This article explores the doctrine of frustration in contract law which addresses the termination of contracts due to unforeseen events that render performance impossible. It outlines the essential elements required for a contract to be formed and subsequently discharged while focusing on frustration as a mode of discharge.
By Teddy Musonda and Lusekelo Kamfwa
A contract is a legal agreement between two parties that stipulates what each party must do. Contracts are established to be binding i.e. parties to the agreement are bound and mandated to act in the manner stipulated by the contract they formed without excuse. On one hand, formation of a contract signifies the beginning or start of a contract. A contract is formed when five (5) elements are satisfied; (i) there must be an offer (ii) there must be acceptance (iii) there must be valid consideration (iv) the parties must have the intent to create legal relations (v) both parties must have capacity to contract. All five elements must be satisfied for a contract to be formed. On the other hand, discharge of a contract signifies the ending or cessation of the contract. A contract can be discharged in the following ways: (i) by performance; (ii) breach; (iii) by mutual agreement; (v) by frustration. On that basis, this article will discuss the mode of discharge of a contract by way of frustration, the writing will provide scope and nature of discharge of a contract by way of frustration, discuss all elements of frustration with aid of case law and ancillary arguments.
THE DOCTRINE OF FRUSTRATION
Frustration refers to an unforeseen circumstance that makes performance of a contract impossible[1]. Where frustration occurs, the contract terminates. This was stated in the case of Sam Amos Mumba v. Zambia Fisheries and Fish Marketing Corporation Limited[2], where the High Court made this pronouncement concerning discharge of contracts,
“It is a recognised principle in the law of contract that performance of contract may be discharged among others by way of frustration.”
Historically, it was a principle in contract law that once parties bind themselves to undertake a certain action, they are bound by the said agreement, no matter what circumstances may arise that would make performance of the contract impossible. The only exception to this was if the contract contained a clause stating that the contract would terminate at the occurrence of certain events. This principle was highlighted in the case of Paradine v Jane[3].
In that case, the plaintiff brought an action against the defendant for rent arrears she owed for the land that he leased to her. The defence of the defendant was that the land was invaded by an army opposing the King of England at the time, and thus, it could not be used. The issue at hand was whether the defendant was still liable to pay the arrears owed for the lease, despite the land being under siege for the whole tenure of the lease. The court, in ruling favour of Paradine, stated that even though there were events that occurred which made it impossible for the defendant to enjoy the lease, because it was agreed that the rent be paid, the defendant had no choice but to pay.
The law, since the Paradine case, evolved to recognise that the occurrence of certain events should cause the contract to be terminated, leading to the development of the doctrine of frustration.
The doctrine of frustration dictates that parties to the contract are discharged from performance of the contract if an unforeseen event makes it impossible to fulfil the conditions of the contract. The case of Taylor v Caldwell[4] set new precedent as to whether a contract could be terminated due to the occurrence of certain events.
In this case, Taylor came to an agreement with Caldwell to rent the Surrey Gardens and Music Hall to him for four days for four concerts and fetes. Taylor then spent money on advertisements and other expenses related to the forthcoming events. Then a week before the planned events, a fire broke out in the Hall, burning it down. The contract the two parties signed did not have stipulations concerning what was to take place in the event of a fire. Thus, Taylor sued Caldwell for damages for not renting him the Hall. The court stated that though parties in a contract are obligated to fulfil the terms of the contract, failure to which the liable party must pay damages. However, there certain circumstances that may render the performance under the contract impossible and in such events a party will not be liable for failure to meet their obligations under the contract.Blackburn J. stated the following,
“The principle seems to us to be that, in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance. In none of these cases is the promise in words other than positive, nor is there any express stipulation that the destruction of the person or thing shall excuse the performance; but that excuse is by law implied, because from the nature of the contract it is apparent that the parties contracted on the basis of the continued existence of the particular person or chattel… We think, therefore, that the Music Hall having ceased to exist, without fault of either party, both parties are excused… [from performance of the contract]”.
