Irish Contract Law - In the post-1922 period, Irish legislation in the area of contract has not been particularly noteworthy. In particular, Ireland has not legislated in the area of mistake or frustration. The answers to the questions presented to us b

“It is not hardship or inconvenience or a material loss itself which calls the principles of frustration into play. There must have been such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.”

In Neville and Sons Ltd v Guardian Builders Ltd the Irish Supreme Court held that the mere fact that a contract was more onerous to perform than was originally contemplated did not mean it was frustrated.  Blayney J approved the following statement of Lord Simon in National Carriers Ltd v Panalpina (Northern) Ltd:

“Frustration of a contract takes places when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and / or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.”

In England, there have been a series of decisions supporting this proposition. In Tsakiroglou v Noblee and Thorl the cost to the seller of performing a contract of sale was dramatically increased by the closure of the Suez Canal, and yet the contract was not frustrated. In Brauer and Co Ltd v James Clark (Brush Materials) Ltd the expenses of a seller of goods were increased by the unforeseen cost of obtaining an export licence and yet the contract was not discharged. Lord Denning stated:

“[A]ny person who sells goods forward must be ready himself to bear any increase in the market price. It would be a strange thing if a seller could insist on the contract if the price fell, and could escape his own obligations if it rose. It would do away with the whole point of forward contracts altogether.” 

In Blockow Vaughan and Co v Compania Minera de Sierra Minera the defendant, who had contracted to sell iron ore to the plaintiff, was not discharged when his costs were greatly increased by an unforeseen increase in the cost of freight. Swinfen Eady LJ in the Court of Appeal stated:

“A mere rise in the price of a commodity to be supplied, or in the rate of freight, [is] not alone a sufficient excuse for non delivery. A person [is] not entitled to be excused from the performance of a contract merely because it had become more costly to perform it.”

Similarly, an increase in the cost of supplying goods caused by an unforeseen reduction in supply and/or rise in the price of goods will not discharge a seller. In one case, the defendants had agreed to sell wheat to the plaintiffs. The subsequent actions of the Argentinean government meant the sellers could only perform the contract by buying wheat at a much higher price than that for which they had contracted to resell it. However, they were still not discharged from their contractual obligations. In S Instone &  Co Ltd v Speeding Marshall & Co Ltd an agreement to sell coal was not discharged when, because of war, the price of coal was increased by 88%.  In Greenway Brothers Ltd v SF Jones and Co the defendant, who had contracted to sell spelter, was not excused even though, owing to the outbreak of war, the defendant could only get the spelter at an “abnormal price.” In Tennants (Lancashire) ltd v CS Wilson and Co Ltd the defendants had entered an agreement to supply magnesium chloride to the plaintiffs. The outbreak of war in 1914 caused a shortage in supply and hence a rise in prices. A clause in the contract provided that deliveries could be suspended pending any contingencies “beyond the control of the sellers or buyers . . . causing a short supply of labour, fuel, raw material, or manufactured produce, or otherwise preventing or hindering the manufacture or delivery of the article.” It was held that the shortage in the supply of magnesium chloride justified the suspension of performance, but that on its own, a rise in price “even if very great” would not constitute a hindrance to delivery within the meaning of the condition. It is also clear that such a rise in price would not frustrate the contract. Earl Loreburn stated:

“I cannot regard shortage of cash or inability to buy at a remunerative price as a contingency beyond the sellers’ control. 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.”

Cases from other common law jurisdictions also indicate that A will not be able to consider himself discharged from the contract purely because of increased costs and expenses. The New Zealand decision of Waiwera Cooperative Dairy Co v Wright Stepheson and Co is directly in point. Here, a contract for the sale of cheese was not terminated even when the seller’s expenses were greatly increased by an extra tax placed on butter fat, one of the constituents of cheese.

However, it should be noted that it has been suggested that an increase in costs may be so onerous as to discharge a party from his contractual obligations. It was thus suggested by the English Court of Appeal in Brauer and Co Ltd v James Clark (Brush Materials) Ltd that if the cost to the seller of obtaining an export licence was “a hundred times as much as the contract price” then it would be possible that the seller would be discharged.  There is also some fairly weak English authority for the proposition that an alteration of the law putting a burden on one of two contracting parties, in the course of carrying out his contract, entitles that party to repudiate the contract if the alteration is made by Parliament ad hoc: Levenshulme UDC v Manchester Corporation. However, it is unlikely that this would be applied in the context of a general tax being properly applied to all sellers of industrial alcohol.

(ii) Can A claim compensation for additional costs?

