained before the time of discharge: thus the court may look at the
situation before the fire. Secondly, there is the structure of the subsection, this begins
by setting out the circumstances in which the court has power to make an award and
then provide guildlines for the exercise of that power. The guildlines contained in
s.1(3)b is that such sum as the court thinks just having regard to…