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Frustration: a) ‘A mere increase in costs will never constitute frustration.’ Discuss.b) Fiona, a famous businesswoman, contracts with Grot plc, to give a speech at their annual dinner for a fee of £10,000, half of it payable on contracting and the other half on the day of the speech. Fiona also asks for a case of Krug champagne which Grot agree to send to her the week before the event. The venue for the dinner fails its safety inspection the day before the dinner is due to take place. Grot plc made the first payment of £5,000 to Fiona but forgot to send the champagne. Later they refuse to pay the second instalment or to send the champagne. Grot have ordered £1,000 worth of flowers for the tables which theycannot avoid paying for. Advise Grot as to their rights and liabilities.(a) Explain what is meant by the term ‘self-induced’ frustration. (Introduction) Frustration (impossibility, illegality of the performance) can be self-induced i.e. result fromthe fault of one of the parties. In fact, the word fault has been interpreted very widely to include the actions/decisions (not even free ones) of the parties. (Maritime v Ocean Trawlers, The Super Servant Two).(Body)Frustration is the end of the contract automatically irrespective of the wishes of the parties. The contract ends if an unforeseen event, happening after the contract if an unforeseen event, happening after the contract without the fault of either party, makes performance of the contract impossible, illegal or radically different (completely different) from what the parties intended (National Carriers v Panalpina). For example, if the subject matter of contractors fully destroyed which makes performance of the contractimpossible, the contract frustrates by operation of law. This is what happened in (Taylor v Caldwell) where music halls were destroyed by accidental fire after the contract but before the concerts took place. However, performance of the contract can be impossible, illegal or radically different by the fault (actions) of one of the parties. It is known as self-induced frustration. In this instance, the contract is not frustrated and the party at fault is found to be in breach of the contract. For instance, (Maritime v Ocean Trawlers) and (Lauritzen v Wifs Muller (The Super Servant Two)) are the two key cases where the frustration was held to be self-induced and the contract was consequently notfrustrated. In (Maritime), the defendant hired a boat from the claimant. After the contract, defendants were unable to use the boat since they were not granted enough fishing licenses by the government to cover all the boats. The defendant owned four boats and hired one from the claimant. Consequently, performances ofthe contract become illegal and the defendant argued frustration. It was held that this illegality resulted from the decision of the defendant to not use the license for the claimant’s boat. They had a choice of allocating the license to the claimant’s boat rather than to their boat. They could have done this without breaking any other contract since the other boats were his own. Hence, the frustration was self-induced and the contract was not frustrated. Moreover, similar decision was reached in the case of the Super Servant Two. The defendant agreed to transport the claimant’s oil machinery in either of their two boats (Super Servant One (SSO)) and Super Servant Two (SST)). Before the contract, defendanthimself allocated the SST to the contract with the claimant. Before the performance, SST sank so goods could not be transferred from SST. SSO was allocated to other contracts (with third party) so it could not be used. Defendant argued that the contract’s performance has become impossible hence the contract should end. It was held that the frustration (impossibility) resulted from the defendant’s decision of allocating SSO to other contracts hence the frustration was self-induced and the contract was not frustrated. It must be noted that the courts interpreted self-induced very widely. In the Super Servant 2, the defendant had no real choice since whichever contract they used the SSO for, they would breach the
other contract. Hence, it was not properly self-induced but the court held otherwise. These cases show that frustration can be self-induced.Essay tips) 1) Stipulate a stance at the outset.2) Maintain it throughout the essay(b) Lou Rolls sells and restores antique bathroom fittings. One evening vandals break in and set fire to hisworkshop. The workshop and all its contents are destroyed. A week before the fire Mel had agreed to pay Lou £5,000 to restore an antique bath. As agreed, Mel paid Lou £500 when she delivered the bath with the balance payable on completion. Lou had purchased for £1,000 some specially formulated enamelto use in the restoration. Both the bath and the enamel were destroyed in the fire. At the time ofthe fire Ned, a builder, had almost completed retiling the floor of Lou’s warehouse. It had been agreed that Lou would pay Ned £8,000 as soon as the job was completed. Advise Lou as to his rights and liabilities to Meland Ned taking account of the law relating to frustration. General remarks:This is a question about frustration with part (a) an essay and part (b) a problem. Answered by a good number of students with part (a) much better answered than (b). Students who had properly revised thisarea and read the question carefully scored well. Law cases, reports and other references the examiners would expect you to use (a) Explain briefly the classic definition of