Any attempt by A to claim compensation for his additional costs will involve a judicial variation of the terms of the contract. However, Irish Courts do not have the power to vary contracts in this way. If a document does not reflect the agreement that was actually struck, then the Courts may rectify the document, but the Courts do not have a general power to “rectify” the terms of the agreement itself. In Irish Life Assurance Co Ltd v Dublin Land Securities Ltd Griffin J in the Irish Supreme Court stated:

“Rectification is concerned with defects in the recording, not in the making, of an agreement . . . As a general rule, the courts only rectify an agreement in writing where there has been mutual mistake – i.e. where it fails to record the intention of both parties.”

Similarly, in British Movietonews Ltd v London and District Cinemas Ltd the House of Lords made clear that the court has no discretion to qualify the contract for the purpose of doing what seems to it to be just and reasonable.

A may be able to renegotiate the contract with B so as to cover his increased costs, but B will not be obliged to enter into such negotiations or form a new contract. Furthermore, any new agreement will have to be supported by a fresh consideration.  If no new agreement is reached and the contract is not discharged, A will simply have to perform or pay damages for breach of contract.

E. Hulton and Co Ltd v Chadwick and Taylor provides a good example of an agreement being renegotiated in light of an unforeseen change of circumstances.  The defendants agreed in 1913 to supply the plaintiffs with paper. When war broke out in 1914, it cost the defendants more to supply the paper. The defendants refused to supply paper except at increased prices, which as a result of a compromise the plaintiffs agreed to pay. It was held that this new agreement was binding as it was supported by fresh consideration. However, it was clear that the defendant would have been in breach of contract if the new agreement had not been reached. The fact that the seller’s costs had increased would have been irrelevant.

4. (Unexpected benefit) 
   

It is highly unlikely that A will be able to either adjust the lease or terminate the agreement.

The agreement between A and B is a commercial venture, which happens to have turned out better for B than the parties could have expected. However, this on its own is unlikely to persuade the Courts that the agreement should be adjusted or terminated.

The Irish Courts have shown a reluctance to help parties who simply make a bad bargain, even where the fact that they entered into a bad bargain is only subsequently realised.  In Fitzsimons v O’Hanlon the plaintiffs accepted a sum of money in settlement of a claim to an inheritance. It was subsequently discovered that the deceased had actually left behind more money than was originally thought. The plaintiffs’ attempt to rectify their agreement to increase their share in the inheritance failed. The High Court viewed the issues in terms of the doctrine of mistake but it was clear it would not interfere with a contract in order to simply increase the benefit to the plaintiffs. Budd J stressed that “it is in the interest of commercial convenience that, in general, apparent contracts should be enforced.”

Furthermore, in relation to leases, one of the strongest arguments against a finding that a lease may be frustrated when the lessee can obtain no benefit from the lease is that the lessee would have been able to take advantage of any profits or benefits resulting from the lease. In other words, the lessee takes the risk that the lease will not be profitable in the hope that it will be so profitable. For example, in Paradine v Jane it was stated:

“[A]s the lessee is to have the advantage of casual profits, so he must run the hazard of casual losses, and not lay the whole [burden] of them upon his  lessor… that though the land be surrounded or gained by the sea, or made barren by wildfire, yet the lessor shall have his whole rent.”

The fact that the lessee can take advantage of any profits resulting from the lease has never been seriously questioned.

 

A may be able to adjust the rent owed by B if the lease contains a rent review clause. A lessor in a similar situation to A protected himself with a rent review clause in the New Zealand case of Maori Trustee v Prentice. The lessee had entered into a long lease, with the rent to be reviewed after 16 years. Within that time, certain unpredicted events occurred, such as the development of certain forestry interests nearby, which substantially increased the valuation of the premises. Rent was thus increased from $1,000 a year to $15,690 a year! The lessee’s farming operation could not run with this extra expense, and the lessee vacated the property. The lessee argued that the rental increase was so great as to frustrate the lease. Williams J in the High Court accepted that the doctrine of frustration may apply to leases. However, he noted that in order for the doctrine to apply, “there needs to be some wholly extraordinary and unforeseen event which in effect destroys the whole basis of the contract.” Here, the lessee had embarked on a commercial venture, and had taken on the lease knowing that it contained a rent review clause, thus accepting the risk of a high increase in rental. Hence he could not claim that the lease had been frustrated by the increase in rent. Thus, if A and B had included a rent review clause in their agreement, this would reflect the new value of the lease and it is unlikely that B would be able to claim that the lease was frustrated as a result of the increased rent.

