Doctrine of Frustration
Doctrine of Frustration
Doctrine of Frustration
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Acknowledgement
I am very glad to get this opportunity to prepare a report on the above topic.
I would like to express my special thanks of gratitude to my teacher Mrs.
Meenakshi Kumari , my teacher of contract law-1, who gave me the golden
opportunity to do this wonderful project on the topic “ Doctrine of Frustration
and Its Limitations ” in contract law which also helped me in doing a lot of
research and I came to know about so many new things. I am really thankful to
and fortunate enough to get constant encouragement, support and guidance
from all Teaching staffs of the School of Law and Governance who helped me in
successfully completing my project work. I would also like to thank my parents
and friends who helped me a lot in finalizing this project within the limited time
frame.
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Contents
Topic. Page no.
Introduction ………………………………………………………………………… 4
Origin of the doctrine ………………………………………………………….. 4
Scope of the doctrine ………………………………………………………….. 5
Illegality ................................................................................... 5
Effects of express provision for frustrating event ……………….. 9
Effects of the doctrine ……………………………………………………….. 12
The law Reform (frustrated contracts) Act 1943UK ……………. 14
Conclusion …………………………………………………………………………. 17
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Introduction
Frustration is an act outside the contract due to which the completion of a contract
becomes impossible. After the parties have concluded a contract, events beyond their
control may occur which frustrate the purpose of their agreement, or render it very difficult
or impossible, or as even illegal, to perform.
When the performance of the contract becomes impossible, the purpose which the parties
have in mind is frustrated. If the performance becomes impossible, because of a supervening
event, the promisor is excused from the performance of the contract. This is known as
doctrine of frustration under English law, and is covered by section 56 of the Indian Contract
Act. An example of this is where a hall, which has been booked for the performance of
a play, is destroyed by fire, after the contract has been concluded, but before the date
of performance of the play.
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1863 3 B & S. 826; 129 R.R. 573
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91 LQR 247
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Krell v Henry [1903] 2 KB 740
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in London to C.S Henry to be used for viewing a royal procession, which subsequently got
cancelled and Henry refused to pay krell the balance of the rent. Krell sued, but the English
court held against him on the ground that the purpose of the contract between them was
"frustrated". The court thought if Krell and Henry had foreseen the cancellation of the King's
procession, they would not have entered into the agreement. It found that the procession
was the foundation of the contract. The English law extended the principle beyond cases
where the subject matter of the contract was destroyed rendering performance impossible,
to cases where impossibility of performance follows the cessation of an "express condition or
state of things" essential to the contract.
Illegality
The doctrine of frustration will apply in circumstances where the performance of a contract
is contrary to some law passed after the contract is made.
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This is often described as a case of supervening illegality. In such circumstances the contract
is not impossible to perform, nor have the obligations under the contract (necessarily) been
radically altered. It is more a question of public policy in ensuring that the law is not broken.
For this reason it is not possible for the parties to exclude the operation of the doctrine, in
relation to certain types of supervening illegality (such as trading with the enemy) by express
agreement.
An obvious example of a contracts frustration die to supervening illegality is where its
performance would involve trading with an enemy country at a time of war.
Other examples of supervening illegality are where new licensing regulations are introduced
after the parties have contracted, or where restrictions on the import or export of certain
goods are subsequently introduced.
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So if S agrees to sell to B goods which are identified at the time the contacts is made and those
goods subsequently perish before the risk passes to B, the contract is frustrated (or avoided)
7
It was held that a voyage undertaken after the ship had been repaired would have been a
very different adventure forms the one, which the parties had contracted for. A condition
could be implied that the ship would arrive in Newport in time for the particular voyage. Its
failure to do so within a reasonable time put an end to the contract. The long delay for repairs
meant that the contract was frustrated.
The court will sometimes have to decide whether a contract covering a lengthy period is
frustrated by supervening events, which cover part of the period. Typical examples of this
include the effects of a strike on a shipping contract or the requisition of a commercial ship
by the government at a time of war. Delay will frustrate a contract if it defeats the commercial
venture, but this can be difficult question to decide upon. In such instances the court must
look at both the length of the contract and the length of the interference, which causes the
unavailability of the subject matter.
It should be noted that the courts are supposed to judge the situation as at the date of the
frustrating event and not with the benefit of hindsight. This can lead to odd results. In Tamplin
Steamship Co Ltd v Anglo Mexican petroleum products Co (1916).