frustration, then go on to explain what is meant by self-induced frustration (an event caused by one of the parties) with reference toMaritime National Fish v Ocean Trawlers and especially Super Servant 2. (b) Explain physical impossibility: Taylor v Caldwell and Davis Contractors v Fareham UDC. In relation to Mel, consider effect of frustration at common law: Chandler v Webster. Compare with position under Law Reform (FrustratedContracts) Act 1943. Under s.1(2) Mel can get back £500 but Lou can offset expenses of £1,000, meaningLou loses £500: refer to Gamerco v ICM. In relation to Ned – cannot bring an action at common law and no monies paid in advance so s.1(2) does not help. No benefit conferred on Lou so s.1(3) doesn’t help either: BP v Hunt.good answer to this question would… give equal weight to parts (a) and (b) spending time on the two keycases in part (a). For part (b) explain the common law and contrast with the statutory position giving actual figures as to possible damages, following the instruction to advise Lou as to his rights and liabilities in relation to Mel and Ned. Needs a clear logical structure.‘English contract law defines the type of event which amounts to a frustrating event far too narrowly. The courts should be more ready to relieve a party from their contractual obligations following events which make the contract more onerous to perform.’ Discuss.General remarks: This was a reasonably popular question about frustration and most candidates who attempted it obtained a mid-range mark. Again, plenty of knowledge of the principles of frustration and relevant case law was shown but to score more highly that knowledge needed to be applied to the specificquestion. There needed to be some critical analysis of how narrow the English doctrine is in reality and the impact on legal certainty if the doctrine were to be relaxed. Some candidates made a reasonable attempt at this by discussing how frustration should not enable parties to simply escape from a ‘bad bargain’, nor permit parties to benefit unjustly. Also, discussing the cases on ‘self-induced’ frustration. The commercial use of force majeure clauses to mitigate against the common law was also a discussion that gained credit for better candidates.
Law cases, reports and other references the examiners would expect you to use Davies v Fareham, Jackson v Union Marine, Super Servant II, Ocean Trawler, force majeure clauses. Common errors Writing a generic pre-prepared essay about all aspects of frustration, including going through every section of the Frustrated Contracts Act, which had no real relevance. Missing the point of the quote in the question and failing to take a view about the positives and negatives of a narrow doctrineA good answer to this question would… briefly explain the doctrine of frustration giving case law examples of how it operates and why the courts have applied it on a narrow basis using relevant examples– see extract below. Poor answers to this question… failed to address the question and simply wrote a generic essay about frustration, often containing relevant cases but failed to comment or draw any conclusion to support the thesis in the question. Student extract: The law of frustration is where the contract cannot be performed in the prescribed manner due to someform of illegality or impossibility which renders performance fundamentally and significantly different from what was initially intended. The doctrine of frustration usually operates on very narrow terms. There are primarily two reasons for this. The first is that the doctrine of frustration does not wish toprotect a particular party simply when he has made a bad bargain. This was explained in the decision of Davis Contractors v Fareham, where the claimant could not claim for money under the doctrine of frustration as the extra money to complete the job was due to the lack of availability of the skilled labour. This turned out to be a bad bargain and the courts did not wish to allow them an escape route. The second reason for the narrowness of the doctrine is because the future is uncertain and there could be a sudden increase or decrease in prices due to inflation. The court in such situations does not wish to impose frustration as then a very wide range of cases would be frustrated. So, clauses such as the force majeure clause are important in such contracts as they wish to prepare or predict about the situations in the future which could not frustrate the contract. Other types of clauses include the hardship and intervener clauses. The advantage of such clauses is that they help prepare the parties for future events, provides with a greater degree of certainty and is a wider concept. So these are the reasons why frustration is such a narrow concept. But, there are certain situations where the courts have been willing to use the doctrine. The first situation is where there has been an impossibility of the performance of the contract. In such situations, the courts have held that a contract will be frustrated. Such an incident occurred in Taylor v Coldwell where the contract was held to be frustrated when the hall where the concert was to take place was destroyed by fire. The claimants in this case could not sue for the advertising costs and for the defendant’s failure to provide the hall. Where possibility of performance is only temporarily impaired, thecontract could still be frustrated as was the case in Jackson v Union of Marine where only temporary unavailability of the ship meant that the contract was frustrated. On the other hand, the courts would also be