A contract may be automatically discharged under the doctrine of frustration. This can only occur when the effect of external circumstances render further performance of the contract impossible, render it illegal or brings about a drastic change in circum
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A contract may be automatically discharged under the doctrine of frustration. This can only occur when the effect of external circumstances render further performance of the contract impossible, render it illegal or brings about a drastic change in circumstances. This means that the contract would become something drastically different from that which was originally undertaken.
When establishing if a contract can be discharged by frustration cases must fall into one of three different situations.
Taylor v Caldwell (1863)1 is a prime example of impossibility, due to the subject matter being destroyed. In this case the contract involving the hiring of a music hall was held to be frustrated as the hall was destroyed by a fire.
A contract may also be frustrated if the subject matter becomes unavailable due to an event completely unrelated to the contract. Nickoll and Knight V Ashton Eldridge Co (1901)2. This principal also applies if the subject matter is a person, Morgan v Manser (1948)3. A contract will only be frustrated if the method of performance that becomes impossible was essential to the contract or was stipulated in the contract.
The contract between Cargo Carriers Ltd v Nukit plc involved a particular method of performance via the 'Highland Train Line'. The line was to be used to transport 100 tons of nuclear waste a week for a period of six months. This period started on the 1st September 2005 and the contract would end in February 2006. In 1st November there were severe landslides that blocked the highland line causing it to be closed for three months. This meant that a third of the way into the contract it became impossible for Cargo Carriers Ltd to complete performance. It is reasonable to assume that the use of the 'Highland Line' was the only available method of performance as the use of this train line was stipulated in the contract, therefore essential to the performance of the contract.
Tsakiroglou & Co. Ltd v Noblee Thorl (1961)4 . The claimant agreed to buy groundnuts from the defendant. The defendant was to ship the nuts to Hamburg from Port Sudan. Both parties assumed that the ship would take the route through the Suez Canal. The canal was later closed to shipping and the goods were never delivered to Hamburg. It was held that the contract was not frustrated. This was due to the fact that the goods could have been shipped via an alternative route. It was not stated in the contract that the goods must be shipped via the Suez Canal.
This case although similar in circumstances has one significant difference. The use of the Suez Canal was not essential to the performance of the contract.
The contract between 'Cargo Carriers Ltd' and 'Nukit plc' could be frustrated on the above argument.
The second factor to consider is illegality. If during the performance of a contract a change in law renders further performance illegal, the contract will be frustrated.
Fibrosa Spolka Akcyjnia v Fairbairn Lawson Combe Barbour Ltd (1942)5. Prior to the British declaration of war on Germany in September 1939 the defendant had sold machinery to the claimant, a Polish company in Gdynia. An advance payment of £1000 had been paid prior to the delivery of the machinery. Before delivery, war was declared on Germany an they in turn occupied Gdynia. The claimant requested the return of the advance payment but the defendant refused as they had already worked on the machinery. It was held the contract was frustrated as it becomes illegal to trade with the enemy when war is declared and the claimant was entitled to recover the £1000.
This will not assist Cargo Carriers Ltd. Although they did intent to run one train per week containing 100 tons of waste this was not contained in the contract nor was it essential to performance. The introduction of the August 2005 legislation making it illegal to transport more than 50 tons of nuclear waste on any one train would not allow the contract to be frustrated.
Although Cargo Carriers Ltd and Nukit plc contracted in May 2005, prior to the introduction of this legislation, there was no condition in the contract as to the amount of waste ...
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This will not assist Cargo Carriers Ltd. Although they did intent to run one train per week containing 100 tons of waste this was not contained in the contract nor was it essential to performance. The introduction of the August 2005 legislation making it illegal to transport more than 50 tons of nuclear waste on any one train would not allow the contract to be frustrated.
Although Cargo Carriers Ltd and Nukit plc contracted in May 2005, prior to the introduction of this legislation, there was no condition in the contract as to the amount of waste to be transported on any one train.
Finally when applying the doctrine of frustration you must consider if there has been a radical change in circumstances. Due to an unrelated event, further performance of the contract although still possible, would become something radically different from that originally foreseen by both parties.
Krell v Henry (1903)6. Here the defendant had hired rooms for two days to watch Edward VII's coronation procession as it passed along the street. The coronation was postponed due to the illness of Edward VII. Although no reference to the reason for the rental of the room was noted in the contract it was held that the contract was frustrated. This was due to the fact that the pure foundation of the contract rested on the viewing of the coronation procession.
A radical change in circumstances does not apply to the contact between 'Cargo Carriers Ltd' and 'Nukit plc'. The effect of the landslide does not allow for further performance of the contract via an alternative method and the change in legislation does not constitute a radical change in circumstances.
Although it seems apparent that the contract would not be frustrated due to a radical change in circumstances it is important to consider whether a court may decide otherwise.
