8A mere increase in costs will

never constitute frustration.9

Discuss.
(b) Fiona, a famous
businesswoman, contracts with
Grot PLC, to give a
speech at their annual dinner
for a fee of £10,000, half of it
payable
on contracting and the other
half on the day of the speech.
Fiona also
asks for a case of Krug
champagne which Grot agree
to send to her
the week before the event.
The venue for the dinner fails
its safety inspection the day
before the
dinner is due to take place.
Grot PLC made the first
payment of
£5,000 to Fiona but forgot to
send the champagne. Later
they refuse
to pay the second instalment or
to send the champagne. Grot
have
ordered £1,000 worth of
flowers for the tables which
they cannot
avoid paying for.
Advise Grot as to their rights
and liabilities
A mere increase in costs will never constitute frustration. Discuss.

The doctrine of frustration applies from the onset of an unforeseeable event (not attributable to the fault of either party)
which makes the performance of the contract impossible, illegal or something radically different from what was in
contemplation of the parties at the time they entered into the contract.

The doctrine of frustration relaxes the ‘absolute obligation’ approach taken by common law which demands performance
regardless of supervening events Paradine v Jane (1647). However, the doctrine operates within very narrow limits. The
courts are reluctant to invoke the doctrine of frustration based on two principal grounds. First, the court does not want to
allow the parties to escape from a ‘bad bargain’. Second, Courts believe that parties are better equipped to allocate risk of
occurrence of unforeseen events, that beyond the control of both the parties, by inserting a provision in the contract.

The question requires discussion on the reluctance of the courts to allow parties from escaping their contractual
obligations just because the increase in costs has turned the contract into a ‘bad bargain’. Lord Roskill in the case of The
Nema (1982) emphasised that doctrine of frustration was ‘not lightly to be invoked to relieve contracting parties of their
normal consequences of imprudent bargains’.

The leading example on the subject matter of the question was seen in the case of Davis Contractors v Fareham UDC
(1956). The claimants had agreed to build 78 houses at the cost of 94,000 pounds. Due to shortage of labour and increase
in costs, the contract cost for the claimants increased to 115,000 pounds. The claimant, in an attempt to recover the extra
cost incurred, contended that the contract has been frustrated. The House of Lords ruled against the claimant. Lord
Radcliffe in the case said: “… There must be as well such change in the significance of the obligation that the thing
undertaken would, if performed, be a different thing from that contracted for”. This case is a prime example of ‘bad
bargain’. Where the defendant was prudent enough to broker a ‘good’ deal for himself, the courts will not interfere just
because the performance of the contract has become expensive for the claimant. The courts will only interfere where the
performance of contract would render it radically different from what was undertaken by the contract.

In another case of Tsakiroglou v Noblee and Thorl (1962), the goods were not delivered because Suez Canal was closed
due to the military operations by British and French against Egypt. The court ruled that the contract was not frustrated
because there was an alternate route through which the goods could have been delivered, although the alternate route
was longer and would have increased the cost. And it was not expressly written in the contract that goods will only be
delivered via Suez Canal. Hence, the claimant wanted to get out of what had turned into a ‘bad bargain’. This case also
shows that the doctrine of frustration is not invoked easily, and much depends on the construction of the contract. If
(suppose) the route of Suez Canal had been specified in the contract, it is likely that the contract would have been
frustrated.

The strict approach of courts in invoking frustration was seen during Brexit era. In the case of Canary Wharf v European
Medicines Agency (2019), the defendant who was lessee of the claimant sought to terminate the lease citing UK’s exit
from EU as frustrating event. The court in this case held that defendant’s capacity to deal with real property in a third
country and its use of the premises and to pay rent is not impacted. Hence Brexit does not change the performance of the
contract radically different from what was contemplated at the time of the contract.

