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The doctrine of frustration provides one of the ways in which contractual obligations come to an end. Here, however, in contrast to termination for breach, the termination is not the result of the wrongful action of one of the parties. Nor does it depend on agreement between the parties. The courts decide when a contract has been frustrated and, if they decide that it has, then all future obligations cease. The consequences of this are dealt with by both common law rules and statute (Law Reform (Frustrated Contracts) Act 1943).

In order for there to be a successful defence of frustration of a contract there needs to be a valid contract, with applicable exclusion clauses. Therefore the first part of this discussion will consider what is a valid contract and the importance and limitations of exclusion clauses. This discussion will then consider specifically the doctrine of frustration illustrate when and when not it applies to a valid contract, especially in relation to the use of the force majuere exclusion clause. It will then consider examples of the doctrine of frustration and apply it to marine contracts as this is an area that outside forces can affect completing the transfer of goods etc. Also the idea of force majeure will be considered in reference to the Rainbow Warrior case and illustrate the limitations of this exclusionary clause in international law but the same doctrine is applied at all levels. Finally this discussion will conclude by answering the title question, i.e. is the doctrine of frustration is limited as a contractual defence.

Elements of a Valid Contract:

In order to determine if there is a valid contract there has to be three elements which are; agreement; consideration; and intention. The first element that will be dealt with is the notion of agreement between the two parties. This element contains the ingredients of offer and acceptance. A valid offer must be clearly communicated by writing, mouth or act in order to allow the other person or group of persons to decline or accept. In relation to sales of goods there is no requirement for the agreement and offer to be in writing, as with the sale of property; however the offer has to be certain in its terminology and must be clearly distinguishable from an invitation to treat. In respect to certainty of terms both parties must make their intentions clear, as the courts will not enforce a vague agreement or an incomplete agreement ; in addition it has to be more than a wish to enter negotiations, which the individual does not want to be bound . The second element of a valid contract is consideration, which is defined as an indication that the promisor intended to be bound, and has the capacity to be bound. Consideration must be of some value , where there is a right, interest, profit or benefit to one party and a detriment to the other. There must be sufficient detriment to one party to be valid consideration . Consideration must come from the promisee, i.e. the person who has provided consideration can only enforce the promise; however the consideration does not need to be adequate, i.e. the consideration of the individual but does not need to be equal to the consideration of the other party. The law leaves it to the two parties to determine the amount of consideration, it may be very little ; however there is no consideration if the terms are vague ; and there is no consideration if it is not sufficient .
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Insufficient consideration includes performing a duty imposed by law or a duty owed to a contract of anothers. Therefore consideration is an important part of a valid contract, however in relation to sales of goods it is usually executed consideration a price paid for a promise, i.e. a price paid for the goods received. Intention is the final element of a valid contract, which is the intention to be legally bound by the contract. In relation to the sales of goods it is not a complex scenario because once the money is received and the individual had the intention to sell the item, then the goods must be delivered to the buyer. The only way that intention can be omitted if it is proved that the party did not seek to be included to enter legal relations; however the passing of money and retaining it equates to a legal contract, the only way not to enter a contract is to reject the offer of the buyer and return the price of the goods.

If all these elements are in the contract along with good faith then the contract is complete and must be honoured or a breach of contract law may be present. Good faith is present within all types of contracts whereby it refers to the honest intent to act without taking an unfair advantage over the other person within the contract. Therefore the only method to discharge a contract is through actions in breach, frustration etc. Frustration is also a defence in an action of a breached contract; however if any of these elements are missing then there is no action in frustration because the contract is invalid and the individuals cannot be held to it.