Essentially, the court held that Caldwell could not be found liable for not renting him the Hall because the contract had been rendered impossible due to the fire that broke out. The contract had been discharged by frustration- the frustration event being the fire burning the hall.
ELEMENTS OF FRUSTRATION
The case above brings out elements that ought to be satisfied to deem an occurrence of frustrating event. Put otherwise, there several factors that must be met to conclude that the contract had been discharged by way of frustration. (i) frustration must not be self-induced. (ii) must have been an unforeseen event at the time of contracting (iii) must render the performance of the contract impossible.
Frustration Must Not Be Self-Induced
This means that the frustrating event must not be caused by either party to the contract. The case of Taylor v Caldwell (supra) it was stated that an event that occurs ‘without fault of either party,’ that frustrates the contract, excuses the parties. Frustration demands that the event is beyond the control of either party. A party cannot rely on the doctrine of frustration when the event itself was/is within the control of either party.[5]
A classic authority on this point is that of the case of Maritime National Fish Limited v Ocean Trawlers Limited,[6] in the case, the appellants operated a steam trawler from the respondents which was fitted with an otter trawl. It was to the knowledge of both parties that it was not legal to operate an otter trawl without a licence from the minister. The appellants were subsequently granted three (3) licences by the minister, the appellants were given permission to choose which steamers would get the licences. The appellants deliberately left out the respondent’s trawler when assigning the licences and claimed that the contract between them and the respondents had been frustrated because the respondents’ trawler was not licensed.
The court held that the contract had not been frustrated because the frustrating event was self-induced. It was self-induced in that the appellants had decided quite deliberately not to grant the respondents’ trawler a licence, therefore, they were responsible for the frustrating event thus the doctrine was unavailable to them. Basically, the respondents could not rely on the doctrine of frustration because quite evidently, they themselves induced the frustrating event.
(ii) The event must have been an unforeseen event at the time of contracting
The event must not be foreseen by the parties for it to be considered as a frustrating event. If the parties knew that the event would occur, or included a clause in the contract to the effect that a contract is not affected by such and such events – and that event covered by the clause does occur – then the event in question is not a frustrating event.
In Walton Harvey Ltd v Walker & Hamfrays Ltd[7], it was contracted by the parties to the effect that the plaintiff was to advertise their brand and products on the defendants’ hotel for a period of seven years. However, the hotel was compulsorily acquired by the government before the seven-year period determined. The plaintiff sued for damages while the defendant claimed that the compulsorily acquisition as a frustrating event that vitiated the contract as the government had intervened. The court held in favour of the plaintiff on the basis that it was found that the defendant had knowledge of the risk of the compulsory acquisition of the hotel, this meant that the event was foreseeable by the defendant therefore, they could not rely on the doctrine. It should be noted though that case law sets some parameters to this general rule i.e. even when an event may be foreseeable, it may still frustrate the contract. The cases to be discussed bring out how this principle is applied.
Further in the case of Davis Contractors v Fareham UDC[8], Davies Contractors contracted with Fareham UDC to construct 78 houses in a space eight months. However, due to an increase in the price of materials and shortage of manpower, construction was completed in 22 months. Davis Contractors thus filed a claim before the court that the contract was frustrated and should be declared void. The House of Lords ruled in favour of Fareham UDC because the events that made the contract onerous did not destroy the nature of the contract. Furthermore, given that the contract related to construction, it was foreseeable that the price of material would rise and more manpower would be needed.
From the above case, it can be observed that foresight is not just limited to a specific clause covering specific events, but also what is reasonably foreseeable to occur based on the type of agreement the parties have agreed to.
The above cases discussed bring to the fore the fact that an event is only considered to be a frustrating event if it is unforeseen. If it is reasonably foreseeable for both parties and does not make the contract impossible to perform or something different from what it was intended to be, then the event does not frustrate the contract.