To conclude, the courts’ aim is to hold parties to their bargain who deal at arms-length. The essence of a commercial
contract is that the parties try to broker best deal for themselves. Using frustration as a defence to ‘enforcement of a
contract’ will not be successful merely because there is an increase in costs, and it is no longer feasible to perform the
contract. There are measures that parties can implement during the construction of a contract to resolve obligations that
arise due to foreseeable event. These measures include force majeure clause, hardship clause and intervener clause. Hence
if parties are to protect themselves from increase in costs, they must ensure that the contract expressly has the provision
for such an event. Like Lord Reid in the case of Davis Contractors v Fareham UDC said: “Frustration depends not on
adding any implied terms but on the true construction of the terms…”.
Fiona, a famous businesswoman, contracts with Grot PLC, to give a speech at their annual dinner for a fee of £10,000,
half of it payable on contracting and the other half on the day of the speech. Fiona also asks for a case of Krug
champagne which Grot agree to send to her the week before the event.

The venue for the dinner fails its safety inspection the day before the dinner is due to take place. Grot PLC made the
first payment of £5,000 to Fiona but forgot to send the champagne. Later they refuse to pay the second instalment or to
send the champagne. Grot have ordered £1,000 worth of flowers for the tables which they cannot avoid paying for.
Advise Grot as to their rights and liabilities

The doctrine of frustration applies from the onset of an unforeseeable event (not attributable to the fault of either party) which makes the
performance of the contract impossible, illegal or something radically different from what was in contemplation of the parties at the time
they entered into the contract Davis Contractors Ltd v Fareham UDC (1956). Frustration is determined by the effect that an event has on
the contract, not the nature of the event itself. If the contract is frustrated, it is discharged at that date i.e., prospectively. The Law Reform
(Frustrated Contracts) Acts 1943 determines where losses will lie. If the doctrine of frustration is not applicable, then an action for a
breach of contract may exist.

The question requires discussion on possibility of contract being frustrated between Fiona and Grot PLC, and any possible restitution that
may be allowed under Frustrated Contract Acts 1943.

The doctrine of frustration relaxes the ‘absolute obligation’ approach taken by the common law which demands performance regardless of
supervening events Paradine v Jane (1647). An unforeseen event which destroys the subject matter of the contract relieves parties from
performance of their obligations Taylor v Caldwell (1863). In the current case the subject matter i.e., the annual dinner was cancelled
because the venue had failed its safety inspection. And from the facts of the case, the event is unforeseen and neither party seems to be
at fault; nor was the risk allocated expressly to either party. The unavailability of the venue renders the contract impossible to be
performed. Hence, the contract between Fiona and Grot PLC is likely to be frustrated and discharged at the date of the unforeseen event.

Grot PLC would want to claim the 5000 they had paid as an advance to Fiona for the speech and also claim for the expenses of 1000 that
were incurred on flowers. Both the claims will be discussed separately.

Under Common Law, there was initially no restitution of the payments already made; and the payments due before the frustrating event
have to be paid. All future obligations will be discharged Chandler v Webster (1904). This approach was later relaxed in the case of Fibrosa
Spolka v Fairbairn (1943) where it was held that if there is a total failure of consideration i.e., the party paying the money has received
nothing, the money paid could be recovered.

However, Grot PLC is advised to bring their claim for refund of 5000 advance paid to Fiona under Law Reform (Frustrated Contracts) Acts
1943 under s1(2).

S.1(2) of the act deals with money paid or payable prior to the frustrating event. The section has a threefold approach:

1) Amount paid prior to the event is recoverable.

2) Amount payable prior to the discharge cease to be payable.
3) Payee may be entitled to set-off, against the sums payable, the expenses which he has incurred before discharge of the
contract. This is at the discretion of the courts, and is decided based on the facts of the case whatever is just and reasonable.

Under this section, Grot PLC’s claim for a refund of 5000 advance that they had paid is likely to succeed. This was seen in the case of
Gamerco SA v ICM (1995), where the claimants were entitled to restitution of $412,500 which was paid to the defendant under s1(2).
Further to this, Grot PLC will not be liable to pay the remaining 5000 or send the champagne bottle to Fiona; as the under the section, the
amount payable before the discharge of the contract would cease to be payable.