A tanker was chartered from December 1912 for a five-year period. In February 1915, the
vessel was requisitioned as a troop ship. The owners of the ship claimed that the contract was
frustrated by this supervening event.
The House of the Lords decided that the commercial object of the contract was not frustrated
as, at the time of the event in question, it appeared likely that the ship would still be available
to fulfill a substantial part of the contract after the war ended. As it turned out, the House of
Lords was wrong in its assumption, because the war did not end until 1918. But the case
illustrated the difficulty in judging the likely effect on a contract of some event, which causes
the temporary unavailability of the subject matter.
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In 1929, the plaintiff hospital authority entered into a contract with the defendant water
company which provided that all times hereafter the hospital was to receive 5,000 galloons
of water per day free, and all the additional water it needed at a rate of 7 d (later agreed as
2.9p) per 1,000 gallons. This supply of water was in exchange for the hospital having given up
its right to take water from its own nearby well. By 1975m the provision of water to the
hospital at the agreed rate was clearly uneconomic; the normal rate charged by the defendant
was 45p per 1,000 gallons. The company wrote to the hospital authority on 30 September
1975, giving six months notice of its intention to terminate the 1929 agreement. The company
would still supply 5,000 gallons per day without charge, but the excess would be provided at
the normal (economic) rates. The hospital refused to accept this notice and argued that the
1929 agreement was expressed as applying at all times hereafter.
The court of Appeal rejected the hospital authority argument, and ruled that the defendant
company’s notice was effective. The majority did not rely on the doctrine of frustration, which
explains why the case offers only slender authority for a wider interpretation of the doctrine
on the grounds of financial hardship. The court simply decided that the contract could be
brought to an end by giving reasonable notice. The judge did not think that the hospital should
be permitted to go on receiving its water at one-fifteen of the economic rate.
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Although the doctrine of frustration is limited to supervening events, which are not expressly
provided for in the contract, the court might interpret an express provision in such a way that
the doctrine may still operate. In Jackson v Union maritime Insurance Co. Ltd (1874) a
contract for the hire of a ship stated that the vessel was to proceed with all possible spread
(dangers and accidents of navigation excepted) from Liverpool to Newport, in order to load a
cargo of iron for San Francisco. The ship ran aground, not far from Liverpool, and was delayed
for eight months. It was held that notwithstanding the express exception of dangers and
accidents of navigation, the contract was frustrated. The words of exception appeared to
cover the contingency which in fact occurred, but the court found a way of limiting their
application because it clearly felt that a voyage undertaken after the repair to the ship would
have been a different adventure altogether. Accordingly, the express provisions were given a
restrictive interpretation by the court; it would excuse the owner of the ship and protect him
from an action for breach of contract, but it would not deprive the charterer of the right to
treat his contractual undertakings as discharge.
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took it via Suez. In breach of contract, the chatterers allowed the ship to enter a war zone.
(The contract contained a war clause, which prohibited the chatterer from sailing the ship
into a dangerous zone without the owners permission) The ship entered the Suez Canal and
was trapped when the canal was closed. The chatterers tried to rely on the detention of the
ship as a frustrating event.
The Court of Appeal held that the charterers could not rely on the fact that the ship was
trapped in the canal, as this was their own fault, They were in breach of contract by allowing
the ship to enter a war zone and therefore, the alleged frustrating event was self-induced.
Similar issues were raised in the House of Lords in Paal Wilson & Co A/S v Partenreederei
Hannaj Blumenthal, The Hannah Blumenthal [1983) I ALL ER 34. The case concerned the sale
of a ship under a contract which provided that any dispute arising out of the sale was to be
settled by arbitration. Disputes arose about the vessel, and the buyers commenced
arbitration proceedings. As originally agreed, both parties appointed. In all, there was a period
of over seven years delay in the arbitration. The question arose whether the arbitration
agreement was frustrated as a result of the long delay which was fault of both parties. The
House of Lords held that in such circumstances, the fact that the parties were under a mutual
obligation to keep the arbitration process moving meant that neither party could rely on the
delay for the other as a ground for claiming frustration of the agreement to arbitrate.
However, if the fault of a party to a contract is merely of a minor nature, he may still be able
to rely on the doctrine. It will be a question of degree as to whether the particular fault or
default amounts to self-induced frustration. For example, would a contract for some personal
performance be frustrated if the person concerned became incapacitated by his own
carelessness? - such as a professional acrobat who sustains injury on a private skiing
expedition and as a result, is unable to perform his act? This type of problem was
acknowledged, without being resolved, in Joseph Constantine Steamship Line Ltd v Imperial
smelting Corpn Ltd.