However, the case of Fibrosa SA v Fairbairn Lawson Combe Barbour Ltd [9] underscores a vital exception to the above rule relating to foreseeability. According to the case, parties might explicitly cover a supervening event – making it foreseeable – that eventually occurs, but it can still be considered a frustrating event if the event in question was way beyond what was envisaged in the clause or the event, though foreseeable, makes it ‘indefinitely impossible’ to perform the contract. In the case, an English company contracted with a Polish company to deliver machinery to them in Poland. The Polish company had made a partial payment for the machinery. The contract contained a clause which provided that the deadline for delivering the machinery could be extended should a war break out. The war that broke out was World War II, and seeing that the time, the war seemed to have no end on sight, the machinery was not delivered, leading to the Polish company suing the English company to reclaim the part payment they made in performance of the contract. In determining whether the company could reclaim their money, they were determining if the contract had been frustrated, given that the contract had a clause dealing with the matter of war. The Lord Chancellor stated the following,
“The ambit of the express condition is limited to delay in respect of which ‘a reasonable extension of time’ might be granted. That might mean a minor delay as distinguished from a prolonged and indefinite interruption of prompt contractual performance which the present war manifestly and inevitably brings about....The principle is that where supervening events, not due to The default of either party, render the performance of a contract Indefinitely impossible, and there is no undertaking to be bound In any event, frustration ensues, even though the parties may Have expressly provided for the case of a limited interruption.”
As such, the contract was still deemed to be frustrated. This shows that if the event that arises makes performance ‘indefinitely impossible,’ the contract shall be considered frustrated, even if that event was covered for in the contract. Whether an event makes the contract ‘indefinitely impossible’ we opine must be determined on a case-by-case basis taking into consideration the peculiar circumstances of each case.
(iii) It must render performance of the contract impossible
Contracts are agreements by parties to do a particular act. If that act cannot be done, then the contract is meaningless. For an event to be considered frustrating, with reference to Taylor v Caldwell [10], it must make the contract impossible to perform, like how the destruction of the music hall in that case frustrated the contract to perform in that music hall – as the destruction of the hall made it impossible to perform in it. Case law elaborates more on this aspect of impossibility
A frustrating event can make a contract impossible to perform due to the destruction of the subject matter. To quote Lord Blackburn once again from the case of Taylor v Caldwell [11], if a contract is contingent on the existence of a person or thing, and if that person or thing is no longer in existence, then the contract has been frustrated.It is worth noting that the law has gone to great lengths to distinguish between events that make a contract onerous to perform and events that make a contract impossible to perform. This is classically illustrated in the case of Davis Contractors v Fareham UDC [12] The facts of this case have been already elaborated on. What is worth noting is that the court, in explaining why frustration had not occurred, Lord Reid, in page 724, stated this important point about frustration making performance onerous,
“In a contract of this kind the contractor undertakes to do the work for a definite sum and he takes the risk of the cost being greater or less than he expected. If delays occur through no one's fault that may be in the contemplation of the contract, and there may be provision for extra time being given: to that extent the other party takes the risk of delay. But he does not take the risk of the cost being increased by such delay. It may be that delay could be of a character so different from anything contemplated that the contract was at an end, but in this case, in my opinion, the most that could be said is that the delay was greater in degree than was to be expected. It was not caused by any new and unforeseeable factor or event: the job proved to be more onerous but it never became a job of a different kind from that contemplated in the contract.”
What this statement entails is that an event is only considered to frustrate the contract if it makes performance of the contract a completely different thing than contemplated. If the contract is just made onerous (burdensome), that shall not frustrate the contract.
To buttress the foregoing, the High Court for Zambia in Stanbic Bank Zambia Ltd v Trade Kings Ltd [13] it was held that a party can does not rely on the doctrine of frustration where performance of the contract is merely made inconvenient to do or it becomes more difficult to perform one’s obligations under the contract.