The basis of the doctrine of frustration

If the continued performance of a contract becomes impossible, the question arises as to where the losses which result should fall. A strict freedom of contract approach might lead to the answer that a person who has undertaken to perform obligations has also undertaken the risk that performance of them will become impossible. On this view, failure to perform should therefore be treated in the same way whether that failure is due to a deliberate action or arises from impossibility caused by some supervening event after the contract has been formed. In other words, both situations involve a breach of contract and should be treated as such. This indeed was the approach originally taken by the common law, as shown by Paradine v Jane (1647). This strict approach was modified in the nineteenth century, starting from the case of Taylor v Caldwell (1863). In this case a music hall which had been hired for a series of concerts was destroyed by fire. The court held that this brought the contract to an end, and discharged both parties from any further obligations under it. The theoretical justification for this approach was that there was an implied condition in the contract that the main subject matter (in this case the music hall) should continue to exist. The decision was thus kept in line with freedom of contract theory by use of an implied term. In the modern law it has generally been recognised that the suggestion that there is an implied term covering the frustrating situation is something of a fiction see, in particular, the speeches of Lord Reid and Viscount Radcliffe in Davis Contractors Ltd v Fareham Urban District Council (1956). The preferred analysis is simply that in certain situations, where there is a
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change in circumstances (not attributable to the fault of either party) which is such that performance of the contract would become something radically different from what the parties originally intended, justice requires that the courts should treat the contract as having come to an end see also National Carriers Ltd v Panalpina (Northern) Ltd (1981). The fact that the courts will in some circumstances bring a contract to an end on the basis of frustration does not mean that the parties original agreement will be ignored. First, it is important that the courts determine exactly what obligations were originally undertaken, in order to decide whether the change in circumstances has made any of them radically different. This issue will be explored further in the next section. Secondly, it is quite possible for the parties themselves to make provision in the contract for what is to happen should the performance of the agreement become impossible, or radically different, as a result of some subsequent event for which neither of them is to blame. This is common in commercial contracts, which frequently use what are known as force majeure clauses. Where there is a clause of this type which covers the situation which has occurred, then the courts will give effect to it.

Doctrine of Frustration:
Frustration is an act outside the contract that makes it completion impossible, a good example of this is in marine contracts where a delivery is specified for a certain date and time but the crossing is so bad that the delivery cannot be made on time. This would be an example of frustration of that part of the contract and no breach would be held as long as the goods were delivered at the nearest possible time. Frustration of a contract and what it constitutes is usually seen via exclusion clauses, such as advising that liability will not be held for incomplete contracts or damage due to acts of God, nature etc. Other examples of what may frustrate a particular contract may also be present also, i.e. unforeseen acts, third parties etc. To be a valid exclusion clause and under contract law there are only three ways that they can be incorporated which are; by signature even if they are not read ; by notice where there has to be sufficient notice ; and by custom where there has been previous dealings between the parties even if the clause is added in later .In this case there is a signature and in addition if the two parties have had previous dealings, then the signing party would most likely be bound by these conditions of exclusion. Therefore notice of terms must be before the contract performance begins, if these conditions were sent later then there would be no notice of this condition . Therefore in a case where there are no previous dealings with person the question is to ask is whether the average person would have notice? If yes then the average person is bound by the exclusion clause. However if the dealings were two business persons the average person test would not suffice and the person would be held if the exclusionary clause was a trade standard, i.e. the exclusion clause be construed as standard conditions in the business ? The most condemning example of notice is a signature accepting the terms and conditions, even if one does not read then it would be very hard to prove that no notice was given due to signing of the contract and terms and conditions . However it may be shown that the damage is due to negligence and possibly and action in tort, where there can be no signing away of liability to the contract and its performance. Therefore in relation to damages incurred under the contract, even if the exclusion clauses were supported it has to be determined if there is remoteness of damage, whereby monetary compensation can be
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claimed for a failure to perform a primary obligation as this is a breach and/or the loss for any breach of a secondary obligation . Therefore what is classed as frustration may be contained within an exclusionary clause but if the court determines such a clause is unfair, under the UCTA 1977 then the condition would not be allowed and the contract performed, damages paid out or both. In short this makes frustration limited to the interpretation of the courts, industry standards and the notion of force majeure. The best definition of force majeure and circumstances that create a state of frustration is under international law, where exclusionary clauses rarely exist but circumstances arise where international contractual obligations owed by one state to another can be frustrated. This is also a very interesting angle to consider because it is highly developed and can in most part be applied to normal contracts.

