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How well did you answer the questions? Score your responses against the answer guidance here.
In brackets is the number of marks each answer is worth. There is a maximum of 27 points available.
1. Is the following statement true or false? (1)
If the parties have provided for their own allocation of the risk in the contract, then the doctrines of frustration and mistake cannot apply.
Answer guidance:
It is true. See express provision as limitation on operation of frustration and the decisions of Sindall plc v Cambridgeshire C.C., McRae v Commonwealth Disposals Commission, and Great Peace Shipping v Tsavliris Salvage (International) Ltd. (1)
2. What is the general effect of frustration on a contract at common law? (2)
Answer guidance:
Frustration automatically discharges both parties from performance of their future obligations under the contract. (2) It may therefore operate to excuse a breach of contract.
3. How do the courts decide whether frustration has occurred? (2)
Answer guidance:
Nowadays the courts adopt a construction approach, (1) i.e. they first assess the terms of the contract as a whole and then assess the effect the extraneous events which have occurred have upon the nature and terms of that contract: “...the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract” (Lord Radcliffe in Davis Contractors). (1) This position was also reaffirmed in Great Peace Shipping.
4. Name the three basic frustratory events. (3)
Answer guidance:
Impossibility, (1) illegality, (1) and destruction of the common purpose (foundation of the contract) for both parties. (1)
5. On what basis can Krell v Henry and Herne Bay Steam Boat v Hutton be distinguished? (2)
Answer guidance:
In Herne Bay there was no frustration of the common purpose of both parties because there were two common purposes and only one of them had ceased to be possible. (2)
6. In what circumstances is it not possible to rely on the frustration doctrine despite the fact that it appears that a frustratory event has occurred? (3)
Answer guidance:
(a) If the event in question is one which is attributable to the fault (or choice) of one of the parties (so-called self-induced frustration) – since frustration depends upon there being an event which is outside the control of both parties. (1)
(b) If the contract has expressly allocated this risk by providing for what is to happen in the event of this occurring (express provision). (1)
(c) If one party foresaw or should have foreseen the event and failed to provide for it (it is at his or her risk). It is not, however, clear what the position is if both parties foresaw or should have foreseen the event and failed to cover it. (1) The House of Lords in Davis Contractors was of the opinion that this would prevent reliance on the frustration doctrine.
7. Explain the effect of s.1(2) Law Reform (Frustrated Contracts) Act 1943. (3)
Answer guidance:
(a) Advance payments made before frustration are recoverable. (1)
(b) Any payment which should have been made before frustration ceases to be payable (compare with Chandler v Webster). (1)
(c) But the court may allow the recipient of the advance payment to retain a sum to cover its expenses (as the court decides) up to the maximum of the advance payment. (1)
8. What is the philosophy underlying Robert Goff J’s approach to the 1943 Act in BP v Hunt (No 2)? (1)
Answer guidance:
He considered that the Act was concerned with preventing unjust enrichment (the restitution philosophy). (1)
Explain how this philosophy might relate to s.1(2) and (3). (1)
Answer guidance:
S.1(2) prevents a party from keeping a deposit where the contract had not been fully performed. However, this sub-section does accept that there is not the same degree of unjust enrichment where the recipient of the deposit has incurred expenses in seeking to perform pre-frustration. That person ought, in such circumstances, to be allowed to keep some (or all) of the advance payment to cover this.
S.1(3) also operates to prevent unjust enrichment by requiring a party who has received a benefit for which it has not paid, to compensate the other party for that benefit based on the value of the benefit to the recipient of it (and no more). This is intended to prevent the recipient from being unjustly enriched at the expense of the performing party. Note there is no unjust enrichment if the end product of the benefit is not there because it has been destroyed by the frustrating event. (1)
9. Explain the significance of the decision of Garland J in Gamerco v ICM (1).
Answer guidance:
It confirms the court’s discretion when determining whether to allow retention of expenses out of any advance payment under s.1(2). The judge rejected suggested approaches of allowing total retention and equal division (apportioning loss) in favour of a broad discretion approach i.e. look at all the circumstances and losses of both parties and use this information to determine whether it was “just” for the recipient of the advance payment to keep all or any of the advance to cover expenses. On the facts, not allowed anything for expenses. (1)
10. What is the alternative approach suggested by some academics – and why? (4)
Answer guidance:
The alternative is that the Act should be based on a philosophy of apportioning losses. (2)
The idea behind this is that the 1943 Act was intended to remedy the problems at common law (that the loss should lie where it fell) because this had harsh consequences. This philosophy also argues that the basic problem with frustration is that the event is outside the control of the parties and therefore they should share the loss equally. (2) It is suggested that the problem with Robert Goff J’s approach is that it concentrates only on benefits and forgets to account for losses suffered.
11. Explain how the courts would assess the just sum to award under s.1(3) of the 1943 Act. (4)
Answer guidance:
The case authority on this is the decision of Robert Goff J in BP v Hunt.
(a) Identify the benefit (as the end product of services and not the services themselves) and value that end product benefit to the party receiving it (1) after having taken account of any monies already paid for that benefit and the effect of the frustration on the benefit. (1) If the end product is destroyed by the frustration then the award must be nil. (1)
(b) Ascertain the just sum to award by fixing a reasonable value to award to the party conferring the benefit and award that sum (up to the maximum of the value of the end product to the party receiving it). (1)
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