13. Discharge of Contracts

13.1 Discharge of Liability

We are concerned here with the various ways in which the parties may become discharged (released) from their contractual obligations.

1. Performance (13.2)

2. Breach (13.3)

3. Agreement (13.4)

4. Frustration (13.5)

13.1.1 Definition

The difficulty of exposition of discharge by performance or by breach is that performance and breach are in reality mirror images of each other (“two sides of the same coin” Anson).

E.g. X contracts to build a shed for Y for £800. X carries out the work, feels that he has performed his obligations, has no further obligation under the contract, and claims the £800 contract price. However, Y may claim that X’s performance is defective i.e. that X is in breach of contract, and that he, Y, is released from his contractual obligation to pay, or at least X should remedy the defect or make a deduction from the contract price because of the defective work. X may claim the work is not defective.

THUS – in reality performance and breach should be considered at one and the same time. In addition, of course, the extent of one’s contractual obligations is to be discovered from the terms of the contract. They will provide the answer to the question of what performance is to be required.

Conversely, if performance is defective i.e. there is breach of a term, we need to know what sort of term (condition, warranty or intermediate term) in order to ascertain whether or not the innocent party has any right to repudiate the contract i.e. to regard himself as discharged from his contractual obligations.

13.2 Discharge By Performance

13.2.1 Historical approach

An historical approach is useful. The original rule at Common Law was always that performance must be precise and exact. In other words, the obligation under the contract was entire and only an entire performance would entitle a party to payment under the contract.

Cutter v Powell (1795) 6 Term Reports 320
D agreed to pay Cutter 30 guineas provided he executed his duties as second mate on a voyage from Kingston, Jamaica to Liverpool. Cutter began the voyage but died when the ship was 19 days short of Liverpool. Cutter’s wife sought a proportion of his wage equivalent to the amount of the voyage for which Cutter had acted as second mate. It was HELD that she failed because Cutter hadn’t performed his entire contractual obligation.

Similarly in:

Bolton v Mahadeva [1972] 2 All ER 1322
P agreed to install a central heating system in D’s house for a lump sum of £560. He installed a system which failed to heat the house adequately and gave off fumes. D refused to pay. The Court of Appeal HELD that it was a lump sum contract and the obligation entire; the plaintiff could recover nothing.

13.2.2 Harsh rule

Both of the above decisions are harsh because the defendant either receives a benefit or makes a profit without having to pay anything. Consequently, the courts have developed certain doctrines in order to achieve justice between the contracting parties:

(i) Substantial Performance

If the contract has been substantially performed, though not necessarily literally or exactly, the injured party cannot treat himself as discharged from his obligation to pay, though he will have a counterclaim or a right of set-off for any loss sustained by reason of the incomplete performance.

No right to repudiate

In other words, the injured party has no right to repudiate for breach of condition but does have a right to compensation for breach of warranty.

What is substantial performance?

What constitutes substantial performance is a question of degree in the circumstances of each particular case. It is usually established if the actual performance is not far short of the required performance and the cost of remedying the defects is not too great in proportion to the overall contract price.

Dakin & Co Ltd v Lee [1916] 1 KB 566

The plaintiff builders contracted to carry out certain repairs to the defendant’s house for £1,500. P sought the contract price and D resisted on three grounds:- the underpinning of a wall was two feet thick instead of four feet; four inch solid columns instead of five inch hollow ones had been used; the joists over a bay window were not bolted as stipulated. All defects could have been rectified at a cost of £80. The Court of Appeal HELD that P was entitled to the contract price less an amount in respect of the part of the work which had been carried out contrary to specification.

Conclusion:

Whether entire performance is a condition precedent or not to any payment is a question of construction of the terms of the contract in each particular case. Clearly the court construed the contracts as requiring entire performance in both Cutter v Powell and Bolton v Mahadeva. In modern times such construction is not uncommon in cases involving contracts of sale of goods, but is very much exceptional in other cases.

(ii) Acceptance of Partial Performance

The usual rule is that a party who partly performs a contract (i.e. there is no substantial performance, and thus a breach of condition is committed) is not entitled to recover anything.

HOWEVER – a claim to remuneration may arise if the other party accepts the partial performance.

In sale of goods cases this is recognised by the Sale of Goods Act 1979 s.30(1):

“Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if he accepts them he must pay for them at the contract rate.”

Quantum meruit

In other cases any such claim rests upon a quantum meruit basis (a reasonable sum in respect of the benefit conferred by the partial performance). The basis of the liability here is that if Y accepts X’s partial performance, both parties by implication mutually release one another from the original contract and agree to a new contract to pay for the work done or the goods supplied.

The doctrine of partial performance applies only if the party not in default has a genuine choice either to accept or to reject partial performance.

Sumpter v Hedges [1898] 1 QB 673

P agreed to erect certain buildings on the D’s land for £565. He did part of the work and then abandoned the contract. D completed the buildings himself, using materials left on the site by the plaintiff. P sued to recover the value of the work done and of the building materials used. It was HELD that P couldn’t recover for the work he had done because the defendant had no option but to accept the partly erected buildings. Conversely, he could recover the value of the materials used because the defendant did have a choice whether or not to use them in completion of the building.

(iii) Prevention of Performance

If one party is prevented from completing his contractual obligations by the default of the other party, the injured party can either recover damages for breach of contract or alternatively reasonable remuneration on a quantum meruit basis for work already done.

Planché v Colburn (1831) 8 Bing 14 P had agreed to write a book on Costume and Ancient Armour for a series published by the defendants called “The Juvenile Library”. He was to receive £100 on completion of the book, to which end he collected materials and wrote part of the book. D then abandoned the series. The plaintiff was HELD to be entitled to recover 50 guineas on a quantum meruit basis.

(iv) Divisible Covenants

Many of the partial/substantial performance difficulties may be evaded if the court discovers the contract to consist of a number of severable obligations rather than one entire obligation. Whether this is so or not is a question of construction of the intention of the parties in each particular case.

E.g. X agrees to sell to Y 120 tons of wheat for £12,000 to be delivered 10 tons per month between January and December 1989. There is no specification of time of payment. X makes appropriate 10 ton deliveries in January, February and March, but fails to make any further deliveries.

If the contract is one entire obligation then X is entitled to nothing until he makes all 12 deliveries.

If the obligations are severable then payment is due each month upon delivery and X can recover for the January, February and March deliveries.

Suggested Approach to Performance Difficulties

Problems involving performance revolve around construction of the contract. The suggested approach is as follows:

(i) Is the contract an entire obligation requiring precise performance? If it is, nothing less will do, e.g. re Moore & Re Moore & Co Ltd v Landauer & Co Ltd [1921] 2 KB 519This will be unusual except in sale of goods cases.

(ii) If precise performance is not required, are the contractual obligations divisible?

(iii) If not, has there been substantial performance, acceptance of partial performance or prevention of performance?

13.2.3 There remains for consideration two further aspects relating to performance:

Time of Performance

(i) When the contract doesn’t stipulate a time within which the contractual obligations must be performed, performance must be within a reasonable time.

(ii) When there is a time stipulation in the contract then that is the time for performance.

(iii) In either case what is the effect of late performance? This depends upon whether time is of the essence of the contract or not i.e. in the nature of a condition or not.

United Scientific Holdings Ltd v Burnley BC [1977] 2 All ER 62

The House of Lords stated that time is of the essence of the contract if such is the genuine intention of the parties, and such intention may be expressly provided for or inferred from the nature of the subject matter or the surrounding circumstances.

An interesting consideration of the problem can be seen in:

Charles Rickards v Oppenheim [1950] 1 KB 616
D purchased a Rolls Royce chassis from P. P contracted to build a body to go on the chassis, the work to be completed by March 20th at the latest. It was not completed by that date, but the defendant continued to press for delivery. However, on June 29th D wrote to the plaintiffs and said that he wouldn’t take delivery after July 25th. P didn’t deliver by July 25th and the defendant treated the contract as repudiated. The Court of Appeal HELD that he was entitled to do so. The original date of the 20th March had been of the essence of the contract, but the defendant had waived it as such by his conduct. But, he had given reasonable notice of a new date, July 25th as being of the essence of the contract.

Time fixed for performance

Tender of Performance

If one party makes a valid tender of performance and the other party refuses to accept it, he is freed from liability for non-performance provided that the tender is made under such circumstances that the other party has a reasonable opportunity of examining the performance tendered in order to ascertain conformity with the contract.

Startup v MacD onald [1843] 6 Man & C 593
The parties contracted for the sale of ten tons of linseed oil to be delivered “within the last 14 days of March.” The plaintiff delivered the oil at 8.30 pm on Saturday, 31st March and the defendant refused to accept delivery because of the lateness of the hour. It was HELD that the tender of the oil in the circumstances was equivalent to performance and the plaintiff was entitled to damages for non-acceptance.

 

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13.3 Discharge by Breach

13.3.1 Definition

When can the innocent party terminate the contract and regard himself as discharged from his contractual obligations because of the other party’s breach?

It is always possible to sue for damages for breach of contract (i.e. for breach of condition or warranty), but the right of the innocent party to treat the contract as discharged arises only where there has been a breach of condition, or a repudiatory breach in the case of an intermediate term, viz.

(a) Where the party in default repudiates either before performance is due (anticipatory breach) or before the contract has been fully performed.

(b) The defaulting party has committed breach of a term of major importance.

13.3.2 Repudiation before or during performance

Such repudiation may be either express or implied, and it must be established that the defaulting party has made it clear beyond reasonable doubt that he no longer intends to perform his part of the contract.

Breach before performance becomes due is known as – Anticipatory Breach

In this situation the innocent party may accept the breach and immediately sue for breach of contract, or he may refuse to accept the breach and wait until the due date for performance, hoping the other party will change his mind.

Hochster v De La Tour [1853] 2 E & B 678
In April the defendant agreed to engage the plaintiff as a courier during a foreign tour starting on the 1st June. On 11th May the defendant wrote to the plaintiff informing him of a change of mind and that his services would no longer be required. The plaintiff sued for damages immediately and succeeded.