Grot PLC would also want to claim, under s1(3), for the expenses of 1000 that were incurred on the flowers. S1(3) deals with the situations
where a party has received a benefit other than money prior to frustration. This was seen in the case BP v Hunt (1979), where the contract
was held to be frustrated and BP was awarded $35.4 million for the benefits it conferred on Hunt. The facts however suggest that Fiona
has not received any valuable benefit other than the advance of 5000 which is claimed under s1(2). Therefore, Grot PLC’s claim for the
expenses of 1000 is unlikely to succeed.

Conclusion:
Grot PLC is advised to bring their claim under Frustrated Contracts Act 1943. Their claim for the advance of 5000 is likely to succeed under
s1(2), and they have no liability for the remaining payment of 5000 and bottle of champagne. Whereas their claim for the expenses of
1000 is unlikely to succeed.
SELF INDUCED FRUSTRATION

The doctrine of frustration applies from the onset of an unforeseeable event (not attributable to the fault of either party) which
makes the performance of the contract impossible, illegal or something radically different from what was in contemplation of the
parties at the time they entered into the contract Davis Contractors Ltd v Fareham UDC (1956). Frustration is determined by the
effect that an event has on the contract, not the nature of the event itself. If the contract is frustrated, it is discharged at that date
i.e., prospectively. The Law Reform (Frustrated Contracts) Acts 1943 determines where losses will lie. If the doctrine of frustration
is not applicable, then an action for a breach of contract may exist.

The doctrine of frustration relaxes the ‘absolute obligation’ approach taken by common law which demands performance
regardless of supervening events Paradine v Jane (1647). However, the doctrine operates within very narrow limits. The courts
are reluctant to invoke the doctrine of frustration based on two principal grounds. First, the court does not want to allow the
parties to escape from a ‘bad bargain’. Second, Courts believe that parties are better equipped to allocate risk of occurrence of
unforeseen events, that are beyond the control of both the parties, by inserting a provision in the contract.

Having said that, there are two principle limitations to doctrine of frustration. The first is where the event has been foreseen and
covered under the contract. The second limitation is where the frustration has been ‘self induced’ by one of the parties. Our
discussion will be focused on the second limitation i.e., ‘self induced’ frustration.

Under the rule of ‘self induced’ frustration, a party cannot invoke doctrine of frustration if the alleged frustrating event is a cause
of his own doing. Where the the frustration is ‘self induced’ the defendant will be liable for breach of contract. The principle of
‘self induced frustration’ is clearly recognised by the courts through many case laws; however, the limits of this principle have not
been clearly defined. There are instances where courts have held a contract ‘not frustrated’ if the alleged event is a caused due to
defendant’s own negligence. And then there are events where there courts have not not invoked the doctrine of frustration even
when the alleged event occurred not due to defendant’s negligence but during ordinary course of the business which the
defendant had no control over. Focus of our discussion will be on two cases i.e., The Super Servant Two (1989) and Maritime
National Fish v Ocean Trawlers (1935).

In the case of Maritime v Ocean Trawlers, the defendant had chartered a steam trawler from the claimant. The defendant had
applied for five licenses but was only awarded three which the defendant allocated to the trawlers owned by him. Hence, the
defendant was not left with a license that he could allocate to the trawler chartered from the claimants. The claimant sued for
payment, whereas defendant alleged that the contract had been frustrated due to lack of licenses. The Privy council held that the
contract had not been frustrated since the alleged event was self induced. Lord Wright in the case said: “It was the ‘act and
election’ of defendant which prevented the vessel from being used… It is immaterial to speculate why they preferred to put
forward for the licenses the three trawlers which they actually selected, what matters is that defendant could have assigned
license to the trawler chartered from the claimant”.

What could be constituted from the case is that if a party alleges that the contract has been frustrated, the impossibility of
performance of the contract must not be induced by the party itself. This clearly shows the depth courts go to concluded if the
contract has been frustrated on not.

