Business Law Principles: Performance and Breach

Frustration: Overview

• Performance disruption in a contract can occur due to uncontrollable events.
• Contracts may specify which party bears the risk of such events.
• If a party responsible for risk fails to perform, it constitutes a breach.
• Without specified risk allocation, parties can mutually release each other from obligations or apply the doctrine of frustration to void the contract.

Frustration: Key Considerations

• Three main issues are pivotal when considering frustration:
  • Whether the contract addresses the potential event.
  • The definition and nature of a 'frustrating event.'
  • The resulting effects of frustration on the rights and obligations of involved parties.

Contractual Risk Allocation

• An event is not considered frustrating if the contract assigns risk to one party.
• Examples include:
  • Outdoor festival tickets often state no refunds for cancellations due to weather.
  • Contracts may stipulate obligations that endure during unforeseen occurrences like a global pandemic.
• Courts can recognize implied terms that allocate risk, excluding the necessity of express statements in contracts.

Frustrating Event Definition

• A frustrating event drastically alters the original circumstances anticipated by the parties.

Codelfa Construction v State Rail Authority

• Facts:
  • Codelfa Construction agreed to construct tunnels under the belief of continuous operation.
  • Costs and timelines were based on 24/7 work assumptions.
  • An injunction restricted work hours, prompting Codelfa to argue for implied payment terms, which was rejected.
• Issue:
  • Determination if the injunction constituted a frustrating event.
• Decision:
  • The contract was rendered frustrated due to the injunction.
• Reason:
  • Both parties relied on continuous work being possible, hence they disregarded risk allocation for injunctions.
  • The injunction significantly altered work methods, constituting a fundamental change in circumstances.

Fault Disqualification in Frustration

• A party responsible for creating the frustrating event cannot invoke frustration to escape contractual obligations.

Maritime National Fish Ltd v Ocean Trawlers

• Facts:
  • MNF chartered a trawler for fishing but was only allocated three licenses, impacting the need for the trawler.
• Issue:
  • Whether the insufficient license allocation frustrated the charter contract.
• Decision:
  • The contract was not frustrated.
• Reason:
  • MNF's decision on the license allocation led to the situation of needing fewer boats; thus, it could not claim frustration based on its own decision.