N.B. It may be dangerous for the innocent party to wait for the due date for performance as the contract continues at the risk of both parties.

Avery v Bowden (1855) 5 E & B 714
B chartered A’s ship and agreed to load her with cargo at Odessa within 45 days. After a while B told A that he had no cargo and advised him to leave. Instead, A waited at Odessa hoping B would find a cargo. Before the end of the 45 days the Crimean War broke out between England and Russia and performance of the contract became illegal. HELD: The refusal by B to provide a cargo was an anticipatory breach and A could have sued immediately. When he chose not to do so the contract remained on foot until performed. However, in the meantime both parties were discharged from the contract by frustration (subsequent illegality in this case) due to the outbreak of war. Thus, B was not liable to A for breach of contract.

N.B. There are some problems surrounding the relationship between anticipatory breach and damages due to the decision in White & Carter (Councils) Ltd v McG regor [1961] 3 All ER 1178. These will be considered later in the section on Remedies.

13.3.3 Breach occurring during performance

Such breach raises a difficult question of construction of the contract for the court, for it has to decide whether an act alleged by one party to be a repudiatory breach in fact amounts to such in law.

Thus, in the general law of contract, if X breaches the contract and Y repudiates, alleging a breach of condition by X, then if the court agrees, Y has acted perfectly properly. However, if the court finds X’s breach to be of warranty only, then Y also will be in breach of contract due to wrongful repudiation.

Mersey Steel & Iron Co v Naylor Benzon & Co [1884] 9 App Cas 434

Some guidance as to the test of construction to be applied, at least in sale of goods cases, was given by the Court of Appeal in:

Maple Flock Co Ltd v Universal Furniture Products [1934] 1 KB 148

“First, the ratio quantitatively which the breach bears to the contract as a whole, and secondly, the degree of probability or improbability that the breach will be repeated.”

Thus, in the case itself the buyer was held not to be entitled to repudiate on the following facts: the contract was for 100 tons of rag flock; the first 15 deliveries were in order; the 16th was defective; deliveries 17-20 were in order. Thus, only 12 tons of the deliveries had been defective, and the breach was unlikely to be repeated.

Cf Munro & Co Ltd v Meyer [1930] 2 KB 312The buyer was held to be entitled to repudiate the whole contract for 1,500 tons of meat and bone meal, when more than half of the total quantity delivered was found to be seriously defective.

 

13.3.4 Breach of a term of major importance

The relevant law here was considered in the earlier section on terms (conditions/warranties/intermediate terms).

Consequences of repudiation or breach of a major term

There are two possibilities here. The innocent party will either (a) treat the contract as still operative or (b) treat the contract as terminated.

(a) Contract still operative

Breach in itself does not discharge the innocent party from his obligations, he must accept the breach. Thus, if he refuses to accept the breach, the contract remains in being for the future on both sides.

Howard v Pickford Tool Co [1951] 1 KB 417

“An unaccepted repudiation is a thing writ in water and of no value to anybody; it affords no legal rights of any sort or kind.”

per Asquith L J

THUS –

In the case of breach of a major term the plaintiff cannot repudiate or sue for damages until he accepts the breach, and in the case of an unaccepted anticipatory breach the plaintiff cannot sue for damages until the due date for performance arrives.

(b) Contract treated as terminated

The contract will be terminated for the future as from the moment the acceptance of the breach is communicated to the defaulting party.

However, it is clear from the House of Lords decision in Johnson v Agnew [1980] AC 367; [1979] 1 All ER 883 that the breach doesn’t operate retrospectively, i.e. the defaulting party will be liable in damages both for any earlier breaches and also for the breach leading to the discharge of the contract, but will be excused any further performance.

 

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13.4 Discharge by Agreement

13.4.1 Definition

Just as a contract is formed by agreement so it can be discharged or varied by agreement; BUT – just as consideration is essential to agreement so it is substantially necessary for discharge or variation, unless the release is executed by deed. The process is known as ACCORD AND SATISFACTION; the accord is the agreement and the satisfaction the consideration.

13.4.2 Two forms of accord and satisfaction

There are two forms of discharge by agreement:

(a) Bilateral (b) Unilateral.

(a) Bilateral

Applies to executory agreements. X and Y mutually release one another from their obligations.

(b) Unilateral

If X has performed his part of the contract a promise from him to release Y from further performance will not bind him unless Y provides consideration.

Pinnel’s Case (1602) 5 Co Rep 117a, Elton Cop Dyeing Co Ltd v Robert Broadbent & Son Ltd (1920) 89 LJKB 186

Of course, even if Y hasn’t provided consideration, he may be able to set up promissory estoppel by way of defence.

13.4.3 Third party rights

Under Contracts (Rights of Third Parties) Act 1999 , s. 2, in a contract to which the Act applies, where the third party has ‘assented to’ or relied on the term from which he benefits, then the parties who made the contract cannot vary it or rescind it without his consent.

 

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13.5 Discharge by Frustration

Whilst the doctrine has seen expansion from its inception, it is still narrow in application; Lord Roskill stated that it is: “not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent bargains.”

CTI Group v Transclear SA [2008] EWCA Civ 856
Court of Appeal

The case illustrates the principle that Frustration, as a doctrine, is very narrowly applied. To show frustration it would be necessary to demonstrate that performance of the new contract would be fundamentally different from that originally contemplated. The Court of Appeal also confirmed that frustration can apply to a contract for the sale by description of unascertained goods of a specified origin.

 

13.5.1 Concept

Frustration occurs whenever a contract, after its formation, becomes impossible to perform without default of either party; the doctrine is often called subsequent or supervening impossibility, and its effect is that the parties are released from their contractual obligations.

Origins : Paradine v Jane : Absolutism

Until the nineteenth century the common law adopted a doctrine of absolute obligation to perform a contract. Hence, in:

Paradine v Jane (1647) Aleyn 26
A tenant was sued for arrears of rent and in defence pleaded that for the last three years he had been dispossessed of his farm by the King’s enemies. The court rejected his plea and the tenant was liable for the rent, even though he was unable to take the benefit of the lease.

Gryf-Lowczowski v Hinghingbrooke Healthcare NHS Trust [2005] EWHC 2407
Gray J reviews the modern law of Frustration and starts with an extract from Lord Reid’s speech in Davis Contractors v Fareham UDC [1956] (Infra)

This case is worth looking at before reading the detail below.

 

Effect mitigated

The basic principle of frustration was formulated to alleviate the harshness of the absolute obligation doctrine by Blackburn J in:

Taylor v Caldwell (1863) 3 B & S 826 | Full report

The defendant agreed to hire to the plaintiff a music hall and Surrey Gardens for the purposes of entertainment. Before the day of the performance, due to the default of neither party, the music hall was destroyed by fire. The plaintiff sued the defendant for breach of contract. The court HELD the defendant not liable, the contract being frustrated by the fire.

Underlying Theories

There are two underlying theories: (a) the implied term theory, (b) and the just solution theory. Some cases base their approach upon (a), others upon (b).

Treitel lists a third theory where frustration follows from destruction of the basis of the contract. This can be seen as a different way of expressing the implied term theory. Treitel also lists construction as a fourth theory, since the issue always comes down to one of construction of the contract; and failure of consideration (which is certainly incorrect) as a fifth.

(a) The Implied Term Theory

The contract will be discharged only where the court can imply a term into the contract that the contract shall come to an end upon the occurrence of the events in question.

This view is expressly supported by Lord Loreburn in Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397

(b) The Just Solution Theory

The contract is discharged by operation of law; otherwise the parties would have to perform a contract radically different from that originally undertaken.

This view is expressly supported by (amongst others) Lord Radcliffe in Davis Contractors Ltd v Fareham UDC [1956] AC 696

13.5.2 The circumstances in which frustration may apply

Destruction of the subject-matter of the contract

Taylor v Caldwell (1863) 3 B & S 826 | Full report

The non-occurrence of a particular event which forms the basis of the contract

This invites a comparison of two of the “Coronation Cases” arising out of the postponement of the coronation of Edward VII due to his sudden illness.

Krell v Henry [1903] 2 KB 740
D agreed to hire a flat from the P for June 26th and 27th, 1902. The contract contained no reference to the coronation processions, but they were to take place on those days and were to pass the flat. The processions were cancelled due to the illness of Edward VII and P sued to recover rent not already paid. It was HELD by the Court of Appeal that the plaintiff failed; the processions and the location of the flat were the foundation of the agreement and the contract was frustrated.

Cf Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 D chartered the SS Cynthia from P for June 28th and 29th, 1902 for the express purpose of taking paying passengers to see the coronation naval review by Edward VII at Spithead and to tour the assembled fleet. The review was cancelled due to Edward VII’s pneumonia but the fleet remained assembled. The Court of Appeal HELD that the contract was not frustrated. Vaughan Williams and Romer L JJ felt that neither the review nor the tour were at the foundation of the contract (they were matters of importance to the charterer only and not to the owner); Stirling L J felt that both the review and the tour were objects of the contract, and the tour could still be effected.

The decision in Krell v Henryhas often been criticised as potentially opening the floodgates to contractors to escape from contracts which have become less profitable due to changed circumstances. Consequently, it has rarely been followed in subsequent cases:

Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd [1976] 3 All ER 509

Non-availability of one of the parties due to death, illness or other circumstances

This applies to contracts for personal services, e.g. contracts of employment.

Condor v Barron Knights Ltd [1966] 1 WLR 87

Edward Lottian Condor, a talented drummer, was contracted to play seven nights per week with the Barron Knights pop group, when he had a minor nervous breakdown. He was advised by a doctor that to continue the demanding schedule might well lead to a major breakdown, and the contract was HELD to be frustrated.

Apparently, even contracts of employment determinable by notice on either side can be frustrated by long term illness – Notcutt v Universal Equipment Co (London) Ltd [1986] NLJ Reps 393.

Frustration of the common adventure

FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397 A steam ship was chartered for a period of five years, 1912-1917. However, in 1915 the government requisitioned the ship for use as a troopship. The charterers were willing to continue paying the agreed freight, but the owners claimed the charterparty to be frustrated as they wished to obtain a larger amount by way of compensation from the Crown.