We will now discuss the case of The Super Servant Two. Here the defendants contracted with the claimants to transport an oil rig
through either Super Servant One (SS-I) of Super Servant Two (SS-II); and it was defendant’s choice which of the two would be
used to transport the oil rig. The defendants chose to use SS-II, and allocated SS-I to other contracts. However, before the
performance of the contract the SS-II sank, and SS-I could not be used as it was already allocated to other contracts. The claimants
brought an action for damages which the defendants denied on two grounds. First, the defendant alleged that the contract had
been frustrated due to sinking of the ship. Second, they were entitled to terminate the contract under ‘force majeure’ clause that
had one of the supervening events listed as ‘perils or dangers and accidents of the sea’.

The court rejected the first argument drawing authority from Maritime case that it was a self induced frustration since the
defendants had a choice which vessel is to be used. However, second argument was accepted since the the sinking of SS-II wast
not attributed to negligence on part of the defendant. Hence claimant’s action for damages failed.

If we closely look at the first argument of the defendant, it is hard to understand why the contract was not frustrated. The ship
sank during normal course of the business and due to no fault on part of the defendant. Yes the defendant had a choice to either
use SS-I or SS-II, but the choice was not made due to any personal interest as was in the case of Maritime. The defendant had to
use one of the two barges, and the probability of a supervening event was equal for both the barges. This is effectively an
impossible situation for a business where their supply source fails due to unforeseen event.

The second argument, that actually rescued the defendant, emphasises the importance of a ‘force majeure’ clause. The contract
was clearly frustrated, but was taken as a self induced frustration. Had it not been for the force majeure clause, the claimant’s
action for damages would have succeeded.

Hence, self induced frustration is not clearly defined; and is more readily invoked than the doctrine of frustration itself. The reason
for this may be the fact that courts are reluctant to conclude that the contract has been frustrated. And courts’ insistence on the
fact that parties are better equipped to allocate risk of occurrence of unforeseen events, that are beyond the control of both the
parties, by inserting a provision in the contract.
English contract law defines the type of event which amounts to a frustrating event far too narrowly. The courts should be more ready to relieve a party
from their contractual obligations following events which make the contract more onerous to perform.’ Discuss.
The doctrine of frustration applies from the onset of an unforeseeable event (not attributable to the fault of either party) which makes the
performance of the contract impossible, illegal or something radically different from what was in contemplation of the parties at the time they
entered into the contract (Davis Contractors Ltd v Fareham Urban DC 1956). It relaxes the ‘absolute obligation’ approach taken by common law
which demands performance regardless of supervening events Paradine v Jane (1647). However, the doctrine operates within very narrow
confines. The courts are reluctant to invoke the doctrine of frustration based on two principal grounds.

First, the court does not want to allow the parties to escape from a ‘bad bargain’. There is a reluctance from the courts to allow parties from
escaping their contractual obligations just because the increase in costs has turned the contract into a ‘bad bargain’. Lord Roskill in the case of The
Nema (1982) emphasised that doctrine of frustration was ‘not lightly to be invoked to relieve contracting parties of their normal consequences of
imprudent bargains’. In the case of Davis Contractors v Fareham UDC (1956), the contract costed the claimants more than the price they had
agreed due to shortage of labour and increase in costs. The claimant, in an attempt to recover the extra cost incurred, contended that the contract
has been frustrated. The court refused to invoke the doctrine of frustration. This case is a prime example of ‘bad bargain’. Where the defendant
was prudent enough to broker a ‘good’ deal for himself, the courts will not interfere just because the performance of the contract has become
expensive for the claimant. The courts will only interfere where the performance of contract would render it radically different from what was
undertaken by the parties.

Second, Courts believe that parties are better equipped to allocate risk of occurrence of unforeseen events, that are beyond the control of both the
parties, by inserting a provision in the contract. Like, for example, the parties can cover price fluctuations by inserting a ‘force majeure’ clause to
allocate risk. Other clauses like ‘hardship’ and ‘intervener’ provides certainty and helps parties deal with unforeseen future events.

Having discussed the primary reasons why the doctrine of frustration operates within narrow confines, we will now discuss where the courts are
inclined to invoke the doctrine of frustration.

First situation is where the contract is impossible to perform. One such case was of Taylor v Caldwell (1863), where the contract was held to be
frustrated because the subject matter of the contract i.e., music hall had been destroyed by fire. The claimant’s action for advertisement cost and
defendant’s failure to provide the hall failed.

