The Doctrine of Frustration - Part 3

The Doctrine of Frustration - Part 3 - Limitations on the Doctrine

Historically, setting aside a contract after its formation, due to impossibility of performance, was, by all means, not judicially acceptable. It was not until 1863, and the case of Taylor v Caldwell[1] when the courts formulated an exception to this rule by using the theory of implied terms. In spite of the expansion of the doctrine, it still operates within narrow confines, thus to avoid a party to escape what may be considered a bad commercial bargain. Lord Roskill stated that it is: "not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent bargains"[2]. Similarly, Viscount Simmonds in Tsakiroglou[3] stated that 'the doctrine of frustration must be applied within very narrow limits'.

However, since the doctrine of frustration is an exception to the absolute liability rule and since it operates when justice requires a departure from the general absolute nature of contractual obligations, the courts have imposed several limits and restrictions before a contract can be said to have been frustrated.

?1.1?????????Self induced frustration

When a party to a contract is responsible for the occurrence of the frustrating event whether by his actions or inactions, this, in legal terms, is called self-induced frustration. It is established, in situations of this nature, reliance cannot be placed on self-induced frustration[4]. The event, must have occurred without fault on either side of the contract. This principle has been illustrated in Maritime National Fish Ltd v Ocean Trawlers Ltd[5]. In this case, Maritime National Fish contracted to hire a steam trawler fitted with an otter trawl, from Ocean Trawlers Ltd. It cannot be doubted, the parties must have been fully aware that the use of a vessel without a license, was illegal. When Maritime National claimed that the contract was frustrated, their appeal was rejected and the court found that "it was the act and election of the defendants which prevented St Cuthbert from being licensed for fishing with an otter trawl"[6]. The frustration was found to have been self induced.

It is to be noted, the burden of proof in situations of this nature is placed on the plaintiff to establish that an alleged frustrating event was wrongfully caused by the defendant. Thus in The Kingswood[7], a chartered ship was destroyed by fire. The court held that a party claiming self induced frustration by the other party must prove actual self inducement. Mere negligence is insufficient. The House of Lords held that the shipowners were discharged from the contract without the need to disprove fault.

?1.2?????????Foreseeability of the frustrating event

If the event was, or ought to have been foreseeable, it cannot constitute a frustrating even. If parties to a contract can foresee the occurrence of an event and still make no provision for it in the contract, they must then deemed to have accepted any and all risks associated with the occurrence of the event. The event, to be successfully invoked, must be beyond what was contemplated by the parties when they entered into the agreement[8]. This, however, shall not be considered as an absolute principle. The High Court held that a contract was frustrated noting that whilst the seizure of the ship was foreseeable, it was not foreseeable that it would be held for so long after the charter period[9].

?The simple fact about the above is that the law will seem to require a high degree of foreseeability before it can debar frustration.

?1.3?????????Foreseeability of the frustrating event by one of the parties

In Walton Harvey Ltd v Walker & Homfrays Ltd[10], the defendant's granted the plaintiffs the right to display an advertising sign on the defendant's hotel for seven years although he was made aware of the local authority interest at the time he signed the agreement. When the hotel was demolished, the advertising agency sued for breach of contract and the hotel argued the contract had become frustrated. The defendants were held liable in damages. The contract was not frustrated because the defendant's knew, and the plaintiffs did not, of the risk of compulsory acquisition.

?1.4?????????Express provision

The parties remain the masters of their agreement. As such, they could, if they wish, modify the allocation of loss which would result from the operation of the doctrine. In a clearer term, a contract will not be said to have been discharged by frustration where the parties, by mutual agreement, have incorporated in their agreement, an express provision dealing with the consequences of a particular frustrating event. The theory behind this is that the doctrine of frustration cannot overrule the parties freedom to contract and as such it cannot override an contractual clause excluding any effect of a particular event. For example, a force majeure clause can be employed to exclude liability for events beyond the control of the parties if they so require.

In Select Commodities Ltd v Valdo SA[11] Tomlinson J. said: where the parties have included in their contract a clause which is intended to and does deal fully and completely with the effects of an event which would otherwise, absent the clause, frustrate the contract, the doctrine of frustration is inapplicable to the effects of that event if it occurs.” Although, in the particulars of this case, the court's view was that the clause did not make complete provision for all the effects of the event claimed as force majeure and as such the charterparty was frustrated, the importance of the case is how courts are prepared to exclude frustration when there exists to be an express contractual provision that deals fully with an event that would otherwise frustrate the contract.

?1.5?????????Fault and/or negligence

The doctrine does not operate where the alleged frustrating event is the result of a party’s own voluntary faulty act or negligence[12]. The courts will not respond to a claimant when the event allegedly frustrating the contract has been brought about by the claimant's own fault. The event must have occurred without either the fault or the default of either party.[13]

It is to be noted, the term "fault" shall not be narrowly construed and shall be expanded to cover situations not only where one of the parties had negligently caused the frustration, but also where he has deliberately acted in a manner which brings about the frustrating event.

[1] Taylor v Caldwell (1863) 3 B & S 826

[2] Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724, p. 752

[3] Tsakiroglou & Co. Ltd v Noblee Thorl Gmbh [1962] A.C.93 at 115

[4] Lord Sumner in Bank Line v Arthur Capel & Co. [1919] A.C 435. at 452

[5] Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524

[6] ibid at 529

[7] Joseph Constantine S.S. v Imperial Smelting Corpn. [1942] A.C 154

[8] Cricklewood Investments Trust Ltd v leighton Investment Trust Ltd. [1945] A.C. 221 at 228

[9] W.J. Tatem Ltd v Gamboa [1939] 1 KB 132

[10] [1931] 1 Ch 274

[11] [2007] 1 L1oyd's Rep. 1

[12] In Ocean Tramp Tankers Corpn v V/O Sovfracht, The Eugenia [1964] 2 QB 226, CA, it was stated that a charterer who ordered a vessel into a war zone, with the result that she was detained, could not rely on the detention as the basis for frustration of a contract of hire. This was because the detention was due to the charterer’s action, which was interpreted as a breach of contract.

[13] Paal Wilson & C0. A/S v Partenreederei Hannah Blumenthal (the Hannah Blumenthal) [1983] 1 A.C. 854 at 909

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