willing to apply the doctrine of frustration where there is a frustration of purpose. Such cases are rare but they are held to have frustrated the contract. One of the cases on this issue was that of Krell v Henry where it was held that the contract had been frustrated when the coronation of Edward VII was cancelled and thus, the defendant was not bound to pay for the rooms as the purpose of this contract was no more there. But, this case can be contrasted with that of Herne Bay Steam Boat v Hutton, where the cancellation of the naval review was not held to have frustrated the contract. The difference the courts found between Krell and Hutton was in Krell, the foundation of the contract was on the basis of the coronation whereas in Hutton, the naval review was not the sole reason for the contract. Where an expressprovision has been stated that intervening acts will not affect a contract, the courts have however, been reluctant to use the doctrine of frustration. However, in Water Development Boards case, the doctrine of frustration did apply as the intervening act was held to be substantial even though there had been a
provision made in the contract. But the intervening event was held to be a substantial cause why the contract could not be carried on with and thus, it was held to have frustrated the contract. The courts have also been reluctant to use the doctrine of frustration in case of self-induced frustration. This is where the defendant imposes the frustration upon himself and in such a case the courts have held that the contract would not be frustrated. The first case occurred in the Ocean Trawlers case where the argument of the defendant that the contract was frustrated was rejected as their failure to obtain licences was held to be self-induced. Another case of Super Servant II was of more significance to the issue of self-induced frustration. In this case, transportation of goods by a more expensive way was held to be self-induced as the owners had failed toprovide transportation with Super Servant I when Super Servant II sank as it was being used in other contracts. However, there was a force majeure clause in the agreement where such a situation was held to be foreseen. So, the owners of the Super Servant II could get the money. However had there not been a force majeure clause, the claim would have failed. This seemed to be unfair to the ship owners but this is what the courts held. It shows the importance of force majeure clauses. So, to conclude, it can be seenthat the doctrine of frustration has been narrowly defined and used, but the courts have still been willing to use it in circumstances where certain events have made the contract too onerous to perform. However, there are still certain limitations to this doctrine of frustration or not as can be seen in the cases of self-induced frustration objectively foreseen, the courts have been reluctant to set aside contracts due tofrustration.A mere increase in costs will never constitute frustration. Discuss.Davis v Fareham is the obvious starting point and discussion could extend to the so called ‘Suez’ cases such as Tsakiroglou v Noblee and Thorl. Focus on the precise part of the doctrine of frustration under discussion. The doctrine of frustration in contract law is a crucial concept that deals with situations where unforeseen events make it impossible to fulfill the terms of a contract. Frustration allows parties to be discharged from their contractual obligations when the fundamental basis of the contract is undermined by events outside their control. However, it's important to note that a mere increase in costs, without more, is generally insufficient to constitute frustration. This principle is underscored in the landmark case of DavisContractors Ltd v Fareham Urban District Council, and further explored in subsequent cases like Tsakiroglou & Co Ltd v Noblee Thorl GmbH and The Suez Fortune Investments Ltd v Talbot.In Davis v Fareham, the court ruled that a contract is not frustrated merely because it becomes more expensive or difficult to perform. In this case, Davis Contractors entered into a contract to carry out demolition work, but the cost of fulfilling the contract increased significantly due to unforeseen circumstances. The court held that this increase in costs did not amount to frustration, as it did not render performance impossible or fundamentally different from what was originally agreed upon. This decision established the principle that a mere increase in costs, even if substantial, does not constitute frustration unless it fundamentally changes the nature of the contract or makes performance impossible.The Suez cases, such as Tsakiroglou v Noblee Thorl, further illustrate this principle. In Tsakiroglou v Noblee Thorl, the outbreak of the Suez Canal crisis significantly increased transportation costs for a shipment of goods from Indonesia to Rotterdam. The court held that the increase in costs did not frustrate the contract, as it did not render performance impossible but merely more expensive. The parties could
