MLL111 Lecture 10: Contract Week 10
14 Aug 2018
School
Department
Course
Professor
1. Termination of Contracts
Frustration
What is the doctrine of frustration?
*Made to minimize the effect of the doctrine of absolute performance (which said if the
contract didn’t have the exact performance I wasn’t sufficient).
*Operate to terminate a contract if it has been affected by some unforeseen event.
*Is there a change to the obligation? If so, then its frustrated.
*Its terminated automatically once declared frustrated.
*If one party has performed only half of the obligations they suffer losses.
Unforeseen event not due to the two parties that renders the contract fundamentally
different or impossible to proceed.
Paradine v Jane (1647) EWHC KB J5
*Jane had to pay for the 3 years even though she wasn’t in the land and that it was taken
over by enemy armies.
*If Jane was scared something like this would happen she should have put it in the contract
so had to bare the losses and pay. As Jane cant sue the enemy army.
This was why the doctrine of frustration took over the doctrine of absolute performance.
Taylor v Caldwell (1863) All ER Rep 24
*P hired hall for concerts
*Hall burnt down before concert
*P sued for breach
Court said the rule of absolute performance won’t apply as the destruction of the hall was
due to an effect that both parties couldn’t stop and therefore consider the contract
impossible.
If an existing thing is needed for the contract to exist and that is destroyed due to
something both parties aren’t responsible for then the contract doesn’t exist too.
Davis Contractors Ltd v Fareham Urban District Council (1956) UKHL 3
*D agreed with F to build 78 hours over 8 months.
*Took 22 months and 23000 extra pounds.
*D said contract was frustrated, void and therefore they were entitled to be paid some
money.
*The fact that something is just difficult and expensive wont render it frustrated, its just a
breach.
Implied term theory: Won’t be sufficient in every case
Total failure of consideration : won’t be relative to scenarios
Justice : Frustration is a concept of justice but it’s not consistent and frustration is consistent
(not trying to make things fair).
Construction: Terms of the contract and can those terms be carried out.
Foundation of the contract: If we remove the foundation of the contract and the contract
doesn’t work then its frustrated, if not then it isn’t frustrated.
Codelfa Construction v State Rail Authority (1982) 149 CLR 337
*Codelfa contracted to make tunnels
*Assumed can be done by 3 shifts
*Injunction prevented this
The contract had indeed been frustrated, as the injunction drastically changed the
circumstances of the contract. Also, faulty legal advice said there will be no injunction so the
3 shifts will be enough.
Approach to taken to answer
1)Look at the situation that has happened
2)Look at the terms of the contract (what do they say and provide)
3)Are the terms of the contract wide enough to cover the situation arisen
If the terms don’t cover this then its probably frustrated
4)Which case law applies to the situation
5)If performance of the contract is radically different its frustrated
Mistake and frustration
*Mistake is a common assumption about a present fact (A and B contract to buy a car , both
don’t know A’s son crashed and destroyed the car)
*Frustration is about a common assumption in a future fact
Brisbane City Council v Group Projects (1979) 145 CLR 143
*GP owned some land and made an agreement with the council to work on the land. The
Crown took some of the land to build a school and GP they cant ocntinue as the contract
has been frustrated
*Its not like the whole land was taken only a small portion , its just not the same commercial
, even though the contract isn’t rendered impossible the land was essential so then the
contract is rendered frustrated. As the whole reason the land was bought doesn’t exist so
the contract ceases to exist.
OOH! Media Roadside P/L v Diamond Wheels (2011) VSCA 116
*Media Roadside had a long-term contract with a leasing space from DW on a building.
*A tower was built that obstructed the sign.
*A clause in the contract said they can terminate anytime if they are in trouble/annoyed by
any action not in control by any of the parties.
*MR wanted to invoke a termination clause and use the doctrine of frustration as a means
to leave the contract
*DW resisted and claimed repudiation and sought to enforce the contract
Judge said it wasn’t rendered unsuitable as even though some of the ad was not visible it
didn’t mean it wasn’t completely not visible and did its role and was fit to do its intended
purpose and wasn’t radically different even though there is a slight change.
The requirement of radical difference hadn’t been satisfied so it’s not frustrated.
Destruction (goods or important material destroyed) (Taylor v Caldwell)
Non-Occurrence (Event didn’t occur) (Krell v Henry)
Impossibility (Wong Lai Ying v Chinachem) (Fibrosa) (Spolka )
Inordinate delay (a big delay) (Wong Lai Ying)
Changes in law (law changes so cannot perform) (Fibrosa) (Codelfa)
Increased expense (increased expense radically different from what was intended to be)
(Codelfa , Wong Lai Ying)
NON-FRUSTRATING
*Construction delays, shortage of material, shortage of skilled people – these are
foreseeable (Davis contractors Limited v Fareham Urban District Council (1956) AC 969)
*Event that was contemplated by the parties , but didn’t anticipate its severity
(Bank Line v Capel)
*Self-Induced Frustration (Maritime National Fish Ltd v Ocean Trawlers Ltd (1935) AC 524; J
Lauritzen v Wijsmuller)
*Hardship, inconceicne or a bad bargain (Tsakiroglou & Co Ltd v Noblee Thorl Gmbh (1962) AC
93)
Krell v Henry (1903) 2 KB English CoA
*P contracted to allow D to use flat for two days because the purpose was to view Edward
VII’s coronation.
*This wasn’t mentioned in the actual contract but he said he needed it on these specific
dates and in the morning, so it was somewhat implied
*Coronation was postponed.
*D refused to pay balance of rental
*D said because the coronation didn’t happen he didn’t have to pay.
So not just the destruction of a material , if an event is damaged or doesn’t happen it can be
frustrated , (as the foundation of the contract ceased to exist thus the contract ceases to
exist).
*Parties couldn’t claim or get anything back
Wong Lai-ying v Chinachem Investment Co Ltd ([1980] HKLR 1, PC
*Contracted to build houses on a slope.
*The landslide was unforeseen and that delayed work and the land was different.
*So, would be different to original contract (fundamentally different)
*Agreed that it was frustration
*Was delayed, and fundamentally different, and increased expense
Document Summary
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