University of Queensland Law of Contract B

Frustration

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  Obligations are frustrating event remain binding, obligations arising after event are extinguished.
  
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  National Carriers v Panalpina per Lord Simon – An event which changes the nature of obligations so dramatically that the parties would have found it unjust to enforce at time of formation.
  

Justification

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  Implied term  the parties had an implied term to that extent – Taylor v Caldwell, The Eugenia
  
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  Construction  true construction of contract not apply to new situation
  
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    Davis v Fareham - Job of court is to determine whether on true construction of contract, the new factual situation was covered by the contract. If it was, then the contract was not frustrated. Where the new situation was not covered, then the contract was frustrated. There must be such a change that the thing performed would be so different from that agreed. The court held the contract covered the new situation.
    
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    Codelfa: Court also adopted the construction theory. In this case an injunction was granted to prevent construction of railway between certain hours. Held that the injunction amounted to a frustrating event. Aickin J: Here because both the significance of the obligations undertaken as well as the surrounding circumstances had changed, the contract, on its true construction didn't apply to the new facts – hence it was frustrated.
    
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  Total failure of consideration  some judges in National Carriers.
  

Frustrating events

Impossibility

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  Music hall burnt down – Taylor v Caldwell
  
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  No steamer sailing from Japan to Sydney anywhere near agreed time: Cornish v Kanematsu.
  
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  Suez canal crisis. Not frustrated because did not explicitly state to take canal. Increased expenditure does not lead to frustration – Tsakiroglou v Noblee per Lord Simmons.
  

Temporary impossibility

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  Ran aground. Repairs. Late. Looks at context of overall duration to determine frustration. Deemed to frustrated – Jackson v Union Marine
  

Increased burden of performance

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  Increased burden doesn’t cause frustration. Must be fundamentally different – The Eugenia – stuck in Suez Canal.
  
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  Codelfa
  

Illegality

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  Can’t trade with enemy during war – Fibrosa v Fairbairn
  
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  National Carriers
  

Frustration of common purpose of parties

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  Hired room to watch procession. Cancelled procession. Contract did not explicitly state reason for hiring. Frustrated – Krell v Henry
  
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  Similar facts as Krell but for boat. Comes down to how do you define common purpose – Herne Bay Steam Boat v Hutton
  
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  War decision. Did not guarantee neon sign could be illuminated. All terms could be performed. Matter of contractual interpretation – Scanlan’s New Neon v Toohey
  
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  Purpose of obligations compared to those present in actual situation – Bris. CC v Group Projects per Stephen J
  

Limits on frustration

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  Self-induced  Given 3 licenses. Used on other boats. Could have chosen to use it on boat in question – Maritime National Fish v Ocean Trawlers
  
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    One ship sank, had to choose who to charter other to- self induced: The Super Servant
    
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  Foreseen events  if you contemplate an event it prevents frustration (fits with true construction theory)
  
  • 
    Denning in The Eugenia distinguishes foreseeing and making a contractual provision
    
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    Krell v Henry
    
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  Express provision  for an event then that event cannot frustrate
  
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    Whether it is catered for is a matter of construction – Codelfa, Meriton, AGL.
    

Special case of land

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  Courts traditionally reluctant.
  
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  UK change  can apply to leases  10 year lease. No access for 20 months  not frustrated but in theory could in dire circumstances – National Carriers
  
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  AUS  cannot apply to lease contracts – Halloran v Firth in the NSWSC, but contrary HC obiter
  
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  Frustration only excluded if lessee taken possession of land – obiter per Williams J in S. New Neon
  

Effects of Frustration

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  Only discharged from obligations accruing AFTER frustrating event
  
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  Money paid prior to frustration
  
  • 
    Cannot recover paid money – Re Continental v Rubber
    
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    UK  can recover money if consideration completely fails – Fibrosa
    
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    Consideration didn’t totally fail – Baltic Shipping per Mason in obiter suggested Fibrosa is law in AUS
    
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  Benefits received prior to frustration
  
  • 
    OLD CASE. Depends on facts. On facts, right to payment only accrued after completion of work. Not completed = no $ - Appleby v Myers
    
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  Benefits received after frustration
  
  • 
    Value of work done after frustrating event can be recovered in restitution - Codelfa
    

Privity

General rule

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  Contracts only take effect between those who are parties. This means that:
  
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    1. Non-parties cannot (generally) be bound by another’s contract; it is not possible to burden a third party.
    
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      Reasonably uncontroversial. Subject to a property law exception.
      
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    2. A non-party cannot enforce a contract made for his or her benefit (more controversial).
    
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  Doctrine confirmed in Gandy v Gandy per Bowen LJ.
  
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  Clearly confirmed in Dunlop Pneumatic Tyre Co v Selfridge - rejected claim because:
  
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    1. Not a party to the contract.
    
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    2. Do not provide consideration for the contract.
    
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  Windeyer J in Coulls v Bagot’s Executor (1967)- both must be met before a plaintiff can bring a claim.