There seems to be no reason, in principle why events brought about by a party’s own
negligence should not be regarded as self- induced and thus preclude the application of the
doctrine.
It should be noted that, where self-induced frustration is alleged, the onus of proof falls on
the party making the allegation. In Joseph Constantine, the owners of a steamship (The
kingwood) chartered the vessel to the respondents, to go to Australia and load a cargo there.
Before the cargo was loaded, an explosion occurred in the boiler of the ship, preventing the
contract form being carried out. The respondents sued the owners for damages and the
owners claimed that the explosion frustrated the contract. The respondents argued that the
owners of proof rested on the owners to show that the explosion was not their fault. The
House of Lords held that the contract was frustrated. The cause of the explosion was not
clear, but the respondents had failed to prove that the frustrating event was the owners fault.
The burden of proof was not on the owners to disprove negligence on their part.
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Effects of the doctrine
We must now consider the practical consequences that arise when the parties are
discharged under the doctrine. Unless the law provides for a fair distribution of the loss
resulting form the supervening event, it may not be satisfactory simply to hold that the
contract is frustrated. For example a party may have incurred considerable expenditure in
reliance upon the contract before the frustrating event occurred.
It is well settled that frustration automatically brings the contract to an end at the time of
the frustrating event.
This is in contrast to discharge by breach of contract where the innocent party can choose
whether to treat the contract as repudiated. Moreover, a contract, which is discharged by
frustration, is clearly different from one, which is void for mistake. A frustrated contract is
valid until the time of the supervening event but is automatically ended thereafter, whereas
a contract void on the grounds of mistake is a complete nullity form the beginning. A clear
statement about the legal effect of frustration on a contract can be found in Hirhi Mulji v
Cheong Yue Steamship Co Ltd [1926] AC, 497, where the facts were:
The respondent owners of a ship, The Singaporean, agreed by a charter party of November
1916 to hire their vessel to the appellants from 1 March 1917. The appellants agreed to use
the ship for 10 months from the date do delivery, Before 1 march 1917, the ship was
requisitioned by the government and not released until February 1919.when the ship was
requisitioned, the owners, thinking that se would soon be released, asked the appellants if
they were still willing to take up the charter (i.e. a little later). The Appellants said that they
would do so, but when the ship was finally released (later than expected) in February 1919,
they refused to accept it. The owners argued that the appellants could not rely on the doctrine
of frustration, despite the supervening event, as they had chosen to affirm the contract.
On appeal from the Supreme Court of Hong Kong, the Privy Council held that the contract was
frustrated in 1917. This meant that the obligations under the contract brought to an end
immediately and automatically at the time of the frustrating event. The application of the
doctrine did not rely upon the election of the parties. So eve where the parties continue to
treat the contract as subsisting for a period of time after the supervening event, the court
may declare it to be frustrated.
As a consequence of the rule that a contract is valid until the time of the frustrating event,
and is determined automatically thereafter, certain other rules were said to follow. The
common law position was encapsulated in the slight enigmatic expression that the loss lies
where it falls. For example, where money was paid under a contract, which was later
frustrated, it was not recoverable. This was because parties remained liable for contractual
obligations, which fell due before the supervening event. On the other hand, the parties
escaped form performing those obligations, which had not yet fallen due to the time of
frustration. The potential for unfairness decisions in Chandler v Webster [1904] 1 KB the facts
were;
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The plaintiff contracted to hire a room in Pall Mall from the defendant for the purpose of
watching the coronation procession on 26 June 1902. The price for the hire of the room was
$141 15s and it was payable immediately. The plaintiff paid $ 100, but before he paid the
balance the procession was cancelled due to the illness of the king. The plaintiff sought to
recover back the money he had paid.
The Court of Appeal held that his claim could not succeed. Moreover, he was liable for the
remaining $41 15s as this obligation had fallen due before the frustrating event occurred.
Despite receiving no actual benefit whatsoever, the plaintiff was still liable for the hire of the
room.
The harsh results of this rule as laid down by Chandler v Webster (1904) were not surprisingly,
subjected to considerable criticism, The law Revision Committee suggested that the rule
should be changed but, before any implementation to this report took place, Chandler v
Webster was overruled by Fibrosa Spolka Akcyjna b Fairbairn Lawson Combe Barbour Ltd [Ltd}
AC 32 (the Fribrosa case) The case involved a contract under which the respondents an English
company, were to manufacture certain machinery for the appellants, a Polish company, and
deliver it to Gdynia. The appellant were to pay $4,800 for the machinery, a third of which (ire
$ 1,600) was to be paid with the order. In fact only $1,000 was paid with the order.