still perform their obligations under the contract, albeit at a higher cost, which did not amount to frustration.The precise part of the doctrine of frustration that comes into play here is the concept of supervening impossibility or radical change. Frustration occurs when an unforeseen event fundamentally alters the nature of the contract, making performance objectively impossible or radically different from what was originally contemplated by the parties. Mere financial hardship or increased costs, without rendering performance impossible or fundamentally changing the nature of the contract, does not meet this threshold for frustration.It is essential to distinguish between situations where performance becomes more onerous or expensive, which is a risk parties typically assume in commercial contracts, and situations where performance becomes objectively impossible or radically different. The courts are generally reluctant to invoke frustration based solely on increased costs, as parties are expected to bear the risks associated with changes in economic conditions or market fluctuations.In conclusion, the doctrine of frustration operates on the principle of supervening impossibility or radical change in contract performance. A mere increase in costs, without rendering performance impossible or fundamentally altering the nature of the contract, is unlikely to constitute frustration. The decisions in Davis v Fareham and the Suez cases emphasize the importance of objectively assessing whether the eventin question truly frustrates the contract based on these criteria.‘The statutory control of exclusion clauses in so-called ‘B2B’ contracts is complex and perhaps also unnecessary.’ Discuss. General remarks Answers need to confine themselves to a discussion of B2B contracts with so-called B2C contracts mentioned only by way of comparison. As with all essay-style questions, the answer will comprise a mixture of description, i.e. what the law is and critique, i.e. identifying any weaknesses and suggesting improvements. Equally, the focus is on the statutory, as opposed to the common law, control of exclusion clauses.Law cases, reports and other references the examiners would expect you to use Unfair Contract terms Act 1977 (UCTA), ss.1(3), 1(4), 2(1), 2(2), 3(1), 3(2)(a), 3(2)(b), 11 and 14. Cases used to support the discussion of the statutory provisions might include Stewart Gill v Horatio Myer, Smith v Eric Bush, Axa Sun Life v Campbell-Martin etc.A good answer to this question would… start with some key definitions, e.g. what is a B2B contract? What is an exclusion clause? What is statutory control? Good answers will show a detailed understandingif the individual statutory sections and subsections. Here the knowledge displayed must be specific. It should be supported by cases, where appropriate, but the primary focus is on the provisions of UCTA.Common errors This question has a narrow focus and so discussion of the common law control of exclusion clauses is not relevant but was included in many answers. Also, many answers were descriptiveonly and did not develop any criticism of the law they described.Exclusion clausesare provisions in contracts that limit or exclude the liability of one party in specific circumstances. They play a crucial role in contract law, offering protection and risk management for parties entering into agreements. This essay will delve into the nature and operation of exclusion clauses, analyzing key cases in contract law to understand their intricacies, limitations, and implications. It will first introduce the concept of exclusion clauses and their classifications, followed by an exploration of theincorporation, construction, and reasonableness of these clauses.
Finally, it will conclude by assessing the impact of exclusion clauses on contractual fairness and justice. I. Understanding Exclusion Clauses A. Definition and Purpose Exclusion clauses are contractual provisions intended to limit or exclude the liability of a party in the event of a breach, non-performance, or any other specified circumstance. The primary purpose of these clauses is to allocate risks and responsibilities between contracting parties. They allow businesses to operate with a level of certainty, protecting them from unforeseen costs and potential financial ruin. B. Types of Exclusion Clauses There are three main types of exclusion clauses: 1.Limitation clauses - These clauses limit the amount of liability for a party. For example, a carrier may include a clause stating that their liability for lost or damaged goods is limited to a specific sum. 2.Exemption clauses - These clauses exclude a party's liability altogether. For example, a gym may include a clause stating that they are not responsible for any injuries sustained while using the facilities. 3.Indemnity clauses - These clauses require one party to indemnify (or compensate) the other for any losses or damages arising from a specified event. For example, a contractor may include a clause stating that they will indemnify the client if any third-party claims arise from their work. II. Incorporation of Exclusion Clauses For an exclusion clause to be enforceable, it must be incorporated into the contract. There are three main methods of incorporation: A. Express Incorporation - This occurs when the exclusion clause is explicitly included in the written contract or oral agreement. In L'Estrange v Graucob [1934], the court held that a signed contract containing an exclusion clause binds the parties, even if one party did not read or understand the clause. B. Incorporation by Notice - This occurs when one party gives the other notice of the exclusion clause before or at the time of contracting. In Olley v Marlborough Court Ltd [1949], the court held that a notice displayed in a hotel room stating that the hotel was not liable for lost or stolen items was not incorporated into the contract, as it was displayed after the contract had been formed. C. Incorporation by Reference - This occurs when one party refers to another document containing the exclusion clause. In Hollier v Rambler Motors [1972], the court held that an exclusion clause referred to in an invoice was not incorporated into the contract because it was not specifically brought to the attention of the other party. III. Construction of Exclusion Clauses The courts will interpret exclusion clauses based on their wording and the context of the contract. There are two main principles for construction:orners Rule - This principle states that an exclusion clause will only cover the risks and liabilities that fall within the scope of the clause's wording. In Canada Steamship Lines Ltd v The King [1952], the court established a three-part test to determine the scope of an exclusion clause: (1) whether the clause expressly covers the specific liability, (2) whether the clause implicitly covers the liability, and (3) whether the clause is wide enough to cover the liability but is limited by the contra proferentem rule. IV. Reasonableness of Exclusion Clauses Under the Unfair Contract Terms Act 1977 (UCTA) and the Consumer Rights Act 2015 (CRA), exclusion clauses are subject to a test of reasonableness. These statutes impose limitations on the ability of businesses to exclude liability for certain types of losses, suchas death, personal injury, and defective goods. A. The UCTA Test - Section 11(1) of the UCTA provides that an exclusion clause is only enforceable if it is reasonable. The Act lists factors to consider, such as the bargaining power of the parties, the availability of insurance, and the knowledge and experience of theparties. In George Mitchell v Finney Lock Seeds [1983], the court held that an exclusion clause limiting the seller's liability for defective seeds was unreasonable because it effectively allowed the seller to escape liability for their core contractual obligation. B. The CRA Test - The CRA applies to consumer contracts and imposes a similar test of fairness. Under Section 62, an exclusion clause is unfair if it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer. In Parking Eye Ltd v Beavis [2015], the court held that a parking charge for overstaying in a car park did not constitute an unfair term because it was intended to
manage the efficient use of parking spaces and was not disproportionate. V. Impact of Exclusion Clauses on Business Relationships Exclusion clauses play a vital role in shaping business relationships, as they provide parties with a means to manage risks and allocate responsibilities. They also facilitate commercialtransactions by offering greater certainty and predictability. However, the presence of exclusion clauses can also create tensions and potential disputes between parties, particularly when the clauses are perceived as unfair or overly restrictive.A. Risk Management - Businesses frequently use exclusion clauses to manage risks associated with their operations. By limiting or excluding liability for certain events or damages, businesses can safeguard theirfinancial stability and maintain their viability in the face of unforeseen challenges. Exclusion clauses also enable parties to allocate risks according to their ability to bear them, which can promote efficiency in commercial transactions. B. Certainty and Predictability - Exclusion clauses contribute to the overall certainty and predictability of contractual arrangements. By establishing the boundaries of liability in advance, parties can better assess their potential exposure and make informed decisions about whether to enter into a contract. This increased certainty can reduce transaction costs, as parties are less likely to engage in protracted negotiations or disputes over liability. C. Potential for Disputes - While exclusion clauses can promote contractual certainty and risk management, they can also create tensions between parties, particularly when one party feels disadvantaged by the clause.‘The narrow doctrine of mistake at law has therefore triumphed over the more flexible doctrine that had been developed in equity post – Solle v Butcher. Some will mourn this loss of flexibility.’ (McKendrick.) Critically evaluate the statement above. General remarks This question requires a critical discussion of changes in the law of mistake that were brought about by the Great Peace case below. Law cases, reports and other references the examiners would expect you to use Bell v Lever Bros; Solle v Butcher; Assoc Japanese Bank v Credit du Nord; Grist v Bailey; Magee v Pennine Ins; Great Peace Shipping v Tsavliris Salvage; Pitt v Holt. Common errors Many answers gave a broad account of the effect upon a contract of a mistake made by one or both of the parties. Whereas the title required a more focused discussion that emphasised the flexible doctrine of mistake in equity. A good answer to this question would… introduce the concept of mistake and describe how it can operate at law and in equity. This could be done by reference to a leading case such as Bell v Lever Bros. Categorisations within the doctrine could be described but should not form a substantial part of the answer, which should focus upon ‘the flexible doctrine that had been developed in equity’. This title specifically refers to Solle v Butcher, which should be discussed in detail as well as the application of this flexibility in subsequent cases such as Magee and Grist. The effective abolition of this flexibility as a result of the Great Peace decision should be discussed with extended consideration as to whether this was an improvement or not in the law. A strong answer might contrast the benefits of the ‘old’ flexibility with the benefits of the certainty that the new approach brings.