The Doctrine of Frustration
The Doctrine of Frustration
The doctrine of frustration describes a situation where after the conclusion of a contract, unforeseeable events occur, rendering the performance of that contract impossible. Under that doctrine, courts have the power to discharge any contract that falls within its scope as "frustrated". In the present case, our task is to examine whether the agreement between Jerry and Prudence is valid, or something "radically different" from that which was originally agreed, hence a frustrated contract.
Courts nowadays seem to be reluctant when it comes to discharging contracts as frustrated. The current policy on such matters is to prevent parties from using the doctrine as a defence protecting them from a bad bargain. Another parameter is an expected foreseeability of events occurring after the formation of a contract, events which would have a negative impact on its validity. This is why we should eliminate such possibilities before reaching a "verdict".
Lord Radcliffe in the case of Davis Contractors Ltd v. Fareham UDC1 developed the policy on "bad bargain": "It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for".
An example on the expected foreseeability principle can be found in numerous provisions and clauses, specifically set for the protection of parties, described as "force majeure" clauses. In Channel Island Ferries Ltd v. Sealink UK Ltd2 it was agreed that:"A party shall not be liable in the event of a non- fulfilment of any obligation arising under this contract by reason of Act of God, disease, strikes, Lock-Outs, fire, and any accident or incident of any nature beyond the control of the relevant party."
However, the legal relationship between Jerry and Prudence does not fall within the principles submitted above. Prudence should be able to argue that the contract is frustrated as the hall was not available at the time agreed in the contract. It was a matter of failure of deliverance on time. Jerry failed to supply the hall for the students although he was contractually obliged to do so, and of course he never incorporated a force majeure clause in the contract protecting him from an unexpected event. The performance of the contract became impossible as the hall was destroyed ...
This is a preview of the whole essay
However, the legal relationship between Jerry and Prudence does not fall within the principles submitted above. Prudence should be able to argue that the contract is frustrated as the hall was not available at the time agreed in the contract. It was a matter of failure of deliverance on time. Jerry failed to supply the hall for the students although he was contractually obliged to do so, and of course he never incorporated a force majeure clause in the contract protecting him from an unexpected event. The performance of the contract became impossible as the hall was destroyed by fire.
It is accepted in Law that when the performance of an agreement becomes impossible due to the destruction of the subject matter, then that contract becomes frustrated. It would be held natural for the parties to be willing not to be bound by such a contract. The origins of this principle as well as the doctrine of frustration itself can be found in the 1863 case of Taylor v. Caldwell.3
In Taylor and Caldwell, the parties entered into a contract, which they inaccurately described as one for the 'letting' of a music hall for the purpose of holding a series of concerts. The proposed dates of use were in June, July and August 1861,but after the date of contracting and before the first of the performance dates, the music hall was destroyed by fire. No evidence pointed to fault on either side and the contract made no provision for the event.4
On that case, Blackburn J decided that: " ... The music hall having ceased to exist, without fault of either party, both parties are excused, the plaintiffs from taking the gardens and paying the money, the defendants from performing their promise to give the use of the hall and gardens and other things."
Accordingly, if we apply the judgement of Blackburn J to the case of Jerry and Prudence, it will become apparent that since the hall was destroyed by fire, the contract between them ceases to exist; it becomes frustrated. Frustration brings the agreement to an end at the exact time the frustrating event takes place. This means that on the 31st of July the contract between Jerry and Prudence becomes frustrated.
The facts provide us with the information that Prudence gave Jerry an immediate payment of £100 on the 1st of June for hiring his Manchester situated hall. This payment was obviously made before the date of occurrence of the frustrating event. A balance of £300 was due to be paid on the 1st of August, that is one day after the fire actually destroyed the hall.
The legal consequences of the frustrating event ought to be examined in relation to the time it happened and of course the effects it has in Law for both parties. Until 1943, if one party had paid a certain amount of money to the other, or there was an agreed payment prior to the date on which the contract was frustrated, that amount was irrecoverable, unless there was a total failure of consideration.
This approach was followed in cases such as Fibrosa Spolka v. Fairbairn 5, where it was held by the House of Lords that the appellants who sought to recover the £1000 they had paid to the respondents upon their agreement were entitled to recover that prepayment. The reason was that the consideration for the payment had failed. In the present case, Prudence, in order to recover the sum of £100 she paid Jerry prior to the frustration of the contract, she would have to prove that there was a complete failure of consideration, caused by Jerry's eventual inability to supply the hall for the students on the 1st of August as agreed.
However, the directions of Fibrosa should not apply in the case, as Parliament passed the Law Reform (Frustrated Contracts) Act in 1943. The Act provides that:
(2) "All sums paid or payable to any party in pursuance of the contract before the time when the parties where so discharged shall, in the case of sums so paid, be recoverable from him as moneys received by him for the use of the party by whom the sums where paid, and, in the case of sums so payable, cease to be so payable: Provided that, if the party to whom were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so, having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred."
The effect of section 1(2) is that money paid in advance should be recoverable or not payable in the event of frustration of the contract. Section 1(2) was subsequently applied on cases such as Gamerco SA v. ICM6, where the promoter of a rock concert made an advance payment to the performers at the concert. The contract was held to be frustrated, and the promoters were entitled to recover the prepayment.
Consequently, the Law Reform (Frustrated Contracts) Act 1943 directs us to appoint that the sum of £100 paid by Prudence 'a priori' to the frustrating event of the fire must be returned to her. In addition, the balance of £300 Prudence had to give Jerry on the 1st of August ceases to be payable as the hall was never supplied.
It must be submitted that a different approach would constitute an absurdity. Prudence should have the right to recover the sum she paid to Jerry, as she never received the services she agreed to pay for, and it should be regarded as common logic that paying the extra balance of £300 would be completely illogical. Thus the 1943 Act should be enforced wisely, in order for fairness to be retained.
[1956] AC 696
2 [1988] 1 Lloyd's Rep 323
3 (1863) 3B & S 826
4 Facts of the case are submitted by Sourcebook on contract Law, Cavendish
5 [1943] AC 32
6 [1995] 1 WLR 1226, QBD