The House of Lords HELD that there was no frustration, the interruption being of insufficient duration and insufficiently continuous to make it unreasonable for the parties to continue.

Cf Jackson v Union Marine Insurance Co Ltd [1874] LR 10 CP 125 where the interruption was of sufficient duration for the contract to become frustrated.

Building contracts

Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119
DK contracted with MWB to build a reservoir within six years. After two years the Minister of Munitions required DK to cease work, remove and sell its plant. MWB claimed the contract subsisted on the basis of a contract provision allowing a time extension in the event of difficulties. The House of Lords HELD the contract to be frustrated on the basis that if it were resumed after such interruption it would effectively be a different contract.

Supervening illegality

Avery v Bowden (1855) 5 E&B 714

Leases

It was for some time uncertain whether the doctrine of frustration can apply to leases; leases create proprietary rights which usually receive special treatment in English law. However, the House of Lords in National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 HELD that frustration can apply but the circumstances of its operation would be very rare.

Unifying themes

A unifying thread running through all of the above cases is that the contract will not be frustrated unless its foundation has been destroyed so that 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.

Tsakiroglou & Co Ltd v Noblee & Thorl GMBH [1962] AC 93 The appellants agreed to sell ground nuts to the respondents and to shop them from Sudan to Hamburg in Nov/Dec 1956. However, on 2nd November the Suez Canal was closed and remained closed for five months. The price of the nuts had been calculated on the basis of shipment via the canal which was the normal route, though there was no term in the contract designating it the exclusive route. The appellants refused to perform the contract. The House of Lords HELD that there was no frustration; it was still possible to ship the nuts via the Cape of Good Hope, a journey some 3,000 miles longer. The journey wouldn’t be commercially or fundamentally different from that by the canal, merely much more expensive.

Davis Contractors Ltd v Fareham UDC [1956] AC 696
The appellants contracted with the respondents to build 78 houses for £94,000. Due to unexpected strikes and materials shortages the contract took 22 months instead of 8 to perform and cost £115,000. The appellants claimed that the contract was frustrated, and that they were entitled to their actual costs on a quantum meruit basis. The House of Lords HELD that this was not so; the contract had merely become more onerous and expensive not radically different.

Lord Reid explained the distinction between a contract becoming more onerous, and being of a different kind:

“

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.

Lord Reid:

Frustration has often been said to depend on adding a term to the contract
by implication: for example, Lord Loreburn in Tamplin Steamship Co. Ltd.
v. Anglo Mexican Petroleum Products Co. Ltd. [1916] 2 A.C. 397 at p. 404,
after quoting language of Lord Blackburn, said: ” That seems to me another way of saying that from the nature of the contract it cannot be supposed the parties, as reasonable men, intended it to be binding on them under such altered conditions. Were the altered conditions such that, had they thought of them, they would have taken their chance of them, or such that as sensible men they would have said: ‘ If that happens, of course, it is all over between us”? What, in fact, was the true meaning of the contract? Since the parties have not provided for the contingency, ought a court to say it is obvious they would have treated the thing as at an end?

I find great difficulty in accepting this as the correct approach because it
seems to me hard to account for certain decisions of this House in this way.
I cannot think that a reasonable man in the position of the seaman in Horlock v. Beal [1916] 1 A.C. 486 would readily have agreed that the wages payable to his wife should stop if his ship was caught in Germany at the outbreak of war, and I doubt whether the charterers in the Bank Line case could have been said to be unreasonable if they had refused to agree to a term that the contract was to come to an end in the circumstances which occurred. These are not the only cases where I think it would be difficult to say that a reasonable man in the position of the party who opposes unsuccessfully a finding of frustration would certainly have agreed to an implied term bringing it about.

I may be allowed to note an example of the artificiality of the theory of
an an implied term given by Lord Sands in Scott & Sons v. Del Sel [1922]
S.C. 592 at p. 595: ” A tiger has escaped from a travelling menagerie. The
” milk girl fails to deliver the milk. Possibly the milkman may be exonerated from any breach of contract: but even so it would seem hardly reasonable to base that exoneration on the ground that ‘ tiger days excepted ‘ must be held as if written into the milk contract”.

I think that there is much force in Lord Wright’s criticism in Denny, Mott
& Dickson at p. 275: ” The parties did not anticipate fully and completely, if at all, or provide for what actually happened. It is not possible, to my mind, to say that, if they had thought of it, they would have said: ‘ Well, if ‘ that happens, all is over between us ‘. On the contrary, they would almost certainly, on the one side or the other, have sought to introduce reservations or qualifications or compensations “.

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. There is much
authority for this view. In British Movietonews Ltd. v. London & District
Cinemas, Ltd. [1952] A.C. 166 at p. 185 Lord Simon said: ” If, on the other
hand, a consideration of the terms of the contract, in the light of the circum-
stances existing when it was made, shews that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point—not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation “.

In Parkinson v. Commissioners of Works [1949] 2 K.B. 632 Asquith, LJ.
said (at p. 667): ” In each case a delay or interruption was fundamental
enough to transmute the job the contractor had undertaken into a job of a
different kind, which the contract did not contemplate and to which it
could not apply, although there was nothing in the express language of
either contract to limit its operation in this way “. I need not multiply
citations but I might note a reference by Lord Cairns so long ago as 1876 to
additional or varied work so peculiar so unexpected and so different from
what any person reckoned or calculated upon ” (Thorn v. The Mayor and

 

Commonalty of London, 1 App. Cas 120 at p. 127). On this view there is
no need to consider what the parties thought or how they or reasonable men in their shoes would have dealt with the new situation if they had foreseen it. The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not
then it is at an end.

In my view, the proper approach to this case is to take from the arbitrator’s
award all facts which throw light on the nature of the contract or which
can properly be held to be extrinsic evidence relevant to assist in its con-
struction and then, as a matter of law, to construe the contract and to
determine whether the ultimate situation as disclosed by the award is or
is not within the scope of the contract so construed.

The incidence of risk

Before the doctrine of frustration can apply the court must be satisfied that neither party has agreed to run the risk of the event in question. The court construes the contract to see if the risk is expressly provided for (a FORCE MAJEURE clause) or if there is evidence of intention to run such risk. Indeed, FORCE MAJEURE clauses are common in modern commercial contracts so that the parties know where they stand right from the outset.

Let us consider the circumstances in which this question of risk is particularly relevant:

(i) Express Provision

If the contract expressly provides for the risk in question that provision will usually apply and the doctrine of frustration will not.

HOWEVER – such provision must be full and complete, and embrace totally the nature of the risk in question.

Jackson v Union Marine Insurance Co Ltd [1874] LR 10 CP 125

A provision: “dangers and accidents of navigation excepted” didn’t apply when a tanker’s availability under a charterparty was delayed for 8 months after it ran aground, because it was deemed not to cover an accident causing injury of such an extensive nature.

SIMILARLY – in:

Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119 A proviso to the effect that if the work should be “unduly delayed or impeded” an extension of time for completion was to be granted was deemed inapplicable to a delay causing a radical change in the obligation.

(ii) Can a contract be frustrated by events which are foreseeable by both parties?

The most obvious suggestion is that if the event was foreseeable the parties should have provided for it in the contract. Indeed, many of the cases refer to frustration applying to “unexpected” or “uncontemplated” events, and many obiter dicta express the view that a contract cannot be frustrated by foreseen or foreseeable events.

However, the point remains undecided, and there is support for the opposite view, viz. Lord Denning MR obiter in The Eugenia [1964] 1 All ER 161, and the strange decision of Goddard J in W J Tatem Ltd v Gamboa [1938] 3 All ER 135 where he held a charterparty to be frustrated by its foreseeable seizure, because it was not foreseeable that it would be seized for such a lengthy period of time; i.e. a very high degree of foreseeability is required to exclude frustration!

(iii) A party cannot rely, as a basis for frustration, on an event foreseen by him but not by the other party

Walton Harvey Ltd v Walker & Homfrays Ltd [1931] 1 Ch 274 The plaintiffs were granted the right by the defendant to display an advertising sign on the defendant’s hotel during a seven year period. Within this period the hotel was compulsorily acquired and demolished, a risk of which the defendants were aware and the plaintiffs were not. The defendant was HELD liable in damages, the contract not being frustrated since the defendant could have provided for such risk in the contract.

(iv) Lack of common assumption

A contract cannot be frustrated by an event which prevents performance in a manner contemplated by one of the parties only.

Blackburn Bobbin Co Ltd v Allen & Sons Ltd [1918] 2 KB 467

Edwinton v Tsavliris [2007] EWCA CIV 547
Rix LJ said that a multi-factorial approach had to be taken to see if a contract is frustrated. This case is worth reviewing.

For a detailed review of recent judicial analysis of Frustration – see Lord Justice Riux’s judgment extracted at the foot of this section.

Self-Induced Frustration

Frustration cannot apply where the alleged frustrating event arises from a deliberate act or choice of one of the parties.

Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524
The respondents chartered to the appellants a steam trawler fitted with an otter trawl. Both parties knew that it was illegal to use an otter trawl without a licence from the Canadian government. The appellants applied for five licenses for the trawlers they were operating, including the respondent’s trawler. However, they were granted three licenses only, which they used for their own vessels, and proceeded to repudiate the charterparty on grounds of frustration. The Privy Council HELD that there was no frustration; the failure of the charterparty was a result of the appellant’s own election.

N.B. It is uncertain whether a negligent act can amount to self-induced frustration, though the House of Lords have suggested that it might in obiter dicta in Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154

Furthermore, the burden of proof of self-induced frustration rests upon the party alleging it.

13.5.3 The effects of the doctrine of frustration

At common law

At common law the contract was terminated automatically and immediately, and both parties were released from their future obligations under the contract; however, they were required to fulfil any obligations which fell due before the occurrence of the frustrating event i.e. the loss lay where it fell.

In other words the contract was not void right from the outset, but only from the occurrence of the frustrating event (cf the effect of mistake which overrides the contract right from the beginning).