However, it is also clear from the judgment in Maori Trustee v Prentice that if there had been no rent review clause then the lessor could not have terminated the lease simply because the lease was worth a lot more than he was receiving for it. In fact, it appears that for much of the initial 16 years of the lease (i.e. the period before the rent review clause took effect) the rent paid by the lessee was “unduly low” but there was no question of the lessor being able to terminate the lease because of this.

In short, in the context of a commercial venture such as this the lessor will be said to have taken the risk of the value of the land increasing, in the same way as the lessee is said to take the risk of the value of land falling.

One final possibility open to A is to argue that there is an implied term in the lease providing that the lease could be terminated on the giving of reasonable notice. This would be subject to the earlier remarks on reasonable notice. (See q.1)

5. (Renovation of cellar becomes useless due to destruction of the rest of the building)

A has agreed to refurbish B’s cellar into a wine cellar.  This is a construction contract or a contract for services.  The formation and performance of a contract of this kind are governed exclusively by reference to common law principles.  Contracts for services, under Irish statute law, require the supplier of a service to meet certain implied statutory terms as to the service providers’ ability to perform the service, but on these facts these statutory provisions are not relevant.

The general doctrine of frustration of contract is raised by the facts of this case.  Irish law has endorsed the implied contract theory, laid down by Blackburn J. in Taylor v. Caldwell 

        “when from the nature of the contract it appears that 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 continues to exist, so that when entering into the contract they must have contemplated such continued existence, as the foundation of what was to be done, then, in the absence of any express or implied warranty, that the thing shall exist, the contract is to be considered a positive contract but subject to the implied condition that the parties shall be excused, in case, before breach, performance becomes impossible from the perishing of the thing without the default of the contractor”.

This implied term theory was endorsed by O’Connor MR in Cummings v. Stewart (No. 2).  Here, lapse of patent rights held by the plaintiff discharged the defendant, an exclusive licensee, from obligations to pay royalties to the plaintiff.  However, recent Irish judges have followed the trend towards finding that the basis of frustration depends upon “an objective test based upon the construction of the contract”: per  Murphy J. in Neville & Sons v. Guardian Builders Ltd.

The issue is whether the heavy summer storm, which has destroyed B’s house but, miraculously perhaps, has left the cellar undamaged, is “a frustrating event”.  Even under implied contract theory cases such as Taylor v. Caldwell would regard this event as discharging the contract as between A and B.  The storm would be regarded as destroying an essential element in the contract, namely the building that the wine cellar was intended to be a constituent part thereof.  Under the construction of the contract theory a court would regard the intention of the parties as envisaging that the cellar conversion would allow B to enjoy his/her domestic life all the more.  If B has no home then “the obligation undertaken [by A] would, if performed, be a different thing from that contracted for.  Nor would a heavy summer storm, of such magnitude and consequences, be an event that the parties could have expected.  In my view, even under the narrowest possible theoretical perspective the service contract between A and B is discharged by he storm and its consequences.

Apart from the common law approach, there may be some Irish statutory provision of relevance.  If B occupies the house under a lease then the Landlord and Tenant (Amendment) Act 1860 provides that, in the absence of express covenants to repair leasehold property a tenant may surrender his tenancy if the premises are destroyed or rendered uninhabitable by fire or some other inevitable accident.  This would raise two interesting problems; would the termination of the tenancy frustrate the cellar conversion contract because B would have no legal interest in the property?   Alternatively, would B’s election to terminate prevent the contract from being frustrated because B’s election would be the proximate cause – a classical case of self-induced frustration.

The consequences of frustration must now be considered.  The common law doctrine of frustration is prospective in its effects; rights that have already fallen due at the time of discharge of the contract cannot be avoided in the name of frustration: see Herman v. SS Vicia.  Section 40 of the 1860 legislation, noted above illustrates this point.  Surrender of the lease under section 40 discharges the tenant of all future obligations.  So, in the example of A and B’s contract, if B, prior to the frustrating event, was liable to have paid A any part of the contract price, that portion, or instalment, would still be payable according to the accrued rights theory and the line of case-law that is marked by Chandler v. Webster, an English “Coronation” case.  While the later Fibrosa case in England suggests that Chandler v. Webster is not good law, no Irish court has ruled on this point, if, in the hypothetical, B was liable to pay any part of the contract price prior to the destruction of the house and there is no Irish counterpart to the UK 1943 Act.  In any event, the fact that B has commenced performance by purchasing materials is not relevant.  It has no obligation to compensate B for wasted expenditure if there has been a total failure of consideration, that is, A has not enjoyed any element of beneficial performance under the terms of the contract.

In conclusion, the contract is frustrated by virtue of the destruction of the dwelling.  The construction contract was dependent, for its existence, upon the continued presence of B’s house.  B does not have to compensate A for wasted expenditure on materials and the only prospect that A may have in obtaining some element of the purchase price turns upon whether B was liable to pay all or any part of the price prior to destruction of the house.