The nature of a frustrating event

What type of event will be treated as having frustrated a contract? It is impossible to give a comprehensive list, because it is the effect of the event, rather than the event itself, which is in the end the determining factor. As Lord Radcliffe put it in Davis Contractors Ltd v Fareham Urban District Council: 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 It was not this that I promised to do. In deciding whether or not a contract has been frustrated, courts apply a multi-factorial approach (Edwinton v Tsavliris (The Sea Angel) [2007]). Factors which courts should take into account include: the terms of the contract itself, its matrix or context, the parties knowledge, expectations, assumptions and contemplations, in particular as to risk, as to 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. [per Rix L.J. para 111] With this general principle in mind, we can now usefully look at examples from the cases of situations which have, or have not, led to a decision that a contract is frustrated. From these some general impression of the characteristics of a frustrating event can be gained. In all cases, however, it must be that the event has made the contract impossible or radically different it is not enough that the contract has simply become more difficult or expensive for one party. Thus, in Tsakiroglou & Co v Noblee and Thorl (1962) the closure of the Suez Canal did not frustrate a contract for the carriage of goods from Port Sudan to Hamburg. The contract had not specified the route and the fact that the alternative route, via the Cape of Good Hope, would take much longer was not sufficient to frustrate the contract. Courts have consistently indicated that a contract will be frustrated only where there is a complete change between what was undertaken in the contract and the circumstances in which it is called upon to be performed. Thus in CTI Group Inc v Transclear SA [2008] the Court of
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Appeal concluded that a contract to sell cement was not frustrated where the contract remained legally and physically possible but where third party suppliers would not sell the necessary cement to the sellers with the result that the sellers could not supply the buyers with the cement. Destruction of subject-matter The most obvious example is where the main subject-matter of the contract has been destroyed, as in Taylor v Caldwell (1863). If something central to the performance of the contract no longer exists, then it is not surprising that the courts will find that the parties obligations should come to an end. Full destruction may not be necessary. In Asfar v Blundell(1896), the contamination of perishable goods, which rendered them unusable, was held to be equivalent to destruction (see also s.7 Sale of Goods Act 1979). Personal incapacity Another clear case of frustration will be where both parties have agreed that the contract is to be carried out by a particular individual, and that individual dies, or is too ill to perform (as, for example, in Condor v Barron Knights (1966) drummer in a pop group). The court will need to be satisfied, however, the contract was not simply for work to be done, but for it to be done by the particular individual who is unavailable. Non-occurrence of an event A number of cases concerned with the cancelled coronation of King Edward VII in 1903 illustrate this category. In Krell v Henry (1903) a room overlooking the route of the coronation procession had been hired for the purpose of watching it. When the procession was cancelled, the contract for the hire of the room was held to be frustrated (Chandler v Webster (1904)). Again, however, it is important to be clear as to the precise obligations under the contract in order to decide whether a cancellation has this effect. Thus in Herne Bay Steam Boat Co v Hutton (1904) a boat had been hired to tour the fleet and to watch the Kings review of it, which was part of the coronation celebrations. The Kings illness meant that the review was cancelled. In this case, however, the contract was not frustrated. The tour of the fleet was still possible and this was a significant element in the contract. The hirer remained obliged to pay for the use of boat. Effects of war In time of war a government may make trading with companies based in enemy territory illegal. Contracts with such companies which were made prior to this action will be frustrated: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943). Similarly, the requisitioning of property which had been allocated to a contract may lead to the frustration of that contract: see Metropolitan Water Board v Dick Kerr (1918) and FA Tamplin v Anglo-American Petroleum (1916) (although in this case the requisitioning of a ship as a troop ship was held not to have frustrated a charter of it, because the requisitioning was not of sufficient length to defeat the whole purpose of the contract). The frustration need not result from direct government action. In Finelvet AG v Vinava Shipping Co Ltd (1983), the continuing war between Iran and Iraq trapped certain ships in the Gulf for a lengthy period. Contracts relating to the charter of these ships were held to be frustrated.
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Other government action Government action not related to war can frustrate a contract. In Gamerco SA v ICM/Fair Warning Agency (1995) a stadium which had been booked for a pop concert was closed for reasons of health and safety. It was held that the contract for the hire of the stadium was frustrated. It is also implicit in Amalgamated Investment and Property Co Ltd v John Walker & Sons Ltd (1976) that the listing of a building as being of architectural and historical interest (thus limiting the possibilities for its development) could frustrate a contract for its sale (though on the facts it did not). Other frustrating events Other types of event which have led to contracts being frustrated include industrial action (The Nema (1981)) and the accidental running aground of a ship (Jackson v Union Marine Insurance Co Ltd (1874)). As indicated above, however, the categories of frustrating event are not closed. It will always be possible to argue that some novel occurrence has frustrated a contract, provided that it has had the required effect on the obligations of either or both parties. The doctrine of frustration operates to relieve parties of any further obligations under a contract. It applies when some event which is not the responsibility of either party has made performance of the contract impossible, or radically different from what was originally agreed. Examples of events which will lead to frustration include destruction of the subject matter, the nonoccurrence of an event, outbreak of war and government intervention. The contract will not be frustrated if the performance is simply made more difficult or expensive, or if a significant part of the contract survives the frustrating event.