This led to unfortunate consequences:

Appleby v Myers [1867] LR 2 CP 651

P undertook to erect machinery upon the D’s premises, the work to be paid for upon completion. When the work was almost completed both the premises and the machinery already erected were destroyed by fire. It was HELD that the contract was frustrated; however, the plaintiff could recover nothing for the work done since the obligation to pay didn’t arise until completion.

Chandler v Webster [1904] 1 KB 493

P agreed to hire from D a room in Pall Mall to watch Edward VII’s coronation procession. The price was £141, payable immediately. The plaintiff paid £100, but before he could pay the balance the procession was cancelled. P sought to recover the £100 paid. The Court of Appeal HELD that not only did he fail to recover his £100, but also he was liable to pay the balance of £41, an obligation which fell due before the occurrence of the frustrating event.

Chandler v Webster in particular provoked much judicial criticism, and was eventually overruled to some extent in:

The Fibrosa [1942] 2 All ER 122

The respondents contracted with the appellants, a Polish company, to manufacture certain machinery and to deliver it to Gdynia. Part of the price was to be paid in advance, and the appellants paid £1,000. However, the contract was frustrated by the occupation of Gdynia by hostile German forces in September 1939. The appellants requested the return of their £1,000. This request was refused on the basis that considerable work had already been done on the machinery.

Clearly, if Chandler v Webster had been followed then the £1,000 would have been irrecoverable because it had already been paid at the time of the frustrating event. However, the House of Lords HELD that the appellants could recover their £1,000. The basis for this was not the contract which had ceased to exist, but an action in what is known as quasi-contract for the restitution of money paid where there has been total failure of consideration. Consideration in quasi-contract does not have the same meaning as the consideration necessary to formation of contract; thus, if the party paying the money has received no part of the performance for which he bargained (i.e. none of the machinery had been delivered) there is total failure of consideration.

THUS – the position was improved, but was still unsatisfactory for two reasons:

(i) The party who had to return the pre-payment might have incurred expenses but would be entitled to nothing (as in The Fibrosa ).

(ii) If the party seeking to recover the pre-payment had received any part of what he bargained for, no matter how small, e.g. 1% of the machinery in The Fibrosa , there would be no total failure of consideration.

An attempt to deal with these difficulties led to the enactment of:

***

The Law Reform (Frustrated Contracts) Act 1943

The Law Reform (Frustrated Contracts) act 1943

The Act applies to all contracts governed by English Law except:

* Contracts for the carriage of goods by sea or charterparties (other than a time charterparty or charterparty by way of demise).

* Contracts of insurance.

* Contracts for the sale of specific goods where the goods have perished, s.7 Sale of Goods Act 1979 .

THUS – in modern times it is the 1943 Act which must be applied to ascertain the position of the parties upon the occurrence of frustration and not the common law (unless the contract falls within the exempted categories).

***

 

What is the effect of the 1943 Act?

(i) The right to recover money paid and the right to set-off expenses against pre-payment

Section 1(2):

“All sums paid or payable to any party in pursuance of the contract before the time when the parties were so discharged … shall, in the case of the sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums are paid, and, in the case of sums so payable, cease to be so payable:

Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.”

There are three main points to be made about s.1(2):

(a) It applies only when there has been a pre-payment or agreement to make a prepayment.

(b) It embodies the rule in The Fibrosa in terms of recovering pre-payments, but it is not now necessary to prove total failure of consideration.

(c) It goes further than The Fibrosa in that it gives the court a discretionary power to permit the payee to set-off against the sum paid or payable a sum not exceeding the value of any expenses incurred in performing the contract before frustration occurred.

X can look to s.1(2) for £2,000 maximum (if anything);

X must look to s.1(3) (yet to be considered) for the remaining £7,000 (if anything); X couldn’t look to S.1 (2) at all if there had been no pre-payment or agreed pre-payment.

(ii) Restitution of Benefits other than Money where there has been Partial Performance

Section 1 (3) represents an attempt to deal with the difficulties created by cases like Appleby v Myers [1867] LR 2 CP 651.

Section 1 (3):

“Where any party to the contract has, by reason of anything done by any other party thereto in, or for the purpose of, the performance of the contract, obtained a VALUABLE BENEFIT (other than the payment of money) before the time of discharge, there shall be recoverable from him by the other party such sum (if any), not exceeding the value of the said benefit to the party obtaining it, as the court considers just, having regard to all the circumstances of the case and in particular:

(a) the amount of any expenses incurred before the time of discharge by the benefited party in, or for the purpose of, the performance of the contract, including any sums paid or payable by him to any other party in pursuance of the contract and retained or recoverable by that party under S.1(2), and

(b) the effect, in relation to the said benefit, of the circumstances giving rise to the frustration of the contract.”

Effectively, either party may be awarded compensation in respect of any non-monetary valuable benefit conferred by him upon the other party in pursuance of the contract.

This involves a two-stage process:

(a) Identification and valuation of the “valuable benefit” which will set the upper limit of any “just sum” award.

(b) Calculation of the “just sum”.

(a) Identification and valuation of the Valuable Benefit:

This is very difficult and controversial, for, if we take a case like Appleby v Myers there are two alternative arguments, viz. Firstly, that no valuable benefit has been obtained because the completed work has been totally destroyed; or secondly, on a more liberal interpretation, that a valuable benefit was obtained by the owner in that work had been done on his land as per contract immediately before discharge.

Perhaps, in an Appleby v Myers situation, the second interpretation is preferable in that the Act does speak of a valuable benefit being obtained BEFORE the time of discharge, and the owner is more likely to be insured against fire than the builder. However, even with a liberal interpretation the Act wouldn’t cover all situations, e.g. in Krell v Henry Krell would not be able to claim that he conferred a valuable benefit upon Henry by arranging to have his furniture stored away whilst Henry was in the flat.

Section 1(3) was considered by Robert Goff J, whose judgment was affirmed by the Court of Appeal and House of Lords, in:

B P Exploration Co (Libya) Ltd v Hunt (No 2) [1982] 1 All ER 125
Hunt, who owned an oil concession in Libya, contracted for its development with B P Exploration. B P were to provide the capital and expertise, and if and when the oil was developed and sold B P would be paid back from Hunt’s share of the oil. After B P had done considerable work and incurred great expense in developing the oil field successfully, the Libyan government withdrew the concession and the contract was frustrated. B P claimed under s.1(3). The House of Lords (affirming the judgment of Robert Goff J) HELD that B P had incurred expenditure under the contract, and consequently a valuable benefit had been conferred upon Hunt in the form of the increased value in his share of the concession.

(b) Calculation of the “Just Sum”:

The second stage is for the court to assess what sum (not exceeding the value of the benefit) it considers just to award (if anything). In accordance with s.1(3) it must consider any sum received by the plaintiff under s.1(2) if any, and the circumstances giving rise to the frustration of the contract, i.e. the position AFTER the frustrating event, e.g. in Appleby v Myers , the fact that the owner’s valuable benefit no longer exists!

X can look to s.1(3) to the extent of £9,000, if he is deemed to have conferred a valuable benefit from Y immediately before discharge (a big if!).

The court will take account the destruction of the machinery in the calculation of the “just sum”.

Section 1(2) does not apply because there is no pre-payment.

Perishing of specific goods – Section 7 SOGA 1979

“Where there is an agreement to sell specific goods, and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is thereby avoided.”

The section applies only to specific goods and will operate therefore in cases where the property passes under s.18 rr 2 and 3.

The consequences of frustration – s.7 SOGA 1979 cases

The Law Reform (Frustrated Contracts) Act 1943 is not applicable.

1. Both parties discharged from contractual obligation.

2. Where the price, or part thereof, has been paid it can be recovered on a total failure of consideration

3. On a total failure of consideration the seller cannot deduct anything for expenses incurred before frustrating event occurred.

4. Payments made under a contract cannot be recovered if there is only a partial failure of consideration.

5. If price not paid but [S] has delivered some goods cannot sue for price.

Cutter v Powell (1795) 6 Term Reports 320

A seaman whose wages were due on completion of the voyage, died during it. His executrix recovered nothing.

Unascertained goods

Doubtful if frustration will ever be successful – ‘genus numquam perit’, cf. the perishing of the entire bulk.

Appleby v Myers (1867) et al.

But see Sainsbury v Street [1972] 1 WLR 834

CTI Group v Transclear SA [2008] EWCA Civ 856
Court of Appeal

The case illustrates the principle that Frustration, as a doctrine, is very narrowly applied. To show frustration it would be necessary to demonstrate that performance of the new contract would be fundamentally different from that originally contemplated. The Court of Appeal also confirmed that frustration can apply to a contract for the sale by description of unascertained goods of a specified origin.

For frustration other than that arising under s.7 SOGA 79

The Law Reform (Frustrated Contracts) Act 1943

1. Can recover payments even on partial failure of consideration (s.1(2) LR(FC)A 43).

2. Payee can retain part or all of sum otherwise recoverable if he has incurred expenses in or for the performance of the contract (s.1(2) LR(FC)A 43).

3. Buyer can be compelled to pay for any goods received (s.1(3) LR(FC)A 43 – Cutter v Powell overruled for frustration at common law (not under s.7 cases above)

See B P Exploration Co (Libya) Ltd v Hunt (No 2) [1982] 1 All ER 125 per Robert Goff J.

***

CASE STUDY ON FRUSTRATION

Edwinton v Tsavliris [2007] EWCA CIV 547
Rix LJ said that a multi-factorial approach had to be taken to see if a contract is frustrated. This case is worth reviewing.

# Two classic modern statements of the incidence of frustration are to be found in the dicta of Lord Radcliffe in Davis Contractors Ltd v. Fareham Urban District Council [1956] AC 696 at 729 and Lord Simon of Glaisdale in National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675 at 700. Lord Radcliffe said:

“…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.”[1]

# Lord Simon said:

“Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.”