Subsequently, Germany invaded Poland and occupied Gdynia. At this time, none of the
machinery had been delivered. For reasons, which we have considered earlier, the contract
was frustrated and the appellants sued for the return of the $1,000.
The Court of Appeal followed the rule in Chandler v Webster and held the money was
irrecoverable. But the House of Lords decided that there had been a total failure of
consideration and that the appellants were entitled to recover $ 1,000 for the respondents.
The decision in the Fibrosa case was an improvement on the harshness of Chandler v Webster,
but was not a complete solution to the problem of money paid under a contract, which was
then frustrated. This was freely acknowledged by their Lordships in the course of their
judgments (see [1943} AC 32 at 49-50, 54-5 and 71-2). Recovery of money paid depended on
there having been a total failure of consideration the performance of a part of the
consideration would thus prevent such a claim form succeeding.
Furthermore, the decision in the Fibrosa case made no allowance for the expenses, which
were incurred under the contract by the payee. In other words, it was rely a fair solution to
both parties it provided for the return of the prepayment, but it did not compensate the
recipient for the expenditure that it had incurred whilst partially carrying out the contract. In
the Fibrosa case itself, the $ 1,000 was recoverable, but the English company received nothing
for the considerable amount of work it had done on the machinery before the frustrating
event. The common law did not allow the appointment of the prepaid sum in this situation.
To deal with these obvious defects in the law, the law reforms (frustrated Contracts) Act 1943
was enacted soon after the fibrosa case.
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The law Reform (frustrated contracts) Act 1943UK
General
The law reforms (frustrated Contracts) Act 1943 was introduced in an attempt to provide for
a fair solution between the parties when their contract had been frustrated. It aimed at
preventing the unjust enrichment of either party to the contract at eh expense of the other.
It deals only with situations where contracts have become impossible of performance or been
otherwise frustrated and the parties have consequently been discharged from further
performance (s1 (10. It should be noted that the Act does not lay down the general principles
under which the doctrine will be invoked and this question is still dealt with under the
common law rules that we have considered earlier in this chapter. Also the parties may
themselves have made express provision for the frustrating event which has occurred, in
which case, under s 2(3) the court is to give effect to the parties intentions and the Act is
excluded by their contrary agreement.
LR (FC) 1943 does not apply to all types of contract. Section 2(5) states that the Act is not
applicable to the following.
a) Any charter party, except a time charter party or to any contract (other than a charter
party) for the carriage of goods by sea : or
b) Any contract of insurance
c) Any contract to which section 7 of the sale of goods Act (now 1979) applies, or to any
other contract for the sale, or for the sale and delivery, of specific goods, where the
contract is frustrated by reason of the fact that the goods have perished.
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Provided that if the party to whom the sums 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.
This award of expenses can be made only where an advance sum was either paid or payable
before the frustrating event.
A party has incurred expenses in the performance of the contract may be awarded his
expenses up to a limit of the sums paid or payable to him under the contract the frustrating
event. Such an award will be made where the court considers it just to do so having regard to
all the circumstances of the case.- in other words any award is at the discretion of the court.
The more recent case of Gamerco SA v ICM/Fair Warning (Agency) Ltd [1995) 1 WLR 1226
provides a rare judicial discussion of the application of LR (FC) A 1943, s 1(2). The facts were
that, in 1992, the plaintiff concert promoters (p) agreed to promote a pop groups (Ds) concert
at a football stadium in Madrid on a specific date, as part of that groups European tour.
Shortly before the date of the concert, but after the contract was made by the parties,
engineers discovered that the stadium was unsafe and its use was subsequently prohibited
by the local authorities. Thus, Ps permit to hold the concert was withdrawn and, as not other
suitable venue was available at this time , the concert was cancelled. P had paid $412,500 to
D in advance, and both parties had incurred some expenditure in preparing for the concert.
The action involves Ps claim to recover the advance payment under s 1(2) of the act, and D s
Counterclaim for breach of contract by P for failing to secure the requirement permit for the
performance.