'The event is something which happens in the world of fact, and has to be found as a fact by the judge. Its effect on the contract depends on the meaning of the contract, which is a matter of law. Whether there is frustration or not in any case depends on the view taken of the event and of its relation to the express contract by 'informed and experienced minds'7
When considering how the doctrine of frustration would assist Cargo Carriers Ltd several important issues have arisen. The landslides that blocked the 'Highland Line' were an unforeseeable risk to the performance of the contract for both parties. Therefore precautions against this risk were impossible to predict and include in the contract. As a result of the landslide the method of performance became impossible to perform according to the conditions of the contract. It seems probable that the contract would be frustrated.
There is also the issue of the £40,000 advance 'Nukit plc' paid 'Cargo Carriers Ltd' prior to completion of the contract.
The effect of frustration discharges both parties from the performance of any future obligations under the contract, but does not render the contract void ab initio. The Law Reform (Frustrated Contracts) Act 1943 has furthered the effect of this. Under section 1(2) of the 1943 Act, all money paid in advance prior to the frustrating event is recoverable by the payee. This is even where there is a lack of consideration. Money payable before the frustrating event ceases to be payable.
Should the contract between Cargo Carriers Ltd and Nukit plc have been frustrated, it seems the Law Reform (Frustrated Contracts) Act 1943, would allow Nukit plc to recover their initial £40,000 payment in advance. Although, Cargo Carriers Ltd performed part of the contract up until November 1st. This performance would have not been at any profit to Cargo Carriers Ltd after the August 2005 change in legislation. So hence lies the problem of costs incurred by Cargo Carriers.
(Section 1 (2)) of the act allows for the party to whom money was paid or payable, to recover costs or expenses incurred prior to the discharge in performance of the contract. The recovery of these expenses is at the discretion of a judge and will only be awarded up to the limit of money paid or payable before the frustrating event.
It seems that Cargo Carriers Ltd may be entitled to some of the advance payment.
3.
Misrepresentation is a vitiating factor of contract. The effect of this is that the contract is voidable, which means it is capable of being avoided.
During pre-contractual negotiations a number of statements may be made, that may induce the other party to enter the contract. For the misstatement to be actionable in a court of law the statement must be as a false statement of fact that induced the other party to enter into the contract.
The statement can be written, verbal or any other method of communication. This can pose many problems for courts when determining if a misstatement is an actionable misrepresentation. Spice Girls Ltd v Aprilia World Service Bv (2000)8 the high court held that a representation may be made by conduct. Before the contract had been signed the girl group filmed a commercial for 'Aprilia'. All members of the group took part in the filming of the commercial, despite all members knowing that one member of the group was about to leave.
The difficulty here is for the courts to establish if there was an actual misrepresentation. It can be difficult to prove that all members of the group were aware of the intention of another member to leave the group. No actual misstatement has been made but the courts have had to establish and develop the definition of misrepresentation in order to adapt to different situations.
'A misrepresentation is an unambiguous false statement of fact'9. Common perception of the word 'statement' would be something that has been written or spoken. In criminal law a statement would be a written account of an event that took place which was called into question. The fact that the defendant implied something by conduct would not gain a conviction. It would not be enough for the prosecution to stand up and say 'on the night in question the defendant was acting shifty'. There must be evidence to back up the conduct.
This is a problem when brought to the civil courts. It is up to a judge to decide if the conduct implied was a misstatement and therefore an actionable misrepresentation.
Judges have had to therefore take the definition and developed amongst themselves what a statement is and whether it constitutes an actionable misrepresentation. They have also developed a non exhaustive list of exceptions, where a misstatement will not be an actionable misrepresentation.
The first of which is silence, where caveat emptor applies (let the buyer beware). This is because no statement has been made. Hands v Simpson, Fawcett & Co (1928)10. A new employee had failed to disclose to his employer that he was disqualified from driving. Driving was essential to his new employment. It was held that the employee was under no duty to disclose the information if he was not specifically asked for it.
There are how ever exceptions to the rule that silence cannot constitute misrepresentation.
The first of which is in certain circumstances a duty on one party to inform the other and in limited circumstances silence in this situation would amount to an actionable misrepresentation. This is known as non disclosure. Locker and Woolf Ltd v Western Australian Insurance Co Ltd (1936)11. Here the insured had failed to disclose to the insurers the material fact that he had been refused insurance buy another company. This was material to the contract and was therefore misrepresentation.
In these types of situations it is again difficult for the courts to decide if there has been a misstatement. In the case of the employee and employer there has been no actual misstatement, but as driving was an essential part of his job surely this was material to the contract?, It is apparent that the employee should have stated that he was disqualified from driving. It is also obvious that the employer should have also asked for this information. The court had to make a decision from their interpretation of what a misstatement is. Although the case involving the insured and insurers was deemed to be a misrepresentation the fact of the two cases are very similar. This just shows the difficulty the courts have trying to interpret the law as best they can. If these cases had been heard by different judges then the outcome may have been different.
Half truths, a statement that does not represent the whole truth are another exception. Dimmock v Hallett (1866)12. A plot of land was sold stating that the land was let to tenants. This was only half of the truth. It was let to tenants but the tenants were terminating the lease and therefore the income from the land would reduce. The court held that this was misrepresentation.
Failure to disclose a change in circumstance will also constitute a misrepresentation, With v O'Flanagan (1936)13.