It has been seen that even temporary unavailability of subject matter has led to the contracted to be frustrated. This was seen in the case of
Jackson v Union Marine (1874), where temporary unavailability of the ship led the contracted to be frustrated.

The doctrine of frustration has also been applied where the purpose of the contract seizes to exist. In Krell v Henry, the defendant hired a flat for
two days to see the coronation of King Edward II even though the purpose was not expressly mentioned in the contract. The coronation got
cancelled due to King’s illness, after the contract was concluded. The contract was held to frustrated because the purpose i.e., coronation has
seized to exist. In contrast, the case of Herne Bay Steam Boat v Hutton (1903) brought a different result. In this case the defendant had hired a ship
to view the ‘naval view’ and a day cruise around the fleet. The naval view got cancelled due to King’s illness but the contract was not held to
frustrated. These two cases can be distinguished where in Krell, the sole purpose of hiring the the room was to watch the coronation. Whereas in
Herne, the sole purpose was not to the naval view.

The strict approach of courts in invoking frustration was seen during Brexit era. In the case of Canary Wharf v European Medicines Agency (2019),
the defendant who was lessee of the claimant sought to terminate the lease citing UK’s exit from EU as frustrating event. The court in this case held
that defendant’s capacity to deal with real property in a third country and its use of the premises and to pay rent is not impacted. Hence Brexit did
not change the performance of the contract radically different from what was contemplated at the time of the contract.

There are certain limitations to doctrine of frustration. The first is where the event has been foreseen and covered under express provision. The
second limitation is where the frustration has been ‘self induced’ by one of the parties. Both limitations will be discussed separately.

First, the doctrine of Frustration operates on element of surprise. It comes into play whenever an event occurs that neither party expected. This
means that the risk associated with the event has not been allocated in the contract, which makes it proper for the courts to interfere. However, if
the event has been accounted for under an express provision, the contract will not be frustrated. However, the construction of such clauses is of
paramount importance. If the clause is not properly constructed, the court may well hold the contract frustrated. This was seen in the case of
Jackson v Union Marine (1874), where a ‘force majeure’ clause was held not to cover the unforeseen event and the contract was frustrated. Then
in the case of Metropolitan Water Board v Dick Kerr (1918), a proper construction of the ‘force majeure’ clause could not prevent the contract
from being frustrated due to an intervening event of government regulation that made the performance of the contract illegal.

Second, the doctrine of frustration cannot be invoked if the frustration is ‘self-induced’. In the case of Maritime v Ocean Trawlers, the defendant’s
failure to obtain licenses was held to be self induced and hence the defendant was precluded from invoking the doctrine of frustration. More
important case on self-induced frustration was the case of Super Servant Two 1989 where the defendants contracted with the claimants to
transport an oil rig through either Super Servant One (SS-I) of Super Servant Two (SS-II); and it was defendant’s choice which of the two would be
used to transport the oil rig. The defendants chose to use SS-II, and allocated SS-I to other contracts. However, before the performance of the
contract the SS-II sank, and SS-I could not be used as it was already allocated to other contracts. The claimants brought an action for damages which
the defendants denied on two grounds. First, the defendant alleged that the contract had been frustrated due to sinking of the ship. Second, they
were entitled to terminate the contract under ‘force majeure’ clause that had one of the supervening events listed as ‘perils or dangers and
accidents of the sea’. The court rejected the first argument drawing authority from Maritime case that it was a self induced frustration since the
defendants had a choice which vessel is to be used. However, second argument was accepted since the the sinking of SS-II was not attributed to
negligence on part of the defendant. Hence claimant’s action for damages failed. This shows the importance of the ‘force majeure’ clauses.