# The reference by Lord Simon in that latter passage to the role that the concept of justice plays in the doctrine has a distinguished pedigree, which he elaborated at 701:

“In the first place, the doctrine has been developed by the law as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances. As Lord Sumner said, giving the opinion of a strong Privy Council in Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497, 510: “It is really a device, by which the rules as to absolute contracts are reconciled with a special exception which justice demands.”…

Secondly, in the words of Lord Wright in the Cricklehood Property case [Cricklewood Property and Investment Trust Ltd v. Leighton’s Investment Trust Ltd [1945] AC 221] at p. 241: “…the doctrine of frustration is modern and flexible and is not subject to being constricted by an arbitrary formula.” It is therefore on the face of it apt to vindicate justice wherever owing to relevant supervening circumstances the enforcement of any contractual arrangement in its literal terms would produce injustice.”

# Lord Wilberforce (at 696H) and Lord Roskill (at 712D/E) also referred to the doctrine of frustration as a means for finding just solutions or avoiding injustice.

# In The Super Servant Two [1990] 1 Lloyd’s Rep 1, at 8, Bingham LJ on the same subject included the following as a proposition established by the highest authority and not open to question:

“The object of the doctrine was to give effect to the demands of justice, to achieve a just and reasonable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances…”

# The particular problem of delay as a cause of frustration has to be tested as at the time it had to be considered by the parties, but on an objective basis. For these purposes past and prospective delay has to be taken into account. The issue, if disputed, requires an informed judgment and the decision on such an issue by the tribunal of fact cannot easily be upset on appeal (subject of course to any error of law). As Lord Sumner famously said in Bank Line, Limited v. Arthur Capel & Co [1919] AC 435 at 454 –

“The probabilities as to the length of the deprivation and not the certainty arrived at after the event are also material. The question must be considered at the trial as it had to be considered by the parties, when they came to know of the cause and the probabilities of the delay and had to decide what to do. On this the judgments in the above cases substantially agree. Rights ought not to be left in suspense or to hang on the chances of subsequent events. The contract binds or it does not bind, and the law ought to be that the parties can gather their fate then and there. What happens afterwards may assist in showing what the probabilities really were, if they had been reasonably forecasted, but when the causes of frustration have operated so long or under such circumstances as to raise a presumption of inordinate delay, the time has arrived at which the fact of the contract falls to be decided.”

# To which has to be added an equally well-known passage from the speech of Lord Roskill (with whom their other Lordships agreed) in Pioneer Shipping Ltd v. BTP Tioxide Ltd (The “Nema”) [1982] AC 724 at 752:

“But in others, where the effect of that event is to cause delay in the performance of contractual obligations, it is often necessary to wait upon events in order to see whether the delay already suffered and the prospects of further delay from that cause, will make any ultimate performance of the relevant contractual obligations “radically different,” to borrow Lord Radcliffe’s phrase, from that which was undertaken under the contract. But, as has often been said, business men must not be required to await events too long. They are entitled to know where they stand. Whether or not the delay is such as to bring about frustration must be a question to be determined by an informed judgment based upon all the evidence of what has occurred and what is likely thereafter to occur. Often it will be a question of degree whether the effect of the delay suffered, and likely to be suffered, will be such as to bring about frustration of the particular adventure in question. Where questions of degree are involved, opinions may and often legitimately do differ. Quot homines, tot sententiae. The required informed judgment must be that of the tribunal of fact to whom the issue has been referred. That tribunal, properly informed as to the relevant law, must form its own view of the effect of that delay and answer the critical question accordingly. Your Lordships’ House in Tsakiroglou & Co. Ltd. v. Noblee Thorl G.m.b.H. [1962] A.C. 93, decided that while in the ultimate analysis whether a contract was frustrated was a question of law, yet as Lord Radcliffe said at p. 124 in relation to that case “that conclusion is almost completely determined by what is ascertained as to mercantile usage and the understanding of mercantile men.”

# In the light of these principles, it is instructive to consider as illustrations some of the well known cases concerned with the frustration of a charterparty which have been relied on before this court.

# Anglo-Northern Trading Company, Limited v. Emlyn Jones & Williams [1917] 2 KB 78 concerned the frustration of a one year time charter by requisition during the First World War. The requisition occurred within three months from the end of the charter, in July 1916. There was an exception, but no off-hire provision, for restraint of princes. There was no intimation of the length of time for which the vessel was requisitioned. The arbitrator therefore held that there was no frustration, but stated a special case for the court. In finding the charter to have been frustrated, Bailhache J opined that –

“The main consideration is the probable length of the total deprivation of use of the vessel as compared with the unexpired duration of the charterparty” (at 84).

# On appeal to this court, that case was heard together with another appeal, see Countess of Warwick Steamship Company v. Le Nickel Société Anonyme [1918] 1 KB 372, also concerning the requisition of a one year time charter, in that case occurring some six months from its expiry, in October 1915. Bailhache J’s dictum was approved (at 378). However, this court treated the prospective delay, despite the absence of any particular evidence deployed or found upon in the Anglo-Northern arbitration, as being the same in that case as in the Countess of Warwick Steamship case, namely “it was a question of goodbye to them; that there was no expectation of return” (at 379, 380). A finding of frustration founded on requisition in the middle of the Great War was inevitable. It seems to me that in that context the dictum cited above contributes little insight into different cases.

# Bank Line v. Capel [1919] AC 435 is the most famous of the First World War requisition cases. There another vessel subject to a one year time charter was requisitioned, but the requisition occurred before delivery, in May 1915. The charter as usual made provision for restraint of princes and there was also a special clause giving the charterer an option to maintain or cancel the charter if the vessel could not be delivered “through unforeseen circumstances”. Such clauses were relied on for saying that the doctrine of frustration could not apply, but unsuccessfully. By September 1915 the owner was entitled to say that the charter had been frustrated. Lord Sumner qualified Bailhache J’s dictum in Tamplin’s Case by saying that –

“…I agree in the importance of this feature, though it may not be the main and certainly is not the only matter to be considered” (at 454).

# He also said –

“A contingency may be provided for, but not in such terms as to show that the provision is meant to be all the provision for it” (at 456); and

“Delay even of considerable length and of wholly uncertain duration is an incident of maritime adventure, which is clearly within the contemplation of the parties, such as delay caused by ice or neaping, so much so as to be often the subject of express provision. Delays such as these may very seriously affect the commercial object of the adventure, for the ship’s expenses and over-head charges are running on and, even with the benefit of Protection and Indemnity Club policies, the margin of profit is quickly run off. None the less this is not frustration; the delay is ordinary in character, and in most cases the charterer is getting the use of the chartered ship, even though it is unprofitable to him…” (at 458/9).

# Tatem v. Gamboa [1939] 1 KB 132, already mentioned above, concerned a 30 day charter of a vessel by the Republicans during the Spanish Civil War. After a fortnight the vessel was seized by a Nationalist ship and detained for just under two months, whereupon she was redelivered to her owner. The charterers claimed that the charter had been frustrated from the moment of seizure, and Goddard J agreed. He was prepared to assume that the parties contemplated that the vessel might be seized and detained, but not for the length of time in question (at 135/6). He said (at 137/8):

“It is true that in many of the cases there is found the expression “unforeseen circumstances”, and it is argued that “unforeseen circumstances” must mean circumstances that could not have been foreseen. But…it makes very little difference whether the circumstances are foreseen or not. If the foundation of the contract goes, it goes whether or not the parties have made a provision for it.”

# Goddard J considered that the requisition cases mentioned above were of assistance to him in this regard, since requisition must have been anticipated there.

# Mr Hamblen for Tsavliris relied strongly on Tatem v. Gamboa, as had his junior counsel, Mr Hill, before the judge. In my judgment, right or wrong, its reasoning proves too much. If the charter was frustrated at once, then that must have been because the prospective delay already as at that time destroyed the contract: as may well have been the case with seizure of a vessel by opposing forces during war-time, even if the issue of prospective delay is not discussed expressly in the judgment. Such immediate frustration, however, is not the case here, for it is no longer said that the charter was frustrated before 13 October 2003. Moreover, as the judge remarked, there was no question in that case of any possibility of recourse to a court to obtain a remedy against unlawful seizure. In my judgment, war-time requisition, seizure or trapping (see, for instance, the subsequent cases arising out of the Iran-Iraq war and the closing of the Shatt-el-Arab waterway) are of uncertain relevance. Some wars, as modern times have shown, may of course be very short: the possibility therefore that an outbreak of war may come to a rapid end may have to be considered: see The Wenjiang (No 2) [1983] 1 Lloyd’s Rep 400 per Bingham J at 404/406. But subject to that possibility, the requisition, seizure or trapping of a vessel in the course of a major conflict are quite unlike the present case. One cannot negotiate or litigate one’s way out of such consequences of war. If in such circumstances the charter has not made express provision for what has occurred (as may yet happen, eg in the case of requisition, or by reference to a war clause: see Kuwait Supply Co v. Oyster Management Inc (The “Safeer”) [1994] 1 Lloyd’s Rep 637), the possibility of frustration, subject to any default by either party, can never be far away.

# It is certainly true, however, that a contract may be frustrated even though the supervening event was foreseeable or contemplated. That, after all, is what happened in the requisition cases, as it did again in The Nema, where the frustrating event was a lengthy strike: even though strikes were of course not only foreseeable, but the subject matter of express provision in the contract in that case.

# Apart from Tatem v. Gamboa, the authority on which Mr Hamblen placed greatest reliance was Eridania SpA v. Rudolf A Oetker (The “Fjord Wind”) [1999] 1 Lloyd’s Rep 307. That, however, was a very different kind of case. The claimants there were cargo owners whose goods were being carried on a vessel whose owners had let her to disponent owners who had in turn voyage chartered her to the buyers of the goods. The vessel had suffered an engine breakdown on the voyage, which led to lengthy delays and prospective further delays for repairs. The judge, Moore-Bick J, found that the voyage charter and bill of lading would have been frustrated, but for the fact that the defendant owners and disponent owners were in breach of contract. His reasons were primarily that –

“there was a significant risk that after nearly five months in this vessel this cargo would have suffered very serious damage as a result of mould growth. From the point of view of both the cargo-owner and the shipowner a contract for a voyage of about one month which involved no appreciable risk of damage to the cargo resulting from its inherent qualities had been transformed into one which involved both prolonged delay and a significant risk of serious damage. That in my judgment rendered the performance of the contract radically different” (at 333).