6. (Government Intervention makes use of rented gas station impossible)

In Ireland, section 40 of The Landlord and Tenant Amendment (Ireland) Act 1860, generally known as “Deasy’s Act,” gives a tenant the right to surrender the tenancy if the subject matter of the lease is destroyed or if it is incapable of beneficial occupation “by accidental fire or other inevitable accident.” However, it is clear that this does not apply in this situation, and so we must turn to the common law doctrine of frustration as applied to leases.

In 1943 in Groome v Fodhla Printing Co Black J in the Irish Supreme Court adopted the traditional common law approach of doubting whether the doctrine of frustration could be applied to leases. However, this was before the decision in National Carriers Ltd v Panalpina (Northern) Ltd in which the House of Lords accepted the possibility that a lease could be frustrated. In Neville & Sons Ltd v Guardian Builders Ltd Blayney J in the Supreme Court approved significant dicta from National Carriers Ltd v Panalpina (Northern) Ltd and it is thus highly unlikely that there is an absolute ban on the application of the doctrine of frustration to lease.  

However, there does not yet appear to have been either an English or Irish case where a lease has been terminated by the common law doctrine of frustration.

It is probable that in a case where “some vast convulsion of nature swallowed up the property altogether . . .” or where it is lost due to coastal erosion, or where there is total destruction of an upper floor flat by fire or earthquake that a court would find the lease had been frustrated. There is some indication from other jurisdictions that a lease may be frustrated in circumstances less serious than this. However, here the land and premises remain fully intact, and A can merely claim frustration of purpose. The chances of successfully claiming frustration of the purpose of a lease are small.

A may be able to claim that the lease is frustrated if it can be proved that it is the common purpose of both parties that is frustrated. It will however be difficult to prove this unless an express term of the lease restricts the use of the premises to a particular purpose. For example, in Cricklewood Properties Viscount Simon LC in the House of Lords suggested that if a lease is expressed to be for the purpose of building, or the like, and legislation is passed prohibiting building on the land, then the lease might be frustrated. 

A series of United States cases provide the classic example of a lease being frustrated because the purpose of the lease, as expressly stated in the lease, can no longer be carried out. These cases involved the lease of a liquor saloon, where the lease expressly restricted the use of the premises to the business of selling liquor. When prohibition rendered this use illegal, lessees of saloons claimed that they were no longer under an obligation to pay rent, and that their leases had terminated, because of subsequent illegality and/or frustration of purpose. Whether such a claim would succeed generally depended on the construction of the lease, in particular on whether the lessee was completely restricted in his use of the premises or whether there was an alternative use for the premises. For example, in Industrial Development and Land Co v Goldschmidt the lease of a premises provided that the lessee was to “use and occupy the said premises for the purpose of conducting thereon a general winery and/or wholesale and/or retail liquor business.” The tenant further covenanted that he “would not suffer or permit the said premises to be used for any other purpose.” When prohibition rendered the sale of alcohol illegal and impossible the lease was discharged and the lessee was relieved from the payment of rent. In Doherty v Monroe Eckstein Brewing Co the lease provided that “the only business to be carried on in the said premises is the saloon business” and again prohibition was held to discharge the lease. The fact that the lessee could still carry on subsidiary activities was held to be irrelevant. The principle purpose of the lease had been frustrated and this was enough. However, even these cases had their limits: if only one of several uses became impossible or if the lease merely became unprofitable for the lessee the lease was not frustrated.

Other jurisdictions have not been so understanding of the lessee’s predicament. In Vancouver Breweries v Dana the Supreme Court of Canada refused to find that the loss of a liquor licence for a leased premises put an end to the lease or relieved the lessee from liability for rent. In Corby v McCarthy the New Zealand Court of Appeal held that a tenant was not discharged from his liability to pay the balance of a premium under a lease of a licensed hotel premises when the licence was lost. This was despite the fact that the lease contained covenants to carry on the premises as a licensed premises, and not to use them, or allow them to be used for any other purpose. In the English case of Grimsdick v Sweetman, the obligation to pay rent for the lease of a beerhouse continued even when the licence to sell alcohol was subsequently revoked by an Act of Parliament. This was despite the fact that the tenant had expressly covenanted to “continue the said premises as a beerhouse.” However, it should be noted that the lessee had been paid compensation for the loss of the licence, and the premises could still be used to some extent as a bakery and living quarters. Furthermore, it does not appear that the tenant was held liable for breach of his covenant..

