Chapter 16 Outline answers to end-of-chapter questions

Frustration of the contract

1. Assess the extent to which the application of the principle of frustration is limited and whether these limits are justified.

Introduce your answer by briefly explaining what the principle of frustration is. Explain that you will assess each requirement represented by the cases in turn.

Start by defining frustration, what is required and the operation of it as a rule of rule (Davis v Fareham UDC [1956]) and how it is not ‘lightly invoked.’ As an overarching aspect of policy applicable to the requirements of frustration, it is useful to acknowledge the policy point from Lord Roskill in Pioneer Shipping Ltd v BTP Tioxide (The Nema) [1982].

Relate it to the question in the context of a clear limit judges will have in mind when applying the requirements.

Mention the grounds for frustration and cite the relevant cases in brackets to show the scope of the principle. Acknowledge the strict requirement that performance must so ‘radically’ different that performance is not what the parties agreed to. Also note that frustration of purpose is very limited and exceptional (Krell v Henry [1903]; Herne Bay Steamboat v Hutton [1903]). Explain it with the policy point.

The main points come from the cases on the limits. Explain that if performance becomes more difficult or expensive it will not be enough to frustrate a contract. Explain the point with Davis v Fareham and Tsakiroglou & Co Ltd v Noblee [1962]. Again, this can be supported by the policy point.

Next, consider the role of foresight. Explain the issue based on the approach from The Eugenia [1964] and the comments from Edwinton Commercial Corp v Tsavliris Russ(The Sea Angel). Ultimately, it is about foresight of the type and extent of the event. Comment on this in the context of the construction of the contract and the parties’ intentions.

Now, turn to the limit of fault (self-induced frustration) Maritime National Fish Ltd v Ocean Trawlers Ltd [1935]. The limit does make sense but criticise how extreme it is in the context of The Super Servant Two [1990].

A further limitation is the use of force majeure clauses. Explain the role of these in the context of the parties’ intentions subject to the limit in terms of illegality (Ertel Bieber v Rio Tinto Co [1918]). The use of such clauses is justified given that the contract is an expression of the parties’ intentions.

Finally, conclude on the limits and whether they are justified. This should relate to the policy point but also the need to maintain the sanctity of the contracts for commercial certainty, a value from the classic module of contract law.

2. Critically evaluate the extent to which the Law Reform (Frustrated Contracts) Act 1943 provides a satisfactory balance between the parties’ interests.

Introduce your answer by briefly explaining what frustration is and that originally the remedy was from the common law. Explain that to assess the balance from the Act, it is useful to acknowledge the original common law position since it represents the position the Act aimed to correct.

Since the Act is the focus, the common law approach should be basic and more of an overview that addresses the effect of Chandler v Webster [1904]; Fibrosa v Fairbairn [1943] and Appleby v Myers (1867). With each, observe the imbalance represented (noting the Act was not a response to Fibrosa).

Now turn to the Act and when you address the main provisions, avoid quoting directly and instead, summarise them in your own words.

The first point is the effect of S.1(2) with the proviso, and explain the impact it would have on Chandler v Webster and the limit of the expenses award in the context of Fibrosa. In those contexts, evaluate the balance of interests from the Act. For this, include an explanation about the significance of not requiring payment in advance and what that indicates about the parties’ intentions.

Explain the discretion and its exercise using the guidance from Gamerco v ICM [1995] and the aim of preventing unjust enrichment.

The next key issue is the role s.1(3) on the valuable benefit. Explain how it works, including the limits and detail the significance of BP Exploration v Hunt (No 2) [1979] and the approach of Goff J.

Criticise effect of the unjust enrichment basis in the context of the need for an end product and the fact that the outcome in Appleby v Myers would be the same today. Contrast this with an approach based on the fair apportionment of the loss.

Finally, provide a conclusion with direct reference to the question. This could address the fairer balance compared to the common law position and while there are limits, these can be rationalised. However, it could be argued that requirement of an end product represents an imbalance.

3. RapidBetCasino is an online gambling business. In 2019 they entered into a shirt sponsorship agreement with Nottchester Town Football Club under which RapidBetCasino would pay £3m a year for five years in return for their name to be displayed on the club’s football shirts. Recently, following the success of the ban on tobacco advertising, the UK Government has decided to ban all direct and indirect television advertising of gambling businesses. RapidBetCasino now claim that once the legislation is in force, the sponsorship agreement will be frustrated. Advise Nottchester FC.

Introduce your answer by identifying the relevant area of law as frustration and that the Club will want their revenue to continue for the duration of the contract. In contrast, RapidbBetCasino are hoping to end the contract when they can no longer benefit from TV advertising. To do so, RapidBetCasino would argue that the contract will not be performable and therefore, will be frustrated. Explain that you will address the requirements for frustration and the arguments based on them to determine if the contract could be frustrated.

The starting point of the main body is the definition of frustration from Lord Radcliffe in Davis v Fareham UDC [1956]. Explain that this is ultimately the test to be satisfied. Also, address the policy point from Lord Roskill in Pioneer Shipping Ltd v BTP Tioxide (The Nema) [1982] and address its significance.

Now, identify that since Taylor v Caldwell (1863) the courts have recognised a range of grounds for frustration. Illegality would be the most obvious relevant ground representing ‘radical difference.’ Explain it with some case law examples (e.g. Avery v Bowden (1856)). Now, contrast it with the strict approach that is adopted Cricklewood Property and Investment Trust v Leighton’s Investment Trust [1945] and in particular the approach of Marcus Smith J in Canary Wharf v European Medicines Agency [2019].

Turn to the application of this point. Would performance be illegal? The question refers to the sponsorship based on the name being on the shirts. Does the contract require these to appear on TV? The point is that given the strict approach adopted, it is likely that a distinction would be made between having the name printed on the shirt and the ban on TV advertising i.e. displaying the brand during a live televised game. You don’t have the terms of the contract so it means you have to acknowledge that there might be a chance of performance becoming illegal but it depends on the construction of the contract.

Based on the reason why the illegality argument might not be successful, acknowledge that RapidBetCasino might also rely frustration of the common purpose, the common purpose being the advertising on television.

Explain the principle from Krell v Henry [1903] and the reasoning of Vaughan Williams LJ. It is useful to cite the explanation of the case by Marcus Smith J (Canary Wharf v European Medicines Agency) Contrast Krell with Herne Bay Steamboat v Hutton [1903] and explain the distinction. Likewise explain how the Krell argument was rejected in the Canary Wharf case illustrates how exceptional the ground is.

Now, apply these principles to the question. This would include the question of TV advertising as the common purpose as opposed to the purpose for RapidBetCasino. It also could be said that their contract has simply become a bad bargain and given the policy point, it makes it even less likely that the contract would be frustrated on this ground.

Now mention the limits. In terms of the difficulty and costs not being enough for frustration address the significance of Davis v Fareham UDC. It could be argued that the same applies here because the contract now represents a greater expense.

There is nothing to suggest an issue of foresight of the ban at the time of contracting. However, if there were consultations and publicity about the potential ban being imposed at the time of contracting then it would be an issue if the extent of the ban could have been forseen. There is no issue of self-inducement either.

Acknowledge the effect of frustration from the Law Reform (Frustrated Contracts) Act 1943 and the application of s.1 (2). But it is not significant given the low likelihood of the contract being frustrated on the facts.

Conclude by commenting on the low likelihood of the contract being frustrated on the facts given, but it really does depend on how the obligations are expressed in the contract.