contract law case

X owns a holiday cottage in a remote mountain area. In May he agreed to let it to Y from 1-15 August. Y paid a deposit of £ 200. On the afternoon of 31 July, after Y and his family had set off from their home near London, a landslide rendered the cottage uninhabitable. X, who had recently spent £ 500 on redecoration in preparation for Y's visit, was unable to contact Y, and Y only found out what had happened when he arrived at the cottage. Y spent £ 200 on hotel accommodation for the night before returning home next day. Y and his family were very disappointed at not having the holiday they had planned.

Y is now demanding that X should return his deposit and pay him compensation.

Advise X. What difference, if any, would it make if the damage to the cottage had been caused by a fire carelessly started by X?

SUGGESTED ANSWER :

In advising X, it has to be determine whether the contract between Y and X has been frustrated, and if so can Y demand for his deposit and further compensation.

Frustration occurs when without default of either party to the contract, the contractual obligation has became incapable of being performed Amalgamated Investment v John Walker.

There are 2 test for frustration. By the Implied Term Theory test there is an implied term in every contract that if the contract is incapable of being performed without default of either party the contract is discharge Blackburn J in Taylor v Caldwell

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These theory has been substantially replaced by the radical change in obligation test by Lord Radchiffe in Davies v Fareham UDC. Here frustration take process when the supervening event which significantly changes the nature of the obligation from what the parties have contemplated. These was upheld in Pioneer Shipping Ltd v BTP Tioxide and National Carriers v Panalpina

The frustration event here would fall under the heading of unavailability. The landside which rendered the cottage uninhabitable have significantly changes the nature of the obligation. Here X may argue that the unavailability is only temporary. But in Jackson v Union Marine Insurance, held unavailability apply even it is only temporary, as long as it covers the period of performance. As from the facts even though the landside is temporary but the cottage becomes uninhabitable which may require a long time to repair and moreover it is situated in a remote mountain area and X had recently spent £ 500 on the redecoration.

Upon discovery of the frustration event one need to examine, whether the effect of the doctrine can be limited as Viscount Simmonds in Taskiroglou stated that this doctrine must be applied within a very narrow limits. As it is not to be invoked lightly to relieve contracting parties of the imprudent commercial bargain (bad bargain) Lord Roskill in Pioneer Shipping.

Here Y may argue that the frustration event may be reasonably foreseeable. If the event is foreseeable there is no frustration, Walton & Harvey v Walker & Homfrays. However a person of reasonable intelligence would not have regarded these (landslide) likely to occurs (Treitel)

Upon establishing the existence of the frustrating event next one need to examine the extent of remedies. Prior to 1943 the law was as in the case of Fibrosa, which says the loss lies where it falls. This means right and liabilities already acquired up to the time of termination remain intact but subsequent obligations are discharged. Because of the need for a flexible remedy Parliament passed the Law Reform Frustrated Contract Act 1943.

Under 1(2) of Law Reform Frustrated Contract Act 1943. Y may recover whatever amount he paid to X ie the £ 200 deposit. But if any lost were incurred by X in the performance of the contract, that money shall be restrained but not exceed the deposit amount. As from the facts the £ 500 spent by X is not within the contract for X to claim. However Y will not be able to claim for any compensation.

On the other hand if the frustration event is foreseeable then X may be liable for breach of contract for not providing accommodation. Here Y may be able to recover his deposit £200 and also claim for reliance damages which is £200 spent on hotel accommodation. Next to consider whether Y can claim for the non-pecuniary loss ie the disappointment for not having the holiday they had planned. The general rule says it is not possible for Y to recover damage for non-financial loss. Addis v Gramaphone. However in Jarvis v Swan Tours P managed to recover for loss of enjoyment when a breach of contract spoilt his holiday. But the purpose of the contract must be for enjoyment. As here it is satisfied because the booking of the cottage is for holiday purpose. Further, can Y claim non-pecuniary loss for his family. Generally rule is that only a party to a contract can sue or be sued. Tweedle v Atkinson, unless the family member within the requirement of the doctrine of agency. The Eurymedon as from the facts it is unlikely that the doctrine of agency applies.

But applying the principle in Jackson v Horizon Holiday, Y may able to claim compensation for his family. However the avenue is rejected in Woodar Development v Wimpey Construction, but in Linden Gardens Trust it was stated that if the purpose of the contract that enter on behalf of the 3rd parties is for their enjoyment this is enforceable.

With regard to the second part of the question if the damage to the cottage had been caused by a fire carelessly started by X. Then X may not be able to establish frustration. Because frustration must not be self - induced, Maritime National Fish v Ocean Trawler. The burden of proving the events that frustrated the contract is on the party alleging frustration. If there is an allegation of self - induced frustration, the burden lies on the person alleging self - inducement.

As from the facts it is clear that the frustrating events is of self - induced frustration and Y bears the burden of proving so. And if Y succeed, the remedy would lie under breach of contract as discussed above.