Finally, whether or not the lease is frustrated may depend on the duration of the lease. In a situation where the lease is long term the likelihood of frustration is greatly reduced. Any interruption in the lessee’s enjoyment of the land is more likely to be temporary and not sufficiently serious to warrant discharge. More generally, a long- term lease will be considered similar to a purchase of land, and it will generally be implied that the lessee took the risk of changes in circumstances affecting the lease. This is illustrated by the House of Lords decision in National Carriers v Panalpina. Here, a warehouse was demised to the defendants for a period of 10 years from January 1974. The only access to the warehouse was by a street which was closed in May 1979, for a likely period of 20 months. In an action by the plaintiffs for recovery of unpaid rent, the defendants claimed that the lease had been frustrated by the closure of the street, which had rendered the warehouse useless for their purposes. It was held that although the doctrine of frustration was in principle applicable to leases, in the present case, given the likely duration of the interruption in contrast to the length of the lease itself, the lease was not frustrated

In conclusion, the chances of A being discharged from the lease are increased if (a) there is an express term in the lease stating that the lease is for the purpose of selling petrol and (b) A’s inability to sell petrol lasts for a significant duration in the context of the lease as a whole. However, it must be remembered that even then A will have to counter the argument that he took the commercial risk that the lease would turn out to be unprofitable. The fact that no provision was made for a rent review clause, for example, may indicate that A took such a risk.

7. (Hotel reservation: individual purpose of the visit frustrated: general safety endangered; coronation case)

As this situation involves the question of the binding nature of a short term obligation which can be performed but which will not result in one contracting party securing a benefit which was central to the making of the contract, for reasons that the other contracting party may not have been aware of, it is difficult to see the justice behind permitting A to cancel the reservation in all but one of the four situations presented.

In situation (a) above, cancellation of the exhibition at the last moment does not appear to provide A with any basis for cancelling the reservation and the same is true of situations (b) and (c).  Contractual mistake only applies to mistakes that were in existence at the formation of the contract.  Absent an express stipulation by A giving A a cancellation right, no basis for an implied cancellation right would appear to exist.

Situation (d) however, as a classical “coronation” case raises a strong likelihood that the contract would be frustrated by the cancellation of the coronation procession.  The real issue is whether cancellation renders all unperformed obligations at an end.  There is no clear Irish authority on this point.  If A was only to pay the hotel tariff upon registration or departure then A is absolved of any contractual obligations of any kind.  However, if A was required to pay a deposit, or A reserved the room from an agency that has debited A’s credit card and the cancellation occurred after the charge was imposed, case-law such as Chandler v Webster suggests that A cannot secure a refund of the amounts in question.  An alternative body of judicial decision would allow A to argue for restitution on the basis that A has received no benefit from B Hotel and that restitution is available for a total failure of consideration: Fibrosa.

No Irish court has had occasion to rule on the approach to be taken and there is no statutory equivalent to the English Law Reform (Frustrated) Contracts Act 1943.

8. (Shop rental: unexpected business environment in shopping centre)
   
   This is an interesting hypothetical situation but in practice it is likely that a decision in favour of B will revolve around the absence of any express undertakings while a decision in favour of A may be made on the basis of the as yet embryonic notion of legitimate expectation and/or the doctrine of implied terms.
   
   In this situation A has two possible ways of forcing B to either renegotiate or cancel the contract.  The first route is afforded by the law of misrepresentation.  While B may not have made any express representations about the “mixed” nature of the tenants that are expected to take up accommodation in the shopping centre, any preliminary statements that would induce a reasonable person to believe that the shopping centre would have a specific tenancy profile would be actionable as a misrepresentation.  If a misrepresentation has been made then the remedies available to A include a power to rescind the contract.  However, because this contract has been performed, rescission is not available unless it can be shown that B fraudulently inducted A to enter into the contract.  Alternatively, A is entitled to a rent reduction under the remedy of an abatement of price: Conor v Potts and Doolan v Murray and Others.
   
   Should misrepresentation not be established then A would be forced to argue that the lease between A and B was the subject of an implied term.  The argument would proceed along the following lines.  B has granted a leasehold contractual interest to A.  B is aware of the nature of A’s business and A’s needs for a retail clientele during business hours.  These circumstances constrain the way in which B is to grant leases to other users and by failing to take account of A’s requirements.  B is in derogation of this grant.  Another way of putting forward this argument would be to subject the letting, contract to an implied term on the basis of a “business efficacy” test.  B is bound to exercise his rights to let shop units to other prospective tenants with due regard for the commercial expectations of A.  This will not be an easy burden of proof to discharge.
   
