Types of circumstances leading to frustration.

Where a contract contains a provision of this kind, it is questionable whether or not the provision covers the events which have occurred. In one case a contract to build a reservoir in six years provided that the builder should have an extension of time for delays ‘however occasioned’. This provision was interpreted as giving him a period of grace only in the event of non-frustrated delays. It did not cover the delays which had actually occurred when government intervention in the First World War brought the work to a halt, and forced the builder to sell his construction plant. The builder’s plea of frustration succeeded. Also, the fact that the contract makes some provisions for a supervening event will not exclude frustration if the provision is not complete. A charter party may, for example, provide that the ship owner is not liable for delays due to certain events beyond his control. Such a clause will not prevent the charterer from relying on such delay as a ground of frustration. The reason is that the provision deals only with one possible consequence of the delay, namely its effect on the liability of the ship owner for breach. It says nothing about the liabilities of the charterer, which can therefore still be discharged as frustration.

A contractual provision for the event will not exclude frustration in certain cases of supervening illegality. E.g. if one of the contracting parties becomes an alien enemy the contract would not be saved by even the clearest express provision for that event; for the parties cannot ‘contract out’ of the particularly strong public policy against aiding the enemy economy in time of war. On the other hand, clauses dealing with export or import prohibition are commonly upheld as illustrated in the case of Johnson Matthey Bankers Ltd v State trading Corporation of India Ltd they assume that the prohibition will be observed and do not subvert its purpose.

There is, finally, the converse possibility that a contract may expressly provide for discharge on the occurrence of specified events (any obstacles to perform), whether or not these events bring about a change of circumstances which would be sufficiently fundamental to frustrate the contract. Such clauses are meant to reduce the uncertainty which can result from the difficulty of deciding whether the change is of this kind: and also to mitigate the hardship which a party may suffer where the damage is not fundamental so that he would remain bound even though the contract has become unexpectedly burdensome on him. If the specified event occurs, the contract is discharged under the express term and not the doctrine of frustration.

2) Foreseen and foreseeable events

In many frustration cases, the courts have stressed the unexpected nature of the supervening event. These statements suggest that there can be no frustration if, at the time of the contracting, the parties actually foresaw that the event would, or was likely to occur. This view is based on the assumption that, in these circumstances, the parties freely took risk that the event might occur. Such a risk would no doubt be reflected in the contract price; and if the parties did not want to take the risk, they could easily provide against it. For the purpose of this argument, it is necessary to define exactly what the parties foresaw. The fact that they foresaw a delay does not prevent frustration if the delay which incurred was of a wholly different order of magnitude and was not foreseen. Neither is the doctrine of frustration excluded merely because the party(s) could have foreseen that the event would occur. No doubt, it was ‘reasonably foreseeable’ that King Edward VII might fall ill at the time fixed for his coronation, but this did not prevent the doctrine of frustration from applying in the coronation cases. Several judicial statements go further and assert that a contract can be frustrated even by an event which was precisely foreseen. But it is hard to see why the courts should reallocate contractual risks which have been consciously undertaken; and the preferable view seems to be that, if parties contract with reference to risk of which they were aware. They should normally be able to rely on the doctrine of frustration. They should be able to do so only if the contract indicates that they had not intended to provide for the risk; e.g. by stipulating that, if the event were to occur, they would ‘leave the lawyers to sort it out’. If the lawyers’ efforts to do so ended in deadlock, the contract could be frustrated.

Special considerations apply where a contract is frustrated because its performance would, after the outbreak of war, involve trading with the enemy. Here, the contract is discharged on grounds of public policy even if the event was clearly foreseen. A contract for the export of goods for this country to Germany made in August 1939 would have been frustrated by the outbreak of war on September 3, however much that the event was anticipated by both parties.

3) Self-induced frustration

A party cannot rely on ‘self-induced’ frustration that is on an obstacle to performance brought about by his own voluntary conduct. This is most obviously true where that conduct is in itself a breach of the contract. Therefore, a charterer who in breach of contract that orders the ship to war zone, resulting in her detainment, cannot rely on the detention as a ground of frustration. The doctrine similarly does not apply where the breaches of both parties contribute to an allegedly frustrated delay. Neither can a party rely as a ground of discharge on an event which was due to his liberate act, even though that act is not itself a breach.E.g. a singer who had contracted to give a concert on a specified day could not rely on inability to perform as a result if his imprisonment for unlawfully dealing in drugs. Even negligence in bringing about the event would generally exclude frustration. The defendants in Taylor v Caldwell would not have been able to rely on the doctrine if the fire had been due to their negligence. In principle the position should be the same where the singer was unable to perform because she had carelessly caught a cold; but as the effect of such conduct on a persons’ health is hard to foresee it may be that the contract would be frustrated in such a case.

The purpose of the rule that a party cannot rely on self-induced frustration is to deprive the party of the benefit of the doctrine of discharge; the rule must not be allowed to prejudice the other party. It follows that the party whose conduct has brought about the event cannot rely on it as a ground of discharge; but the other party may be able to do so. E.g. an employee who is prevented from working by a sentence of imprisonment cannot rely on this fact as frustrating the contract;  but his employee could rely on it, with the result that he would not be liable for unfair dismissal.

The question whether frustration is indeed due to the voluntary act of a party can also arise where A enters into several contracts with different parties and the supervening event deprives him of the power of performing some, but not all, of those contracts. Suppose A has planted a crop of potatoes in a field which is normally expected to yield 200 tons. He agrees to sell 100 tons of this expected crop to X and 100 tons to Y; but as a result of events beyond his control, the total yield is only 100 tons. One view, for which there is considerable support in the authorities, is that if A delivers the 100 tons to X, his contract with Y will not be frustrated since his failure to perform it was due to A’s voluntary act; and that for the same reason his contract with X would not be frustrated if he delivers the 100 tons to Y. Yet it seems inconsistent with the principle of frustration to hold A liable for a shortfall due to an event beyond his control, which would have provided him with an excuse if he had agreed to sell the whole quantity to only one buyer. As long as A acts reasonably in allocating the actual yield (in delivering the 100 tons to the first of the two buyers to have contracted with him) he should be under no further liability. It might also be reasonable for him to allocate 50 tons to each buyer. He could then rely by way of excuse on an express contractual provision for the event, but probably not on the common law doctrine of frustration, since the effect of that doctrine is generally said to be to bring about the total discharge of the contract.

 

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Bibliography

• Contract Law 2005/2006 (Sixth Edition) By Richard Stone

• Contract – A critical Commentary. By John Wightman

• Contract Law (Second Edition) – Key Facts by Chris Turner

• Contract - Law of Obligations and Legal Remedies (Second Edition) By Geoffrey Samuel

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