International Contracts, Rainbow Warrior Force Majeure Limitations:

If a country breaches an immunity, obligation or law, i.e. international contractual obligation, then it is no longer applying the central principles that are key to international law, which allows the state to be subjected to UN arbitration, because these obligations have been imposed on the state for breaching another states sovereignty then these obligations must be upheld. If these obligations are not upheld by the state then the UN can become involved to force the obligations are honoured and further penalties and compensation may be ordered; however under certain circumstances the state may temporarily be discharged from these obligations, which include consent ; countermeasures ; force majeure ; distress ; state of necessity ; self-defence ; and reservation . Two of these circumstances are important to this discussion and the case study force majeure; distress; and state of necessity. These circumstances are outlined in Chapter III of International Law Commission Report 1999 titled State Responsibility under Articles 31. Force majeure is defined as: The wrongfulness of an act of a State not in conformity with an international obligation of that State is precluded if the act was due to an irresistible force or to an unforeseen external event beyond its control which made it materially impossible for the State to act in conformity with
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that obligation or to know that its conduct was not in conformity with that obligation. Therefore if an emergency were to arise and the obligation could not be adhered with for the period of time that this emergency lasts then the state has not failed to meet its obligation, as long as it is adhered to after the event. Also Article 31 states that if the state is in someway involved in the emergency the obligation must not be precluded, i.e. the state is still responsible to adhere to the obligation.

In this case France was guilty of sinking the Rainbow Warrior in a New Zealand harbour breaking the international law concerning the sovereignty of states. The sinking of the ship was attributed to the French military forces, where two individuals (Major Mafart and Captain Prieur) were apprehended by the New Zealand authorities and imprisoned; however UN arbitration determined that the two individuals should be moved in a remote French military base for three years without the ability to leave. France agreed to this fact and New Zealand released the individuals to the French authorities and these individuals were transported to the military base; however before the three years were up the individuals were enabled to return to France, which was not agreed to by New Zealand therefore breaching the arbitration. France claimed that in the case of force majeure in the case of the Major and distress in the case of the Captain. The circumstances surrounding the Major were that he was taken ill and transported to France on the guise of an emergency and allowed to remain there. However it transpired that the Major did need some medical assistance and could be given appropriate treatment in Hao, it was agreed by the UN that the evacuation was not a case of force majeure and the actions were not precluded. If one now considers this in respect to normal contracts one can identify that frustration can occur when an unforeseeable act occurs or it is a circumstance of reservation, i.e. exclusion clause, the contract can be set aside as frustrated. Unlike international law and obligations between states which are ongoing the normal contract will be discharged because it can no longer be performed because it is a one off act and not an ongoing obligation; however as the Rainbow Warrior Case illustrates in must be a truly unforeseeable act which leaves no other choice but to discharge the contract; however as this contractual obligation was on going this