To conclude, the courts’ aim is to hold parties to their bargain who deal at arms-length. The essence of a commercial contract is that the parties try
to broker best deal for themselves. Using frustration as a defence to ‘enforcement of a contract’ will not be successful merely because there is an
increase in costs, and it is no longer feasible to perform the contract. Nor the frustration would work as a defence if it is self induced. There are
measures that parties can implement during the construction of a contract to resolve obligations that arise due to foreseeable event. These
measures include force majeure clause, hardship clause and intervener clause. Hence if parties are to protect themselves from increase in costs,
they must ensure that the contract expressly has the provision for such an event. Like Lord Reid in the case of Davis Contractors v Fareham UDC
said: “Frustration depends not on adding any implied terms but on the true construction of the terms…”. Hence this shows the narrow confines
within which the doctrine of frustration currently operates.

S.1(2) s.1(3) Frustrated Contracts Act 1943

The doctrine of frustration applies from the onset of an unforeseeable event (not attributable to the fault of either party) which makes the
performance of the contract impossible, illegal or something radically different from what was in contemplation of the parties at the time
they entered into the contract (Davis Contractors Ltd v Fareham Urban DC 1956). The Law Reform (Frustrated Contracts) Acts 1943
determines where losses will lie. It the doctrine of frustration is not applicable, then an action for a breach of contract may exist.

The doctrine of frustration relaxes the ‘absolute obligation’ approach taken by common law which demands performance regardless of
supervening events Paradine v Jane (1647). However, the doctrine operates within very narrow limits. The courts are reluctant to invoke
the doctrine of frustration based on two principal grounds. First, the court does not want to allow the parties to escape from a ‘bad
bargain’. Second, Courts believe that parties are better equipped to allocate risk of occurrence of unforeseen events, beyond the control
of both the parties, by inserting a provision in the contract (Force Majeure clause).

When the contract is discharged on the ground of frustration, a claim would would be for recovery of money paid prior to frustrating
event and a claim to recover the value of goods or services supplied prior to frustrating even. The claim, before Law Reform (Frustrated
Contracts) Act 1943, was governed under common law rules. We will briefly how the common law rules operated upon the claim, and
then move to the Act of 1943.

Initial position under common was that any obligation that was due before the frustrating event had to be paid and money paid prior to
the frustrating event was not recoverable (Chandler v Webster 1904). The position later improved where a claim for the money paid could
only succeed if there was total failure of consideration (Fibrosa v Fairbairn 1943). However, there still were problems with common law
approach. First, the payer was only entitled to recover the money if there was total failure of consideration; partial failure of consideration
barred the right to recover the money (Whincup v Hughes 1871). Second, the payee could not set off any expenditure that was incurred in
the performance of the contract. The other issue with the common law was that claimant could not recover the value of goods or services
provided prior to frustrating event (Appleby v Myers 1867).

Having discussed the common law approach, we will now discuss Frustrated Contracts Act 1943. Our discussion will be focused on s.1(2)
and s.1(3) of the act.

S.1(2) can be summarised as having three significant impacts. First, the money paid prior to frustrating even are recoverable. Second, the
money payable prior to the frustrating even are not payable. Third, the payee can set-off any expenditure that was incurred in the
performance of the contract against the money required to be paid back to the payer. Hence, s.1(2) brought two improvements over
common law approach. First, there’s no need for total failure of consideration to claim the money paid. And second, the payee can set-off
the expenditure that he has incurred. However, s.1(2) has not elaborated on how the expenditure that was incurred by the payee will be
calculated. In Gamerco v Fair Warning (1995), Justice Garland said that the act fails to tell if there will be a total retention or equal division
of the expenses incurred. This leads to an understanding that it will be at court’s discretion and will depend on the facts of the case.
Hence, it will be on the payee to show that it is just to allow him to retain part of the prepayment that he has to make to payer. This
section also adds a ceiling to the amount, that payee can retain, up to the prepayment. Hence, any expenditure, over and above the
prepayment, is not recoverable under this section.

S.1(3) deals with the claims to recover the value of goods or services provided prior to the frustrating event. These claims are not covered
under s.1(2). Hence, where a ‘valuable benefit’ has been conferred before discharge of the contract, the party who had conferred the
benefit will be entitled to recover ‘just sum’. The ‘just sum’ cannot exceed the ‘value of the benefit’ conferred. In the case of BP v Hunt
(1979), the claimant was awarded a $35.3million for the benefits it had conferred on the defendant prior to frustrating event.