CIRCUMSTANCES CONSIDERED TO FRUSTRATE THE CONTRACT
ow that the elements of frustration have been established, it is necessary to look to case law and consider some circumstances that would frustrate the contract. In the case of Communications Authority v Vodacom Zambia Limited [14]. the circumstances that would lead to a contract being frustrated were considered. The court agreed with a statement from the counsel of the defence, who stated that frustration refers to an unforeseen event which discharges the parties from performance of the contract and frustrating events include destruction of the specific thing necessary for the performance of the contract, a change in the law, a dramatic change in circumstances which makes performance of the terms impossible, or if one of the parties is incapacitated (if it is a contract dependent on the performance of the individual) [15].
The circumstances mentioned the Communication Authority (supra) shall be discussed.
1) Where the subject of the contract is destroyed: If the contract is dependant on the existence of something, and the said thing is destroyed, then the contract is frustrated. This is espoused in the case of Taylor v Caldwell [16], where the court held that a contract is frustrated when the subject matter is destroyed – in the case, the hall was burned down.
2) Where a person that is cardinal for the performance of the contract is not present: In Taylor v Caldwell (supra), the court held that a contract is also frustrated if a person cardinal for the performance of the contract is either dead or incapacitated to perform the contract. This is illustrated in the case of Robinson v Davison [17]. In that case, a pianist, who was contracted to perform at an event fell ill and was unable to perform. When the claimant sued for breach of contract, the court ruled in favour of the defendant, holding that the contract was frustrated because performance was dependant on the pianist performing, and illness prevented that from happening. It should be noted however that this principle only applies if performance of a contract is dependant on an individual, not a group. This was held in the case of Phillips v Alhambra Palace Co [18], where a contract was entered between a firm of music hall performers and a group of performers. Even though one of the performers died, the court held that the contract was not frustrated because it was dependant on performance of the group and was a contract dependant on individual performance.
3) Where the event the contract is dependant on does not occur: If the contract is dependant on a certain event occurring, and then that event does not occur, the contract is frustrated. This is illustrated in the case of Krell v Henry [19] In this case, the defendant contracted to be in a room with a balcony to see the coronation of King Edward VII. When the event was rescheduled, he did not pay for the room, leading to the claimant suing the defendant for breach of contract. The court held that the contract was frustrated as the room was for purposes of watching the coronation of the king. Because that event did not occur, the contract was frustrated.
4) Where the law changes: It is trite law that a contract that is illegal is void. Thus, if the subject matter of a contract becomes illegal due to a change in law, then the contract is frustrated. This is illustrated in the case of Denny, Mott and Dickson Ltd v James B Fraser and Co Ltd [20]. In that case, the parties agreed to sell timber and there was a clause which allowed for the purchase of timber yard. However, the sale could not continue due to the timber control orders. The claimant tried to buy the timber yard but was denied due to the control orders. When the matter went to court, it ruled in favour of defendant, with Lord Macmillan stating as follows:
“It is plain that a contract to do what has become illegal to do cannot be legally enforced. There cannot be default in not doing what the law forbids to be done.”
EFFECT OF THE FRUSTRATION
As been discussed throughout this writing, frustration discharges the parties off their obligations bringing the contract to an end. Challenges came in when dealing with situations where a party had already made a payment before the frustrating event or a party had incurred some loss monetary or otherwise as result of performing their bargain before or at the time of the frustrating event, or a payment was due to be made before the frustrating event or a bargain or act was to be performed before the frustrating event. At common law, all losses lie where they fell, to mean that any monies paid before the frustrating event were not recoverable, but all monies agreed to be made before the frustrating event were still to be made. So where for instance, party X paid k500.000.00 ZMW to party Y before the frustrating event, party X would not be entitled to recover the amount paid where frustration occurs, and where for instance party X and party Y agree that party X is to pay K500,000.00 ZMW immediately but before party X pays the agreed amount, a frustrating event occurs, Party X was still obliged to pay the agreed amount. This was held in the case of Chandler v Webster [21].The common law position was seen to be harsh and cause hardship on parties that already performed a part of their bargain as they would not be entitled to be compensated. However, one precedent proved crucial in changing the status quo of the law, which was the case of Fibrosa SA v Fairbairn Lawson Combe Barbour Ltd [22].