Doctrine of Frustration Applied:

The above discussion of force majeure discussed its uses in respect to international contracts and obligations between states and briefly touched upon how this would affect the average contract. Like the cases of international law discharging the obligations is not taken lightly and only used in extreme circumstances. As in the case of Davis v Fareham illustrated frustration is the last option to be taken. 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. It is common practice that just because a contract has become too expensive that it is not
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frustrated, unless the other party start making unreasonable late and highly expensive variations; whereby a lump sum contract is frustrated so that the contractor can recalculate his lump sum. Also as noted earlier any clause that defines force majeure must comply with the UCTA 1977. The key question is whether the act is completely outside the contractors control that it is no longer performable. However the court is prepared to give the terms of the contract their widest meaning i.e. the parties intentions, because what is the point of creating a valid contract and then deciding it is no longer desirables and using a clause that brings about frustration creating an unfair situation for the other party. The Court of Appeal in The Marine Star argued the correct approach was through the actual words used because these exclusionary clauses are restrictive in nature; however the correct is approach still points to one outcome the limited use of force majeure. Frustration can be the physical destruction of the subject matter of the contract, i.e. a fire burns down a concert hall . It can also be due to extraneous circumstances, such as the Guns n Roses Case where the health and safety department declared the stadium unsuitable so the contract was frustrated as the band could not perform. Impracticability is another example of frustration, i.e. the circumstances have changed radically so the contract cannot be performed. The best example of how extreme the circumstances have to be to equate to frustration of contract can be seen in the leading authority of Jackson v Union Marine Insurance Co Ltd : A ship was chartered in the November to proceed with all possible despatch, all dangers and accidents of navigation excepted, from Liverpool to Newport to load a cargo for carriage to San Francisco. The ship ran aground on 3 January in Carnavon Bay. She was later refloated by 18 February and taken to Liverpool. The charterers repudiated the contract on 15 February. The question was whether the charterers were liable for not loading the ship, or whether the time likely to be required for repair (the ship was still under repair in August) was so long as to excuse the charterers. On this finding by the jury, the court held that the adventure contemplated by the parties was frustrated and the contract discharged. The contract term, read literally, did cover what had happened, and it would have stopped the charterers from recovering damages in the event of delay, but it was not intended to cover an accident causing injury of so extensive a nature.

Therefore like international state contractual obligations the frustration of normal contracts is highly restricted, therefore a defence or action in frustration of contracted is limited because the key point is a valid contract has been made and the good faith it has been structured upon should be respected; unless a situation so extreme occurs that it is unfair and impossible for the contract to be performed.

The effect of frustration

The common law rules discharge parties from future obligations, but otherwise leave any losses to lie where they fall. The only exception is the recovery of money paid where there is total failure of consideration. The Law Reform (Frustrated Contracts) Act 1943 provides more flexible rules under which money may be recovered, or payment ordered for benefits which have been acquired. The object of the Act is the prevention of unjust enrichment; it does not always operate, therefore, to distribute losses between the parties. The Act has been much criticised for its unsatisfactory drafting, particularly in relation to s.1(3).
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Bibliography:
J. Beatson (1998) Ansons Law of Contract 27th Edition, Oxford University Press Buyer (The), 2002, Aspects of Frustration, Buyer 24(12) Crawford, 1979,The Creation of States in International Law, Clarendon Press Desai, Meghnad, James Petras and Henry Veltmeyer, Robert Scrire, Leslie Sklair, Ghautam Sen, and Deepak Lal (2000). Essays in Cambridge Review of International Affairs, XIV, (1), Autumn-Winter. Gardiner, 2003, International Law, Pearson. Groves, 2004, Force Majeure, Bus Ad 2.10 (2). David Kelly, Ann Holmes & Ruth Hayward (2002) Business Law 4th Edition, Cavendish Lunney & Oliphant, 2000, Tort Law: Text & Materials, Oxford Uni Press. Ewan McIntyre, (2004) Business Law, Longman Merills, 1998, International Dispute Settlement (3rd Edition), Cambridge.

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