When contracts are made in the utmost good faith, parties must declare everything relevant to the contract. Tate v Williamson (1866)14.
A statement of fact must not be a statement of the law nor may it be a statement of future intention, Edgington v Fitzmaurace (1885)15.
The statement must not be a statement of opinion as an opinion is not capable of being true or false when it is made, Bisset v Wilkinson (1927) 16. However if the opinion contains and element of fact and the representor knows what he is saying is wrong then this will be actionable misrepresentation, Smith v Land and House Property Corp (1884)17.
The second difficulty the courts face is in deciding whether the false statement of fact did in fact induce the representee to contract with the representor. The false statement of fact must have been material and induced the representee into the contract.
There will be no misrepresentation if the other party was unaware of the statement or if the statement was made after the formation of the contract, Roscorla v Thomas (1842)18. After the contract for the sale of a horse had been formed the seller stated to the buyer that the horse was 'sound and free from vice'. This was in fact a false statement yet it was held as no misrepresentation as the statement did not induce the buy into purchasing the horse.
The representee is under no obligation to check that the statement is in fact the truth. Redgrave v Hurd (1881)19.
If the representee did not allow the false statement to induce him into the contract this will a non actionable misrepresentation, Smith v Chadwick (1884)20.
It is clear that the courts have a difficult job in determining if a misstatement is an actionable misrepresentation, hence why the law on this area has been developed beyond the brief definition given to misrepresentation. Many cases bring new and interesting discussion points to the courts. So therefore it is necessary for the courts to develop and expand on this definition in order to uphold justice in the courts.
Bibliography
Text Books
McKendrick E, Contract Law (2nd ed., Oxford: OUP, 2005)
Oxford University Press, Oxford Dictionary of Law, (Oxford 2003)
Richards. P, Law of Contract (7th ed., Pearson Education Ltd: Edinburgh, 2006)
Turner. C, Unlocking Contract Law (Hodder & Stoughton: London 2005)
Table of Cases
Bisset v Wilkinson (1927) AC 177
Denny, Mott and Dickson Ltd v James Fraser & Co. Ltd (1944) AC 265 at 276 per Lord Wright
Dimmock v Hallett (1866) LR 2 Ch App 21
Edgington v Fitzmaurace (1885) 29 Ch D 459
Fibrosa Spolka Akcyjnia v Fairbairn Lawson Combe Barbour Ltd (1942) 2 All E.R 122 HL
Hands v Simpson, Fawcett & Co (1928) 44 TLR 295
Krell v Henry (1903) 2 K.B. 740 CA
Locker and Woolf Ltd v Western Australian Insurance Co Ltd (1936) 1 KB 408
Morgan v Manser (1948) 1 KB 184
Nickholl & Knight v Ashton Edridge & Co [1901] 2 K.B. 126 CA
Redgrave v Hurd (1881) 20 ChD 1
Roscorla v Thomas (1842) 3 QBD 234
Smith v Chadwick (1884) 9 App Cas 187
Smith v Land and House Property Corp (1884) 8 ChD 7
Spice Girls Ltd v Aprilia World Service Bv (2000) The Times, April 5
Tate v Williamson (1866) LR 2 Ch App 55
Taylor v Caldwell (1863) 32 LJ QB 164
Tsakiroglou & Co Ltd v Noblee Thorl GmbH (1961) 2 W.L.R 633 HL
With v O'Flanagan (1936) Ch 575
Electronic Resources
www.westlaw.co.uk
www.wolf-nt.wlv.ac.uk
Taylor v Caldwell (1863) 32 LJ QB 164
2 Nickholl & Knight v Ashton Edridge & Co [1901] 2 K.B. 126 CA
3 Morgan v Manser (1948) 1 KB 184
4 Tsakiroglou & Co Ltd v Noblee Thorl GmbH (1961) 2 W.L.R 633 HL
5 Fibrosa Spolka Akcyjnia v Fairbairn Lawson Combe Barbour Ltd (1942) 2 All E.R 122 HL
6 Krell v Henry (1903) 2 K.B. 740 CA
7 Denny, Mott and Dickson Ltd v James Fraser & Co. Ltd (1944) AC 265 at 276 per Lord Wright
8 Spice Girls Ltd v Aprilia World Service Bv (2000) The Times, April 5
9 McKendrick E, Contract Law (2nd ed., Oxford: OUP, 2005), at p.657
0 Hands v Simpson, Fawcett & Co (1928) 44 TLR 295
1 Locker and Woolf Ltd v Western Australian Insurance Co Ltd (1936) 1 KB 408
2 Dimmock v Hallett (1866) LR 2 Ch App 21
3 With v O'Flanagan (1936) Ch 575
4 Tate v Williamson (1866) LR 2 Ch App 55
5 Edgington v Fitzmaurace (1885) 29 Ch D 459
6 Bisset v Wilkinson (1927) AC 177
7 Smith v Land and House Property Corp (1884) 8 ChD 7
8 Roscorla v Thomas (1842) 3 QBD 234
9 Redgrave v Hurd (1881) 20 ChD 1
20 Smith v Chadwick (1884) 9 App Cas 187