9. (Long term supply of beer; beer sales are far below expectation)
   
   Exclusive supply agreements of this kind in the brewery business were at one time very common in Ireland and case-law establishes that these agreements are enforceable at common law and are not the subject of the doctrine of restraint of trade: see Murphy & Co v O’Donovan.
   
   They hypothetical here is not very commercially realistic, but in theory A is bound to continue to take the specified quantity of B-beer unless a court were to accept that A and B entered into the contract under a common mistake.  A common mistake of fact which is such as to make the contract as performed radically different from that which was entered into by the parties can be operative in equity.  Irish law, like English law has a very narrow jurisdiction to hold that a contract is void for a common (or shared) mistake of fact, but unlike English law (in which a very narrow jurisdiction to reform a contract subsists after the Great Peace case) Irish courts will operate a broader equitable jurisdiction.  In O’Neill v Ryan the Irish courts appear to have sanctioned the co-existence of a very narrow doctrine of operative common mistake (rendering the contract void ab initio at common law) with a much broader equitable jurisdiction to set a contract aside.  Because the Great Peace decision was based upon the need to reconcile the House of Lords decision in Bell v Lever Bros with the more liberal equitable line of cases (as a matter of strict precedent) an Irish court, it is submitted, is likely not to follow the reasoning in Great Peace, thus opting for a more flexible approach to the doctrinal issue.  The problem is that Irish law has a limited range of remedies.  The remedy of rectification of the contract is not available here because rectification involves the redrawing of a contract to give effect to the intention of the parties.  The courts cannot redraw the contract for the benefit of the parties in light of new facts.  The most likely remedy would be a declaration that the contract is rescinded by that A could insist upon a new lease minus the B-beer tie.  Authority for this is the unreliable line of equitable English case-law that begins with Solle v Butcher.
   
   Our conclusion is that A could in all probability successfully have the lease declared voidable for common mistake but an adjustment of the lease, as distinct from termination of the agreement, is unlikely to be available.
10. (Export Ban)

It is important here that, although both parties realise that exports to Iraq are illegal, the contract between A and B does not in itself require the exportation of goods to Iraq or involve any element of illegality. Thus, the issue here is one of frustration of purpose rather than illegality.

Certain cases deal with the situation where the buyer of goods intends to export them to a country but that exportation is illegal or seriously restricted. In D McMaster & Co v Cox McEuen & Co the buyer of jute intended to export the jute but was prevented from doing so by a supervening war time restriction on exports. The House of Lords held that the contract was not discharged as the buyer could have disposed of the jute on the home market, albeit at a loss. Similarly, in Congimex SARL (Lisbon) v Continental Grain Export Corp (New York) a buyer who bought soya-bean meal with the intention of importing it into Portugal was not discharged from his contract when the importation was subsequently prohibited.

Firm A faces a similar objection here – it could easily be argued that the equipment could be sold on the home market, or in countries other than Iraq. This latter option was not even open to the buyer in McMaster v McEuen as exports generally were restricted and not just exports to an individual country.

A further difficulty faced by A is the fact that there is in fact no supervening illegality. The parties just expected the law to change and it didn’t. It could not be said that the situation A now finds himself in was not foreseeable. It is likely that the Courts will hold that A should have inserted a clause to protect himself in case the export ban to Iraq was not lifted and cannot now claim that the contract is frustrated.

In the Canadian case of Smale v Van der Weer for example, the parties entered into an agreement for the sale of land in the knowledge that certain planning approval had not yet been given, but expecting such approval to be forthcoming. The contract was not frustrated when the approval was not given. This was not a case of a wholly unexpected event but of a misjudgement by the purchaser. Similarly in Canadian Government Merchant Marine v Canadian Trading Co it was stated in the Canadian Supreme Court: “if the even which causes the impossibility could have been anticipated and guarded against in the contract, the party in default cannot claim relief because it has happened.”

It is likely that a similar result would be reached in Ireland. In McGuill v Aer Lingus and United Airlines Mc William J in the Irish High Court stated:

“If one party anticipated or should have anticipated the possibility of the event which is alleged to cause the frustration and did not incorporate a clause in the contract to deal with it, he should not be permitted to rely on the happening of the event as causing frustration.”

On the facts of this case, only the defendant had anticipated the supervening event, a strike by its employees, but failed to inform the plaintiff of the possibility of a strike in case the other party would refuse to complete the contract. It was held in the High Court that the defendant, in order to obtain the plaintiff’s business, had taken the risk of entering into the contract “without including a provision to safeguard its provision in the event of a strike taking place.”

Here, both A and B knew that exports to Iraq were illegal, and not just one of the parties. However, the failure to insert any provision dealing with a situation where exports continue to be illegal is likely to be fatal to A’s chances of terminating the contract.

