6.4 frustration (slides).pptx

Principles of Business Law TOPIC 6: PERFROMANCE AND BREACH FRUSTRATION Frustration: overview  The performance of a contract may be disrupted by events outside the control of the parties.  The contract may provide that one party bears the risk of the event occurring.  If suc...

Principles of Business Law TOPIC 6: PERFROMANCE AND BREACH FRUSTRATION Frustration: overview  The performance of a contract may be disrupted by events outside the control of the parties.  The contract may provide that one party bears the risk of the event occurring.  If such a party does not perform the contract, they will be in breach.  Where the contract does not include such a provision:  the parties may be happy to release each other from their respective contractual obligations; or  the doctrine of frustration may render the contract void. Frustration: three main issues There are three matters to consider: 1. Does the contract provide for the event? 2. What amounts to a ‘frustrating event’? 3. What effect does frustration have on the rights and obligations of the parties? Does the contract provide for the event? Contractual allocation of risk  An event will not be a frustrating event if the contract allocates the risk that such an event will occur to one party:  For example:  a term in a ticket to an outdoor festival may state that no refunds will be paid if the event is cancelled or disrupted because of bad weather;  a contract may provide that contractual obligations survive the outbreak of a global pandemic.  Note: the contract does not need to expressly provide for the allocation of risk. The court may identify an implied term that allocates the risk:  For example, if the contract of sale of a ticket to an outdoor festival does not deal with what happens in the event of bad weather, the court may find that the contract includes an implied term that no refunds will be paid if the event is cancelled because of bad weather. Frustration: frustrating event A frustrating event renders circumstances radically different from those contemplated by the parties.  Codelfa Construction v State Rail Authority Frustrating event: Codelfa Construction v State Rail Authority THIS ASPECT OF THE CASE IS NOT DISCUSSED IN FPBCL. YOU CAN RELY SOLELY ON THIS SUMMARY Facts  CC agreed to build two tunnels for the SRA.  When contracting, the parties believed that it would be possible for the work to continue ‘around the clock’ (24 hours a day, 7 days a week).  Work costings and timings were determined on this basis.  A provision of the contract allowed for an extension of time but did not mention increased payment in case of delay.  An injunction was granted which prevented work from 10:00pm- 6:00am Mon-Sat and all-day Sunday.  CC argued that the contract contained an implied term entitling it to additional payment.  this argument was rejected (topic 5)  CC argued, in the alternative, that the contract had been frustrated. Frustrating event: Codelfa Construction v State Rail Authority Issue  Was the granting of the injunction a frustrating event? Decision  The contract was frustrated by the grant of the injunction. Reason  Both parties believed that continuous, 24/7 work would be possible.  For this reason, they did not attempt to allocate the risk of an injunction being granted (ie, there was no contractual allocation of risk).  The circumstances were fundamentally different because of the granting of the injunction – it would require a fundamental change to work methods. Frustration: fault disqualifies A party that has caused the frustrating event cannot rely on the doctrine of frustration to avoid the contract.  Maritime National Fish Ltd v Ocean Trawlers Fault disqualifies: Maritime National Fish Ltd v Ocean Trawlers FPBCL p 384 Facts  MNF chartered a trawler from OT, which MNF intended to use for fishing.  MNF was allocated three fishing licences, but it had hoped to operate five boats.  As it was only allocated three fishing licences, MNF no longer needed the trawler it chartered from OT.  MNF argued that it was not bound to perform the charter contract on the basis that the contract had been frustrated when it was only allocated three licences. Issue  Did the fact that MNF was not allocated enough licences frustrate the contract? Fault disqualifies: Maritime National Fish Ltd v Ocean Trawlers (ctd) Decision  The contract had not been frustrated. Held  MNF decided how to allocate the three licences it received. The situation it found itself in, namely not needing the trawler hired from OT, was the result of its own decision.  MNF could not rely on a situation it had brought about to claim frustration. Effect of frustration: Australian Consumer Law and Fair Trading Act 2012 (Vic)  All amounts paid under a frustrated contract (referred to in the legislation as a discharged contract) before the time of frustration are recoverable: s 36(1)  All amounts payable to any party under a frustrated contract before the time of discharge cease to be payable: s 36(2)  Despite s 36, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow a party to retain or recover (as the case may be) the whole or any part of the amounts paid or payable to that party under the contract in an amount not exceeding the expenses incurred: s 37 Effect of frustration: Australian Consumer Law and Fair Trading Act 2012 (Vic) (ctd) If a party to a frustrated contract obtained a valuable benefit before the time of discharge because of anything done by the other party in or for the purpose of the contract, the benefited party is liable to pay an amount the court considers just (despite s 36): s 38