FRUSTRATION OF CONTRACT

BY V. AJAY KUMAR V. NARESH

A party may be discharged from his contractual obligations in any of the following ways, PERFORMANCE FRUSTRATION AGREEMENT BREACH

Is the party at fault.

Is there a radical change in the contractual obligation in respect of which no prior agreement has been reached?

Was the supervening event, from which the radical change in obligation is arising from, unforeseeable?

A contract is frustrated where for reasons beyond the parties control, the contract becomes impossible to perform.
The impossibility must arise after the contract has been made.

A contract is frustrated where after the contract was concluded unforeseen events occur which make performance of the contract impossible, illegal or something radically different from that which was in the contemplation of the parties at the time they entered the contract and neither party must be at fault.

Impossibility of performance

Illegality of performance
Radically different performance from that contracted for.

When the alleged frustrating event is self induced

When the contract has specifically provided for the alleged frustrating event, and When the alleged frustrating event was foreseen by the parties at the time the contract was made.

Section 3 provides that where a contract has become frustrated:

Moneys due cease to be payable; and Money already paid shall be recoverable - except Where expenditure has been incurred prior to the contract being frustrated, the Court may allow a party to retain or recover the whole or any part of the sums so paid. Similarly where one party has obtained some other valuable benefit the Court is empowered to make orders to fairly adjust matters between the parties.

The contract may make provision for the frustrating event.

The Court may, in a proper case, sever any part of the contract that is frustrated and allow the remainder of the contract to go forward. The Act does not apply to any contract: For the carriage of goods by sea;

Of insurance; or
For the sale etc. of specific goods which is frustrated by the destruction of the goods before risk has passed to the buyer. (Section 9 Sale of Goods Act.)

Instance

Case

1.
2. 3. 4.

Outbreak of War
Destruction of the Subject matter Non-occurrence of a particular event Death or incapacity for personal service

HA Berney v Tronoh Mines

Taylor v Caldwell Appleby v Myers *Krell v Henry *Chandler v Webster *Nga Sheau Sheau v United Merchant Finance Bhd *Condor v Barron Knight Ltd [1966] 1 WLR 87

5.
6. 7. 8.

Statutory Prohibition
Inability of Promisor to Obtain License Grant of an injunction Seizure of compulsory acquisition by the government

Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119

*Yong Ung Kai v Enting *Ho Weng Leong v Ng Kee Chin *Standard Chartered Bank v Kuala Lumpur Sdn Bhd Public Finance Bhd v Ehwan bin Saring Re Shipton

Instances

Case

1.

Event causing carriage of goods by sea more expensive

Financial crisis

Tsakiroglu &Co. Ltd v Noblee Thorl GmbH [1962] AC 93

Sentul Raya Sdn Bhd v Hariram a/l Jayaram [2008] 4 MLJ 852

2. 3.

Shortage of labour and materials in Davis Contractor Ltd v Fareham UDC [1959] AC building contracts 696, Occurrence of bad weather *Kwan Sun Ming v Chak Chee Hing, [1965] 1 MLJ 236 *Khoo Than Sui v Chan Chiau Hee [1976] 1 MLJ 25 Wong Siew Choong Sdn Bhd v Anvest Corp Sdn Bhd [1999] 3 MLJ 577 Pacific Forest Industries Sdn Bhd v Lin Wen-Chih, [2009] 6 MLJ 293

4.

5.

Compulsory acquisition by the government of small part of the land Difficulty in interpreting the terms of the contract

6.

The defendant appellants contended that their construction contract was frustrated because adequate supplies of labour were not available to it because of the war. Held: The court considered how the frustration of the performance of a contract affected the obligations under it: frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni.

 It was not this that I promised to do. and it might seem that the parties (to the contract) themselves have become so far disembodied spirits that their actual persons should be allowed to rest in peace. In their place there rises the figure of the fair and reasonable man. And the spokesman of the fair and reasonable man, who represents after all no more than the anthropomorphic conception of justice, is and must be the court itself.

Lord Reid said: It appears to me that frustration depends, at least in most cases, not on adding any implied term, but on the true construction of the terms which are in the contract, read in light of the nature of the contract and of the relevant surrounding circumstances when the contract was made.

Lord Somervell concluded that: A party contracting in the light of expectations based on data of that or any other kind must make up his mind whether he is prepared to take the risk of those expectations being disappointed. If not, then he will refuse to contract unless protected by some specific provision. There is no such provision here. The appellants took the risk under the contract, and it seems to me impossible to maintain that the contract did not apply in this situation as it remained, the expectations on which the estimate was based not having been realised.

Shortage of labour and materials in building contracts. The contract will not be frustrated unless its foundation has been destroyed so that the performance becomes impossible or fundamentally different from what was agreed. It is not enough that the contract has become more onerous or expensive to perform.

The materials upon which the court must proceed to make a decision: terms and construction of the contract, read in light of the then existing circumstances, and the events which have occurred.

In this case two things prevent the application of the principle of frustration a) the cause of delay was not any new state of things which the parties could not reasonably be thought to have foreseen; b) contractor cannot rely on frustration to get him out of his unfortunate predicament.

The plaintiff agreed to build 78 houses in eight months at a fixed price. Due to bad weather, and labour shortages, the work took 22 months and cost 17,000 more than anticipated. The builders said that the weather and labour shortages, which were unforeseen, had frustrated the contract, and that they were entitled to recover 17,000 by way of a quantum meruit. The House of Lords held that the fact that unforeseen events made a contract more onerous than was anticipated did not frustrate it.