# I am not in general assisted by this authority, which it seems to me turns ultimately on the consequences for the cargo of the prolonged delay in question. However, Moore-Bick J did emphasise the learning of The Nema, saying that –

“As Lord Roskill pointed out in The Nema, whether a contract has been frustrated in circumstances such as those of the present case is essentially a matter of judgment. In a case where an unforeseen event has led to a prolongation of the voyage which is sufficient to give rise to a significant risk, or worse, of damage to the cargo, the question whether performance of the voyage has become radically different is essentially one of fact and degree” (at 332).

Although there was an appeal to this court (at [2000] 2 Lloyd’s Rep 191), it did not concern issues of frustration.
# There were lengthy submissions before us from both parties as to the role in the doctrine of frustration of the fact that a risk might be foreseen or foreseeable. We had cited to us numerous passages from a major work of broad, detailed and exceptional scholarship by Professor Sir Guenter Treitel QC, his Frustration and Force Majeure, 2nd ed 2004. Similar submissions in reliance on this work were made to the judge. Mr Hamblen’s summary of Professor Treitel’s thesis as relevant to present purposes is that foreseeability of a risk may be a weak or inconsequential factor to take into account, unless the three tests of kind, extent, and degree are met. As to kind and extent, both the type and the extent or length of the interference or delay must be foreseeable; as to degree, the degree of foreseeability has to be very high.

# The significance of foreseen or of unforeseen but foreseeable events is in my judgment well, if briefly, summarised in Chitty on Contracts, 29th ed, 2004 at paras 23-057/8. Para 23-057 which deals with foreseen events can be seen to make the point that there is no rule of exclusion, at best some prima facie indications. Thus –

“While an unforeseen event will not necessarily lead to the frustration of a contract, a foreseen event will generally exclude the operation of the doctrine. The inference that a foreseen event is not a frustrating event is only a prima facie one and so can be excluded by evidence of contrary intention.”

# However, there is no finding in terms that the detention by KPT which occurred in this case was actually foreseen (or unforeseen) even by Tsavliris, merely that unreasonable detention by port authorities is a “risk of the industry”, and as such foreseeable. In such circumstances it is para 23-058 which is perhaps particularly pertinent, which reads –

“Event foreseeable but not foreseen. When the event was foreseeable but not foreseen by the parties, it is less likely that the doctrine of frustration will be held to be inapplicable. Much turns on the extent to which the event was foreseeable. The issue which the court must consider is whether or not one or other party has assumed the risk of the occurrence of the event. The degree of foreseeability required to exclude the doctrine of frustration is, however, a high one: ” ‘foreseeability’ will support the inference of risk-assumption only where the supervening event is one which any person of ordinary intelligence would regard as likely to occur, or…the contingency must be ‘one which the parties could reasonably be thought to have foreseen as a real possibility.’ ” ”

# The latter quote by Chitty is from Treitel’s work at para 13-09, itself citing the American authority of Mishara Construction Company Inc v. Transit-Mixed Concrete Corp 310 NE 2d 363, 367 (1974). The judge took account of such submissions: see at para 84 of his judgment.

Submissions on appeal
# The submissions on appeal followed the same pattern as those at trial (see above), but refined to take account of the fact that Tsavliris were no longer contending for a frustration date earlier than 13 October. In particular, Mr Hamblen on behalf of Tsavliris submitted that the judge had erred in his final conclusions at para 106. Thus he erred:

(i) in resisting the compelling case (which the judge had himself described as a “realistic argument” (at para 106(iii)) for the frustration of a charter whose unexpired period was far exceeded by the probable length of delay;

(ii) in being influenced or overly influenced by “the risk in the salvage context” (at para 106(iv)), when that risk was poorly and too broadly defined, and, in the form in which it eventuated, was neither found to have been actually foreseen nor could properly be said to be foreseeable, neither in its type, nor in its extent, and not to the degree of foreseeability required by sound doctrine, at any rate not as “a real possibility” (see Mishara and Treitel), and was arguably unprecedented;

(iii) in being influenced by “the decision by Tsavliris to opt in the first instance for a negotiated setting” (at para 106(iv)), when that was relevant if at all to negative the complaint by Global of self-induced frustration and otherwise was merely part of the background which led, with the collapse of that strategy, to the frustration of the charter;

(iv) in concluding that Tsavliris had assumed the risk of detention under “the sphere of responsibility” which it had undertaken under the charter (para 106(iv)), when the cause of the detention which took place was not in truth about port dues at all, since from beginning to end the KPT had made it clear that they wanted payment or security for the pollution caused by the casualty and would not release any vessel until that was provided;

(v) in being influenced or overly influenced by the so-called “striking feature of the case” that as at 13 October there was still time, before the charter could be said to be frustrated, to invoke the assistance of the Pakistani courts (para 106(v)), when (a) the charter was already frustrated, and (b) the prospects of a successful outcome within any reasonable time, especially following appeal, were wholly uncertain and speculative, as was shown ultimately by the fact that (c) the litigation did not succeed in obtaining the release of the vessel without further negotiations involving the agreement of and payments by third parties.
# In sum, Mr Hamblen submitted that the judge had erred in not asking himself the critical question as at 13 (or let it be 17) October 2003: whether the delay which had already taken place added to the prospective delay amounted to a total, ongoing, indefinite delay of such unreasonable and inordinate length, especially when viewed against the short period of the charter and its extremely short unexpired portion, as to cause performance of the charter in those circumstances to amount to that radically different thing which amounts in law to frustration. If the judge had found what the prospective delay was as at 13 or 17 October, and, in the light of that finding had asked himself the critical question, he would have been bound to say, as this court should say, that the charter was by then frustrated, as Tsavliris had claimed in their letter of 21 October.

# On behalf of Global, Mrs Blackburn submitted that the judge was right for the reasons which he gave, and, as she had also submitted at trial, for additional reasons (such as self-induced frustration, breach of the safe port warranty of due diligence, the obligation to redeliver in Fujairah, the rider clause) which formed part of the respondents’ notice. She singled out Mr Constantinides’ evidence, both in relation to his strategy for a negotiated solution at any rate by Christmas, and in accepting the risk of such unreasonable detention by KPT as had occurred in this case as being definitely foreseeable as a risk of the industry, and the generally uncontroversial evidence of the Pakistani law experts, as constituting the critical facts of the case. The assessment of those facts was for the trial judge.

Discussion
# It is to be observed that Tsavliris’s appeal does not amount to an attack on the judge’s restatement of the law, but on his application of that law to the facts of the case. To a certain extent complaint is made about his findings of fact themselves, such as his attitude to the uncertainties and length of litigation, particularly on appeal from the Pakistani trial court. Ultimately however the complaint is that the judge weighed the facts, or the various factors which he had to assess, wrongly and was therefore led to the wrong conclusion. He was helped in that error by defining the risk which might have had to be calculated in the parties’ contemplation at the time of contracting too broadly, and in failing to consider sufficiently explicitly the future period of uncertainty and delay.

# In the course of the parties’ submissions we heard much to the effect that such and such a factor “excluded” or “precluded” the doctrine of frustration, or made it “inapplicable”; or, on the other side, that such and such a factor was critical or at least amounted to a prima facie rule. I am not much attracted by that approach, for I do not believe that it is supported by a fair reading of the authorities as a whole. Of course, the doctrine needs an overall test, such as that provided by Lord Radcliffe, if it is not to descend into a morass of quasi-discretionary decisions. Moreover, in any particular case, it may be possible to detect one, or perhaps more, particular factors which have driven the result there. However, the cases demonstrate to my mind that their circumstances can be so various as to defy rule making.

# In my judgment, the application of the doctrine of frustration requires a multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix or context, the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances. Since the subject matter of the doctrine of frustration is contract, and contracts are about the allocation of risk, and since the allocation and assumption of risk is not simply a matter of express or implied provision but may also depend on less easily defined matters such as “the contemplation of the parties”, the application of the doctrine can often be a difficult one. In such circumstances, the test of “radically different” is important: it tells us that the doctrine is not to be lightly invoked; that mere incidence of expense or delay or onerousness is not sufficient; and that there has to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstances.

# What the “radically different” test, however, does not in itself tell us is that the doctrine is one of justice, as has been repeatedly affirmed on the highest authority. Ultimately the application of the test cannot safely be performed without the consequences of the decision, one way or the other, being measured against the demands of justice. Part of that calculation is the consideration that the frustration of a contract may well mean that the contractual allocation of risk is reversed. A time charter is a good example. Under such a charter, the risk of delay, subject to express provision for the cessation of hire under an off-hire clause, is absolutely on the charterer. If, however, a charter is frustrated by delay, then the risk of delay is wholly reversed: the delay now falls on the owner. If the provisions of a contract in their literal sense are to make way for the absolving effect of frustration, then that must, in my judgment, be in the interests of justice and not against those interests. Since the purpose of the doctrine is to do justice, then its application cannot be divorced from considerations of justice. Those considerations are among the most important of the factors which a tribunal has to bear in mind.

# Mr Hamblen submitted that whereas the demands of justice play an underlying role, they should not be overstated. He referred the court to Chitty at para 23-008 (“But this appeal to the demands of justice should not be taken to suggest that the court has a broad absolving power whenever a change of circumstances causes hardship to one of the contracting parties…Such a test is too wide, and gives too much discretion to the court”). I respectfully agree. Mr Hamblen also referred to Treitel at para 16-009 (“The “theory” does not, in other words, supersede the rules which determine the circumstances in which the doctrine of frustration operates”). I would again respectfully agree, as long as it is not sought to apply those rules as though they are expected to lead one automatically, and without an exercise of judgment, to a determined answer without consideration of the demands of justice.

