SQE2 Contract: Frustration

Question 1

What to consider for frustration?

Answer 1

1. Was a party aware of the possibility of the event
   - if yes not frustration
2. Was event caused by one party
   - if yes not frustration
3. does it render performance impossible, illegal or radically different
   - if no then not frustrating
   - for example if it just makes it more difficult or expensive
4. Is there force majeure clause
   - use this to apportion losses
5. Does Law Reform Frustrated Contracts Act 1943 apply
   - if yes then apportion losses accordingly

Question 2

What is the effect of frustration of a contact?

Answer 2

• Automatically discharges contract
• Releases partied from any further liability to each other
• No breach of contract is committed
• Contract effectively discharged from moment the frustrating event occurred

Question 3

How are losses assessed/recovered after contract is frustrated?

Answer 3

Law Reform Frustrated Contracts Act 1943

1. Money paid before the frustrating event can be recovered
2. Money that should have been paid before the frustrating event no longer needs to be paid
3. if party incurred expenses before discharge court may allow restitution of sums paid to account for this
4. Where one party has gained a valuable benefit under the contract before the frustrating event may be liable to pay a just sum for it

Question 4

When do LRFCA rules for losses after frustration not apply?

Answer 4

Law Reform Frustrated Contracts Act 1943

1. If express term in contract overrides it
2. For charter-parties (hire of ship and deliver of cargo) for goods carried by sea
3. Insurance contract
4. Sale of goods contracts if frustration is that goods perished

Question 5

What types of frustrations are there in contract?

Answer 5

Impossible
- Subject matter no longer exists through no fault of parties
- Subject matter is unavailable
- Parties are unavailable through death or illness (more likely if illness is long term or permanent or may be breach of contract)

Supervening Illegal
- law changes after contract is formed
- if illegal from get go then void

Radically Different
- Radical difference must be fundamental to the contract and supervening event must not have been in contemplation of the parties at the time the contract was formed

Question 6

When is something not a frustrating event?

Answer 6

• If frustration has been caused by one of the parties then it will be breach of contract
• If either party was aware of the possibility of the frustrating event occurring

Burdon of proof in on party alleging frustration

Question 7

What in a contract may prevent frustration being an issue?

Answer 7

Force Majeure

• In practice frustration not an issue as most contracts include clause anticipating such events and apportioning liability for them