The judge, Garland J, in the High court held that the contract was frustrated due to the
stadium being unsafe and its use for the contract being banned. Ds counterclaim was
unsuccessful, as P was not required to ensure that the permit, once obtained, would remain
in force. More significantly, it was decided to allow Ps claim in its entirety, with the judge
ordering the repayment of the whole sum paid in advance despite the fact that D had incurred
some expenditure in advance of the proposed performance, justice would be done by making
no deduction form the ordered repayment under the proviso. It seems that the precise
nature of Ds expenses was not very clear and the judge found it impossible to determine an
accurate amount.
Presumably it was felt that the expenses were heavier and more calculable than those of the
defendant pop group.
Another important innovation introduced by LR (FC) a 1943 is contained in s1 (3) which states
Where any party to the contract has by reason of anything done by any other party thereto
in or for the purpose of, the performance of the contract, obtained a valuable benefit (Other
than a payment of money to which [section 1(2) applies) before the time of discharge, there
shall be recoverable form him by the said other party such sum (if any) not exceeding the
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value of the said benefit to the party obtaining it as the court considers just, having regard to
the circumstances of the case and in particular-
The amount of any expenses incurred before the time of discharge by the benefited party in
or for the purpose of, the performance of the contract, pursuance of the contract and
retained or recoverable by that party under [section 1 (2) and
The effect in relation to the said benefit of the circumstances giving rise to the frustration of
the contract.
20.52 An illustration of the potential usefulness of LR (FC) A 1943, s 1(3) is provided by the old
case of cutter v Powell (1975). The second mate of a ship, the Governor party, was promised
30 guineas for the completion of a voyage form Kingston (Jamaica) to Liverpool. The sailor
died after seven weeks of the voyage and his widow (the executrix) claimed a proportion of
his wages, on a quantum meruit basis, for the work he had done on the voyage before his
death. The court rejected the widow claim, the contract stipulated that the voyage had to be
completed. This sometimes referred to as the doctrine of strict performance.
It is possible that the outcome of Cutter v Powell would be different today under s 1(3) and
that the widow could recover from the defendant for the valuable benefit which he had
obtained form the sailors labour. But it is also possible that the Act would have been excluded
by the contrary agreement of the parties, as provided for by s 2(3) this might depend on the
construction of their agreement. Did they agree for example that there was to be not payment
whatsoever unless the entire voyage was completed by the sailor.
The first major case to be decided on the law reform (frustrated contracts) Act 1943 was BP
Exploration Co (Libya) Ltd v Hunt The facts were as follows.
Nelson Hunt had been granted an oil concession in Libya by the government of that country.
He entered into an agreement with a larger oil company, BP, to exploit the oil concession, as
he lacked the resources to go ahead on his own. BP were to do the exploratory work, which
they would finance, and in return they would get a half share of Hunts concession. Thy also
had to make certain farm- in payments to Hunt in cash and oil. As soon as the oil field become
productive, BP were to receive half of all the oil produced from it, together with
reimbursement oil (taken form Hunts share) to meet the cost of the company’s farm-in
payments and to cover Hunts share of eh development expenses. Thus BP were to bear the
principal risk of failure risk of failure in their combined venture. After much expenditure, a
large oil field was discovered, which became productive in 1967. But in 1971 BPs half share in
the concession was expropriated by the new Libya n government, following a revolution in
that country. The same fate befell Hunts half share in 1973. At the time of the frustrating
event, BP had received about one-third of the reimbursement oil to which they were entitled.
The company brought a claim under s 1(3) of the act for an award of a just sum.
The claim was allowed by Robert Goff J and he awarded BP a just sum under s 1(3) of the act.
The precise calculation of the amount is a complex matter, which will not be elaborate here.
Hunts appeals t both the court of Appeal and the House of the Lords were successful, the
main judgment on the scope of s 1(3) is that of the trial judge. (In the House of Lords, their
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lordships dealt with fairly minor, technical values of the oil concession as a result of BPs work.
It should be noted, however, that the value of this benefit was substantially reduced by the
circumstances giving rise to the frustration of the contract, namely the expropriation of the
parties interests in the oil field.
Conclusion
Frustration of a contract makes the contract void, and discharges the parties of the
contractual obligations. However, Section 65 of the Act states that when an agreement has
become void, the person who has received any advantage under such agreement is 'bound'
to restore it or to make compensation for it, from whom he received it. The issue arises
whether this section also applies to contracts rendered void by frustration. Frustration of a
contract occurs without the fault or control of either party, and therefore, a party should not
be made to compensate in such event. However, not providing adequate compensation may
also cause loss to the other party. Therefore, it is hoped that the Indian judiciary sheds some
light into such issues and provide a suitable remedy for cases of frustration of contracts.
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