# Mr Hamblen further cited two authorities. In Notcutt v. Universal Equipment Co (London) Ltd [1986] 1 WLR 641, this court had to consider a contract of employment which the trial judge had found to have been frustrated by the permanent incapacity of an employee. The narrow issue was whether the contract should have come to an end by frustration (without notice) or whether the proper way of ending it was by the employer giving notice, during which period there would have been a statutory requirement of sick pay. The appeal was dismissed. There was a submission, based upon some of the dicta cited above, that an additional condition for the incidence of frustration was that the survival of the contract should be unjust. In his judgment (with which the only other member of the court, Sheldon J) agreed, Dillon LJ said (at 647):

“I do not for my part see that these references to justice or injustice introduce any further factor. If the unexpected event produces an ultimate situation which, as a matter of construction, is not within the scope of the contract or would render performance impossible or something radically different from that which was undertaken by the contract, then it is unjust that the contracting party should be held to be still bound by the contract in those altered circumstances. I approach the facts of this case on the footing that the test to be satisfied is that explained by Lord Reid and Lord Radcliffe in the passages set out above.”

# In a case in which the contract was overcome by permanent disability and the court considered that it would be unjust for the contract to survive in such circumstances, I see no difficulty with these observations.

# In Eridania SpA v. Rudolf Oetker (The “Fjord Wind”) [1999] 1 Lloyd’s Rep 307 at 328/9 Moore-Bick J said, with reference to Bingham LJ’s reference to the demands of justice in The Super Servant Two (see above), that –

“his intention was clearly to describe the considerations which had given rise to the development of the doctrine rather than to suggest that the Court is entitled to adopt a more liberal approach than would be indicated by Lord Radcliffe’s speech. I am unable, therefore, to accept Mr Gee’s submission that in this case I ought to have regard to some wider considerations of justice and fairness than the earlier authorities would otherwise suggest.”

That reflects the formulation of Chitty (above).
# I turn then to the facts of this case. I agree with Mr Hamblen that the critical question was whether, as of 13 October, (or 17 October, and for present purposes I am content to adopt either date), the delay which had already occurred and prospective further delay would have led the parties at that time to have reasonably concluded that the charter was frustrated. No later date of frustration was relied upon. For these purposes, since on the facts a delay of some 5 weeks had already occurred and the prospective delay involved in a revised strategy involving litigating in the Pakistani courts would involve a further 4 to 6 weeks at least, the first question to consider is whether Mr Hamblen is right in his submission that the Bailhache J test of comparing the probable length of the delay with the unexpired duration of the charter is the critical or main and in any event overbearing test to apply (see Anglo-Northern, Bank Line, Tatem v. Gamboa).

# In my judgment it is not. It may be an important consideration, but it is, on our facts, only the starting point. In the first place, the development of the law shows that such a single-factored approach is too blunt an instrument. As stated above, a finding of frustration of a charter of no longer than a year, based on requisition during the First World War, against the view that requisition meant “goodbye to them”, was in any event close to inevitable. Secondly, requisition, like seizure in Tatem v. Gamboa, could not be rectified; whereas in our case, the consequences of the detention by the port authorities remained very much a matter for enquiry, negotiation, diplomacy, and, whatever the ordering of the tactics, legal pressure. Thirdly, where, as in our case, the supervening event comes at the very end of a charter, with redelivery as essentially the only remaining obligation, the effect of the detention on the performance of the charter is purely a question of the financial consequences of the delay, which will fall on one party or the other, depending on whether the charter binds or does not bind. It is not like the different situation where the supervening event either postpones or, which may be even worse, interrupts the heart of the adventure itself: as, for instance, in Tatem v. Gamboa or The Fjord Wind. In our case, the purpose for which the Sea Angel had been chartered, namely the lightening of the casualty, had been performed.

# Fourthly, in general terms the contractual risk of such delay caused by detention by government authorities was firmly on the charterers, Tsavliris. I will develop this below: but in essence it follows from their obligation to pay hire, subject to the off-hire clause, until redelivery. And even the off-hire clause itself expressly provided for “detention by the authorities at home or abroad” but not in terms which were relied on as covering the particular event here. Fifthly, as was even common ground, the risk of detention by the littoral authorities arising out of a salvage situation where there was a concern about pollution was, at any rate in general terms, foreseeable. This remained the case even if, as Mr Hamblen submitted, the particular form in which that risk showed itself in this case was unforeseeable, or only weakly foreseeable, or was even unprecedented. Sixthly, that general risk was foreseeable by the salvage industry as a whole, and was provided for by the terms of that industry: see SCOPIC and Brice’s commentary on it. Indeed, in my view the particular risk which occurred was within the provisions of SCOPIC. As such, those matters were part of the matrix itself of the charter under enquiry. In this connection, I bear in mind that Global were not themselves part of the salvage industry: but they chartered the vessel to well-known international salvors, to perform salvage services directly to a casualty, at a high price which reflected the emergencies and risks of such services: and therefore the foreseeable risks of the salvage context, and the incidence of those risks subject to SCOPIC, are properly part of the matrix of the charter. In justice, they bear particularly on Tsavliris, the salvors, themselves.

# Seventhly, it is now common ground, on the particular facts of this case, that, short as the charter was, a mere 20 days, and shorter still as the unexpired period of the charter was, a mere 3 days, there was no frustration until the strategy of commercial negotiation had initially failed (by 13 or 17 October), some five weeks after the detention began. So, in any event, this is not a case like Anglo-Northern and Tatem v. Gamboa, where the charters were frustrated then and there by the supervening event. Ours is one of those “wait and see” situations discussed in other authorities. In such situations, it is a matter for assessment, on all the circumstances of the case, whether by a particular date the tribunal of fact, putting itself in the position of the parties, and viewing the matter in the role of reasonable and well-informed men, concludes that those parties would or properly speaking should have formed the view that, in all fairness and consistently with the demands of justice, their contract, as something whose performance in the new circumstances, past and prospective, had become “radically different”, had ceased to bind.

# For these reasons, some of which have been sufficiently grounded above, and others of which I shall elaborate below, it seems to me that the primary point on which Tsavliris have founded their claim to frustration fails. I turn to discuss particular aspects of these reasons.

The test as of 13/17 October
# Mr Hamblen submitted that the judge had not properly asked himself the right question as of 13/17 October because he did not state in terms what the length of the prospective delay was as of the time in mid-October when the commercial strategy failed and it had become necessary to have recourse to law. In my judgment, that criticism essentially fails. The judge had squarely before him Mr Hamblen’s argument, there made by Mr Timothy Hill, Mr Hamblen’s junior on this appeal, that “as of the 13th – 18th October…the probable length of delay, compared to the unexpired period of the charterparty, meant that the charterparty was frustrated” (at para 106(iii)). He spoke again of “the prospective extent of the delay” at para 106(v). He had previously for these purposes carefully considered the question of the availability of the Pakistani court and the time-scale within which it might be able or not to grant effective relief (at para 104). I am satisfied that the judge was answering the right question. As he said (ibid) – “Plainly, if effective and timely relief could be anticipated, the charterparty could not yet be regarded as frustrated.”

# The judge’s conclusion, however, was against the Tsavliris argument, both as a matter of those facts which involved consideration of the evidence of the Pakistani legal experts and as a matter of the judge’s overall assessment of the situation. In particular, he had in mind the important evidence that a decision on an application limited to an order for release of the vessel could be achieved within 4 – 6 weeks, as well as the ramifications of any dilatory attempt by the KPT, if so far unsuccessful, to string matters out during an appeal. His view of events, looking forward as of 13/17 October, was justified by the cross-check of events as they unfolded (see Lord Sumner in Bank Line). The judge was entitled to view the prospects of such delaying tactics, if KPT should fail at first instance, as merely speculative. In fact there was no appeal.

# Although, as things turned out, the Pakistani judge’s decision was not accepted by the KPT, which continued to use every opportunity allowed it, even in the absence of an appeal, to spin out further negotiations, until an application to commit its senior officers for contempt of court finally brought matters to a head, it was the essential strategy adopted from the beginning by Tsavliris, with the owners of the casualty and their Club acting in tandem, which ultimately bore fruit. The only difference from that opening strategy which emerged over the period was that, whereas resort to law was regarded as something to be avoided for as long as possible, it was in time used, as it had always been contemplated it might be, as part of a combination of pressures to reach a final result. In the meantime, it was not simply a matter for Tsavliris alone to decide whether or not and when to go to law. The casualty owners, whose underwriters, the Club, were also intimately interested, not only because of KPT’s direct claims but also through their SCOPIC obligations, also had to decide if and when to resort to law, as, equally or more significantly, had Global themselves. It was in fact Global’s legal suit which became the basis for the parties’ legal attack on the KPT. It was for Global, and their linked company the ultimate owners of the Sea Angel, as much as anyone to calculate when and if the right moment had arrived for legal action.

# In effect, one can see the parties moving towards the solution over a period: Tsavliris instructed their lawyers on 19 September to prepare a legal notice; Global instructed their lawyers on 2 October to issue proceedings; the owners of the casualty and the Club’s English lawyers, Eversheds, were perhaps more sceptical as to the usefulness of legal proceedings, but the Club’s financial power remained part of the solution. In these circumstances, I do not regard the temporary breakdown of negotiations as of mid-October as a turning-point, so much as a staging point in a continuous process. At the outset of that process, Tsavliris’s managing director, Mr Constantinides, regarded three months as a likely time for a solution, and he did not regard such a period then as amounting to a frustrating delay.

# It seems to me that that is essentially what the judge is saying at paras 99 and 104/106 of his judgment.

The foreseeability of the risk
# In my judgment, the submissions under this heading became over-refined. In a sense, most events are to a greater or lesser degree foreseeable. That does not mean that they cannot lead to frustration. Even events which are not merely foreseen but made the subject of express contractual provision may lead to frustration: as occurs when an event such as a strike, or a restraint of princes, lasts for so long as to go beyond the risk assumed under the contract and to render performance radically different from that contracted for. However, as Treitel shows through his analysis of the cases, and as Chitty summarises, the less that an event, in its type and its impact, is foreseeable, the more likely it is to be a factor which, depending on other factors in the case, may lead on to frustration.