11. (Use of real estate by transferee does not comply with the expectations of the transferor)
    

In his situation it is critical to note that at the time of formation of the contact both A and B were of one mind: each believed the property would be dedicated for cultural purposes only, hence the below market value consideration.  However, B, at the date of the formation of the contract, did not misrepresent his intention, nor was he in any way acting with mala fides.  B’s change of heart occurs after the formation of the contract.  In the absence of an express term requiring B to use the property in the way intended, there are only a limited number of concepts that could be utilised by A.  Firstly, is the contract subject to an implied term that the property will be used for the intended cultural purposes that seem to have motivated the parties to enter into the contract?  The juridicial basis for implying a term into a contract for the sale of real property is whether the term is needed to give the contract “business efficacy”.  In other words, if the contract would not function as intended but for the implied term then such a  term may be implied.  The Irish courts apply the test of the hypothetical officious bystander who is used in order to gauge the presumed intention of the parties.  So, applying this test, if the officious bystander were to say to the parties “of course, if the property is not used for the intended cultural purpose can the buyer retain the property”, the reaction of the parties to such a hypothesis, judged at the time of the contract, would be dispositive.  On these facts we think it quite possible that a court could hold the contract to be subject to an implied term:  see Rooney v. Byrne.  There are arguments the other way.  Firstly, an implied term that has the result of making a contract work is to be distinguished from a term which has the effect of destroying or terminating the contract.  See Karim Aga Khan v. Firestone.  Secondly, contracts for the sale of real property and buildings do not normally contain implied terms as to fitness for purpose, so “obvious” implied terms are not always found in contracts of this kind.

If the implied term argument does not succeed, is there any possibility that the law of contractual mistake will apply?  This is very unlikely.  There is no mistake in the terms of the contract.  The bargain may have been struck in circumstances where the parties believed that the result of the contract would be the creation of a cultural centre, but this is an error as to assumptions or consequences and not one as to terms.  The fact that B’s change of mind occurs after the conclusion of the contract further strengthens the view that, at the time of the agreement, there was no operative mistake.

This leads on to a further possibility.  Good faith obligations have been held to arise under Irish law at least in relation to the formation of a contract.  However, good faith obligations in the performance of a contract are much more problematical.  The most likely avenue to explore is that of improvident bargain.  This jurisdiction exists in Irish law as a part of the unconscionable bargain jurisdiction and it is shown that the transaction – whether a contract or a voluntary deed – was so ill advised that no person, properly advised, would enter into it.  In such cases, if the parties are not meeting on equal terms, the courts of equity may infer that the party contracting at undervalue did not understand the transaction.  This jurisdiction is found in a limited range of cases.  There is little to suggest that A and B here do not contract on equal terms and the absence of a clause allowing A to rescind the contract is not evidence of improvidence.  In conclusion, A has no possibility of obtaining the difference between the agreed price and market value.

Any form of relief, in the form of a declaration that the contract is rescinded for breach of a material term would appear to turn upon the implied term argument, but, on balance, we suspect that an Irish court would not find an implied term in order to destroy an apparent contract concluded under a mistake as to the results to be obtained via the contract.

12. (Equitable compensation if divorce laws lack basis for compensation)
    
    The answer to this question will be shortly stated.  Even though in the question it is provided that A is the sole proprietor (which we take to mean that legal ownership is vested in A alone) Irish law will recognise B’s contribution towards the property in two ways.
    
    Firstly, B has contributed part of the purchase price and under Irish law this direct contribution will require A, as the legal owner, to hold the home as a trustee in favour of both A and B.  The proportion of the contribution made will be important in determining the scope of each parties equitable interest.  Secondly, B’s renovation work will also strengthen B’s equitable interest, again this work being regarded as a direct contribution to the home in question.
13. (Common mistake concerning the market value of shares)

The position of A an B in relation to this share purchase agreement presents a problem that would be resolved by reference to the law of mistake.  The solution to the problem will depend on how the court chooses to characterise the mistake.  This mistake is one which is shared by both parties.  Both parties are mistaken about the same matter of fact.  The mistake should be one of fact rather than a matter of law.  If the mistake be one of law, such as the interpretation to be extracted from a statutory tariff in calculating a contract price, older Irish case law holds that the contract is valid as a mistake of law is not operative so as to vitiate the contract: O’Loghlen v. O’Callaghan.  Even if this reasoning is still valid, the mistake in the present case on the share price is a mistake of fact.  If the mistake is operative at common law then the contract is void ab initio.  However, the factual situations that lead a court of common law to declare a contract a nullity because of common mistake are extremely limited and it would be my view that an Irish court, applying the relevant case-law, would be unlikely to find that an error as to the consideration to be paid for the contractual subject matter would not satisfy the test approved in one Irish case:

        “Where the parties contract under a false and fundamental assumption, going to the root of the contract, and which both of them must be taken to have in mind at the time they entered into it, as the basis of their agreement, the contract may be avoided”: per Western Potato Co-operative v. Durnan.  In my view, the error as to the appropriate compensation figure does not have such a quality.  