The Fibrosa case has been already talked about in the length. The point that needs to be discussed is the second issue of that case. Prior to the frustrating event, the English company had made partial payments for the equipment they ordered. As stated earlier, the established law was that “losses fall where they lie.” The court took a different direction and stated that in a situation where there is complete failure of consideration (i.e. only one party incurred losses instead of both parties), the funds used would have to be returned. In doing so, the court overruled the precedent laid in the Chandler case. This is what the Lord Chancellor said about what should occur when there is failure of consideration, in page 8 of the judgement:
“He may have incurred expenses in connection with the partial carrying out of the contract which are equivalent, or more than equivalent, to the money which he prudently stipulated should be prepaid, but which he now has to return for reasons Which are no fault of his. He may have to repay the money, though he has executed almost the whole of the contractual work, which will be left on his hands.”
This case helped in the formulation in England of the Law Reform (Frustrated Contract) Act of 1993 [23]. This law provided that in a scenario where a party had outstanding fees owed, or incurred some losses in performance of the contract, the remaining fee to be failed would be cancelled and would be compensated for any losses incurred, based on whether the court sees that it would be just to do so. This legislation put into effect the Fibrosa case.
Zambia was influenced by that legislation in its development of law in relation to frustration of contracts. Thus, the Law Reform (Frustrated Contracts) Act [24] was promulgated. According to Section 3(2) of the Act, all monies paid before the frustration event is recoverable and all monies payable at the time of the frustrating event ceases to be made paid – cannot be claimed.
CONCLUSION
The doctrine of frustration shows that contracts, due to certain events can be terminated. The law has evolved from the position that a contract cannot be terminated, even if impossible to perform, to allowance for termination of the contract due to frustrating events. The law has defined what amounts to a frustrating event and what should happen in an event where one party incurred some losses in performance of the contract. This article has elaborated on all these points and expounded upon the doctrine of frustration.
BIBLIOGRAPHY
TABLE OF STATUES
Law Reform (Frustrated Contracts) Act of 1943 6 & 7 Geo. 6. c. 40
Law Reform (Frustrated Contracts) Act, chapter 73 of the laws of Zambia, section 3(2)
TABLE OF CASES
Chandler v Webster [1904] 1 KB493
Communications Authority v Vodacom Zambia Limited [2009] SCZ Judgement 21
Davis Contractors v Fareham UDC [1956] UKHL 3
Denny, Mott and Dickson Ltd v James B Fraser and Co Ltd [1944] AC 265
Fibrosa SA v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32
Krell v Henry [1903] 2 KB 740
Maritime National Fish Limited v Ocean Trawlers Limited [1935] UKPC 1
Paradine v Jane [1647] EWHC KB J5
Phillips v Alhambra Palace Co [1901] 1 QB 59
Robinson v Davison [1871] LR 6 Ex 269
Sam Amos Mumba v. Zambia Fisheries and Fish Marketing Corporation Limited [1980] ZR 135 (HC)
Stanbic Bank Zambia Ltd v Trade Kings Ltd [2011] ZMHC 18
Taylor v Caldwell [1863] 122 ER 309
Walton Harvey Ltd v Walker & Hamfrays Ltd [1931] 1 Ch 274
BOOKS
Ng’ambi SP and Chungu C, Contract in Zambia (2nd edn, Juta, 2021) 352, 368
About the authors
Teddy Musonda is a final-year law student at the University of Zambia. He is also an Editor at Amulufeblog.com and writes in his personal capacity
Lusekelo Kamfwa is a third- year law Student at the University of Zambia and currently serving as legal editor for the Legal Aid Initiative.
The views and opinions presented in this article or multimedia content are solely those of the author(s) and may not represent the opinions or stance of Amulufeblog.com