# In the present case it was both highly relevant that the unreasonable detention of a vessel participating in salvage services, whether owned or contracted in by the salvors, could be foreseen and was actually provided for in SCOPIC, and also relevant, if it be the case, that the actual circumstances of the detention were comparatively unusual or even unprecedented and lasted for a long time. All such circumstances would need to be taken into account. In Mr Hall’s experience the particular circumstances of this detention were then unprecedented but now needed to be taken into account; but in Mr Constantinides’s experience, they “definitely” fell at the time within the industry risk. It seems to me that, for the reasons discussed above (at paras 63/65), the judge’s treatment of this issue was fair. Once a port authority acts unreasonably, the precise circumstances and consequences must essentially be variants on a theme. The foreseeability of this general risk, recognised within the industry, and provided for in its well-known terms of trade (SCOPIC), provides a special and highly relevant factor against which the issue of frustration needs to be assessed. However, like most factors in most cases, it must not be exaggerated into something critical, excluding, preclusive: for if, on the special facts of a particular case, the charter is frustrated, then the obligation to reward the salvor under SCOPIC goes – despite his inability to demobilise his equipment.

The sphere of responsibility
# Under the topic of this factor, the judge mostly had in mind the responsibility for port dues imposed on Tsavliris in clause 7 of the charter form (as well as in the specially adopted terms of the recap fixture). I would prefer myself to put the point more broadly. This is firstly because, on the facts of this case, I think that the charterer’s responsibility for port dues can be overstated. The issue raised by KPT was not really about port dues, it was, as Mr Hamblen I think rightly submits, about KPT’s determination to protect itself against its fears and the expenses of pollution damage and wreck removal. If the demands for port dues had been reasonable, but wrongly rejected by Tsavliris, then any consequent delay would have been for their account under the charter. I do not see why an unreasonable demand for port dues, a fortiori a demand for port dues as a pretence to cloak a claim against pollution damage caused by the casualty, should be regarded as falling within the charterer’s sphere of responsibility. That remains the case even if it takes a little time to grasp the real nature of the reasons for the detention by the local authorities. Moreover, where the demand for port dues is made an unreasonable excuse for the unlawful detention of the vessel, I do not see why the responsibility for trying to extract the vessel from her situation is not prima facie as much that of her owners (and disponent owners) as her charterers. It is not as though her charterers have ordered the vessel into salvage services under some general discretion as to her employment: she has been specifically contracted to such services at a price which is intended to reflect the risks.

# The way I would therefore prefer to put the factor of the sphere of responsibility under the charter which the judge had in mind is to emphasise that, generally speaking, the risk of delay under the charter was upon Tsavliris as charterers. This is because of the essential structure of a time charter, under which, absent express provision, time runs continuously against the charterer until redelivery. Thus an off-hire clause is the place to find exceptions against the incidence of a continuous liability for hire, but such a clause did not avail Tsavliris in this case, even though clause 21(a)(v) expressly deals with detention by authorities.

# The point is also illustrated by other provisions of the charter form. Thus clause 27 expressly provides a mutual exception against liability for loss or damage arising from restraint of princes, but that does not avail to stop a liability for hire due to delay caused by such restraint. Restraint of princes is of course of direct relevance in this case. Not of direct relevance, but again illustrative of the general point are specific provisions to deal with other circumstances in which detention of the vessel may arise. Thus constructive total loss of the vessel, which may arise from trapping, is specifically dealt with in clause 20. Requisition, an old cause of dispute, is specifically dealt with in clause 32. Both these clauses are additional off-hire clauses which operate in circumstances of actual or potential frustration. Against this background, where the charterer assumes the general risk of delay, subject to express provision, it necessarily requires something special to frustrate the charter through mere delay: and a fortiori where, as here, the consequences of the delay are purely financial since the charter is over, save for redelivery, and the delay in question falls within a foreseeable risk of the salvage industry.

The dictates of justice
# I have referred to this factor above. It is not an additional test, but it is a relevant factor which underlies all and provides the ultimate rationale of the doctrine. If one uses this factor as a reality check, its answer should conform with a proper assessment of the issue of frustration. If it does not appear to do so, it is probably a good indication of the need to think again. The question in this case is whether it would be just to relieve Tsavliris of the consequences of their bargain, or unjust to maintain the bargain, in a situation where they have assumed the general risk of delay, and have done so in a specific context where the risk of unreasonable detention is foreseeable and has at least in general been actually foreseen, as demonstrated by SCOPIC which, subject to the limits of frustration, protects the salvor from the financial consequences of the delay; where from the very beginning a solution was considered to be possible rather than impossible or hopeless, but only after a period of some three months, and where that solution, although not entirely or even mainly in Tsavliris’s own control, was achievable with the co-operation of the owners of the casualty and their Club, known to be in principle available, and the assistance of legal action in the local courts; and where the outcome has confirmed the calculations of the objectively reasonable participants in the events.

# In my judgment, the judge’s conclusion, that the charter had not been frustrated by 13 or 17 October, shows the doctrine working justly, reasonably and fairly. At the appellate level, the question is whether the judge’s assessment of the various factors involved displays an error of law or of rationality or a failure to appreciate the facts which should call for reversal by this court – in an area where, as Lord Roskill has said, the informed judgment must be that of the tribunal of fact to whom the issue has been referred. For the reasons which I have sought to explain in the course of this judgment, I have concluded that the appellants, Tsavliris, have failed in their burden to show that the judge was in error.

The respondents’ notice
# It is therefore unnecessary to deal with the respondents’ detailed notice. I would merely say that, if this appeal had prima facie succeeded thus far, I would be surprised if the additional matters raised in the respondents’ notice would have made the difference. We did not ask Mr Hamblen to reply on issues of self-induced frustration or safe port warranty of due diligence.

Conclusion
# I would dismiss this appeal.

 

 

Demonstration Question – Discharge by Frustration

The Lagerlout Rugby team arranged a visit to Murrayfield to see an exhibition of first class rugby (as it, the match, turned out) in the Scotland v Wales match in February 2005.

For this purpose they hired a full stretch limousine from “Deeply Dippy” Cars Ltd – the team, excluding ringers, comfortably being accommodated within the confines of the car.

The rental for the trip was £250 plus petrol costs. A deposit of £50 was paid when the car was collected.

Advise The Lagerlout Rugby team in the following circumstances:

(a) ‘Over refreshed’ from a session on the Friday lunchtime none of the team are fit to make the journey, by car or otherwise, to Scotland. (Would it make any difference if they had been food poisoned?)

(b) Murrayfield is razed to the ground by a person or persons unknown and the match has to be cancelled.

The team see the flames as they arrive at Murrayfield.

(c) Police arrest the driver of the car who had been banned from driving for speeding two weeks before and the team, none of whom are insured to drive the car on, are unable to complete the journey to Scotland by any means in time for the match. (Would it have made any difference if the team could have gone by train and have reached Murrayfield in time?)

(d) On the Saturday morning, the team, agreed that Scotland would win comfortably, felt that their time could be employed to greater effect elsewhere asked the managing director of Deeply Dippy Cars (Chiswick) Ltd if they could cancel the trip agreeing a cancellation fee of £15. Deeply Dippy Cars are now suing for the balance.

 

Questions on Discharge by Frustration

1. Distinguish between partial performance and substantial performance.

2. Would either partial performance or substantial performance have been any use in Cutter v Powell or Bolton v Mahadeva ?

3. Explain the relationship of partial performance, substantial performance and prevention of performance to breach of condition/warranty.

4. “A simple repudiation in itself is of no value”. Explain.

5. Explain the difference between unilateral and bilateral discharge by agreement.

6. Distinguish between the circumstances in which the law applies the doctrine of operative mistake and the doctrine of frustration.

See Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd [1976] 3 All ER 509.

7. How impossible of performance must a contract become before the doctrine of frustration will apply?

8. Do you think that the House of Lords would have reached the same decision in Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397if the owners hadn’t been likely to receive a larger sum from the Crown if the contract were frustrated?

9. Are the different decisions justifiable in Krell v Henry and Herne Bay Steamboat Co v Hutton ?

10. Distinguish between the circumstances in which ss.1(2) and 1(3) of the Law Reform (Frustrated Contracts) Act 1943 are operative?

11. In B P Exploration Co (Libya) Ltd v Hunt (No 2) [1982] 1 All ER 125 Robert Goff J in identifying and valuing the benefit conferred took into account the value of a possible claim for compensation against the Libyan government, i.e. he looked at the situation immediately AFTER the occurrence of the frustrating event.

Is this approach correct? If so, what would be the outcome in a case like Appleby v Myers ?

 

 

Tutorial – Discharge of Contracts

1. In January Tex contracted with Doris, Ethel and Percy respectively. The contracts were as follows:

Doris : to renovate her flat for £2,000 payable on completion.

Ethel : to supply and construct a new greenhouse for £1,000 payable on completion.

Percy : to install a new toilet and bathroom suite for £2,000 payable on completion.

In March, Tex claimed to have completed his work for Doris and Ethel. However, in Doris’ case he had given the flat only one coat of paint instead of the two agreed and the new door didn’t fit properly. In Ethel’s case he had used Respex rather than Suspex glass, and the replacement cost would have been £300.

In April, Tex had installed the new toilet and almost completed the bathroom suite, though the work contained several minor defects, when Tex abandoned the work and went to work on a North Sea oil-rig.

Advise Doris, Ethel and Percy.

2. Drake and Scott were friends who had spent many happy hours together touring the canals of England in Drake’s narrow-boat. In April, Scott agreed to hire Drake’s narrow-boat for a fortnight’s family holiday in June touring the Midshire and Sunshire canals; total hire charge £800, £200 payable in advance. Drake didn’t normally hire out his boat, but did so because Scott and his family were his friends and he didn’t want to deny them the opportunity of exploring the exceptionally beautiful Sunshire Valley.

Drake spent considerable time and money converting his boat for family usage and by the beginning of June it was ready. However, two days before Scott’s hire was due to begin an all-out strike of Sunshire Waterways’ workers was called, rendering the Sunshire Canal unnavigable for an indefinite period. Scott repudiated the contract claiming frustration and a beautiful friendship came to an end.

Advise Drake.