On the other hand, there is a separate equitable jurisdiction, that has been adopted in Ireland in both nineteenth century and twentieth century case-law that allows equity to set aside a contract on the ground of common mistake.  Again, while this jurisdiction to rescind the contract is broader than that found at common law, it is again our view that the error here is unlikely to provide a basis for rescinding the contract.  There are strong policy considerations that point the other way.  Firstly, neither side to A and B’s bargain appear to have acted improperly;  there was candour and honesty at the formation of the contract.  Secondly, public policy requires that apparent bargain as should be upheld.  Thirdly, is it necessarily more just that A should be able to compel B to pay a higher price than had been agreed as between them, or that A should be able to cancel the contract and thus deprive B or a bargain that had been freely struck as between A and B.

There is one possible alternative route that would yield a different result.  If the court were to hold that the bargain was to fix the consideration at the stock exchange price on a particular day, the internet site could perhaps be said not to reflect the agreed formula.  The error on the site could then be said to be an error in addition or transcription of the written contract and there are cases where rectification has been allowed: Collen Bros. V. Dublin County Council. 

In conclusion however, we feel that the most likely result will be that the contract remains valid and that A can neither insist on a higher price, nor can he rescind the contract.

14. (Production of contractual goods is inhibited by strike/restriction of electricity supply) 

The questions posed revolve around two issues.  Firstly, can a contracting party plead frustration if performance is prevented by a strike of a subcontractors workers.  Secondly, if performance is impeded by diminution in the electricity supply provided by the State, can such an event discharge the contract?  Alternatively, is there a breach of contract, notwithstanding these events, the injured party being able to rescind the contract for the sale of goods and obtain damages for beach?

The firs situation is more easy to answer.  A contract for the sale of goods involves strict liability on the part of the seller.  The basic situation is that the fact that the defendant has not acted carelessly, and that the defendant can put forward a plausible explanation for defective performance is no defence in  a contract action.  This is graphically illustrated by the 1874 case of Leeson v. North British Oil and Candle Company.  The defendants were sued for the non-delivery of a consignment of paraffin that they had agreed to sell to the plaintiffs.  The defendants pleaded that their failure to deliver the paraffin was due to a strike at the premises of their own suppliers.  This was held not to provide a defence to the plaintiff’s claim in damages.  The specific issue of whether a strike can frustrate a service contract was examined by McWilliam J. in McGuill v. Aer Lingus and United Airlines.  McGuill booked a holiday package for a group of persons, the holiday envisaging a flight from Ireland with Aer Lingus and onward internal flights with United.  At the time the flights were booked United employees had served strike notice, and in the event the strike went ahead, disrupting the internal travel arrangements made with the plaintiffs.  It was held that United could not plead frustration of the contract because there was knowledge on the part of United that a strike was foreseeable but United had failed to advise the plaintiff of this risk.  However, McWilliam J. did say

        “I do not accept the argument made on behalf of the plaintiff that a strike by the employees of a party cannot cause frustration of a contract.  In my opinion it depends entirely on the circumstances whether it does nor not”…

The Decision in McGuill really turns upon the fact that the event was known by one party and, absent a specific provision in the contract, such an event should not frustrate a contract.  It will be very difficult to make out a frustration defence.  If was look at the converse situation this becomes clear.  An Irish court has recently held that where an employer hires workers under a fixed term contract, the fact that he employer ceases to get orders for work to be carried out does not entitle the employer to lay off or terminate the contract of these workers.  In giving judgment in this case of Zuphen and Others v. Kelly Technical Services (Ireland) Ltd.  Murphy J. said:

        “It is not hardship or inconvenience or a material loss itself which calls the principles of frustration into play.  There must have been such a change in the significant of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for”.

While the second situation in this question, the interpretation of the supply of electricity would appear to present a similar scenario to that of the strike, it is possible to see this as a supervening event for frustration purposes.  However, if in the situation in question the supplier of the goods is producing a volume of goods an providing these to some of his customers, but is not supplying B because the volume of production is below the anticipated level, then the decision to supply X Y and Z, for example, but not B, is not a frustrating event: see Maritime National Fish Ltd. v. Ocean Trawlers Ltd.

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