Justice Goff in BP v Hunt laid down two steps for s.1(3) claim. First is identifying the valuable benefit. Valuable benefit could either be
something that has not resulted in any end product like a transport of goods, or it could be something that has no tangible value like
painting a wall or a decoration job. However, the claim is qualified by the fact that the valuable benefit must not be destroyed by the
frustrating. If the valuable benefit is destroyed, the claim would not succeed. Hence in Appleby v Myers, the result would still have been
same under the act because the work done (valuable benefit) by the claimants was destroyed by the fire. Hence this is a strained
distinction between claimant’s performance and defendant’s benefit.

The second step to s.1(3) claim is assessment of a ‘just sum’. This is where it is difficult to predict what the ‘just sum’ will be in front for the
court. Courts would first see if the risk has been allocated in the contract. As per Justice Goff, court’s main objective will be to prevent
‘unjust enrichment of the defendant at the expense of the claimant’. Hence Justice Goff said that assessment would be based on quantum
meruit basis. However, this approach to assessment of a ‘just sum’ was rejected by the Court of Appeal where Lord Lawton said that ‘what
is just is what trial judge thinks is just’.

Hence the the assessment of ‘just sum’ has been left to the discretion of the trial judge. The Court of Appeal could, but did not give any
guidelines for the trial judge to assess ‘just sum’. The approach of ‘quantum meruit’, taken by Justice Goff, could have been helpful in
providing a platform for the assessment of ‘just sum’.

The intricacies in s.1(3) mentioned above makes this section unnecessarily complex. The act still leaves major issues unaddressed. Where
the act focuses on prevention of unjust enrichment, it fails to address the the recovery of reliance loss that has not translated into a
benefit; nor does the act apportions the loss between the parties.
Question 7 2018-ZB

(b) Lou Rolls sells and restores antique bathroom fittings. One evening vandals break in and set fire to his workshop. The workshop and
all its contents are destroyed.
A week before the fire Mel had agreed to pay Lou £5,000 to restore an antique bath. As agreed, Mel paid Lou £500 when she delivered
the bath with the balance payable on completion. Lou had purchased for £1,000 some specially formulated enamel to use in the
restoration. Both the bath and the enamel were destroyed in the fire.
At the time of the fire Ned, a builder, had almost completed retiling the floor of Lou’s warehouse. It had been agreed that Lou would
pay Ned £8,000 as soon as the job was completed.

Advise Lou as to his rights and liabilities to Mel and Ned taking account of the law relating to frustration.

The doctrine of frustration applies from the onset of an unforeseeable event (not attributable to the fault of either party) which makes the
performance of the contract impossible, illegal or something radically different from what was in contemplation of the parties at the time
they entered into the contract Davis Contractors Ltd v Fareham UDC (1956). Frustration is determined by the effect that an event has on
the contract, not the nature of the event itself. If the contract is frustrated, it is discharged at that date i.e., prospectively. The Law Reform
(Frustrated Contracts) Acts 1943 determines where losses will lie. If the doctrine of frustration is not applicable, then an action for a
breach of contract may exist.

The question requires discussion on possibility of Lou’s contracts with Mel and Ned being frustrated, and any possible restitution that may
be allowed. Before discussing Lou’s rights and liabilities, we will briefly discuss what the common law position was regarding the claims
before 1943 Act.

The doctrine of frustration relaxes the ‘absolute obligation’ approach taken by the common law which demands performance regardless of
supervening events Paradine v Jane (1647). Under Common Law, there was initially no restitution of the payments already made; and the
payments due before the frustrating event had to be paid. All future obligations will be discharged (Chandler v Webster 1904). This
approach was later relaxed in the case of Fibrosa Spolka v Fairbairn (1943) where it was held that if there is a total failure of consideration
i.e., the party paying the money has received nothing, the money paid could be recovered; but if consideration was partial, the payer was
barred from recovering the money (Whincup v Hughes 1871). Whereas the payee cannot set off any expenditure that was incurred in the
performance of the contract, and was also barred from recovering any value of goods or services provided prior to frustrating event
(Appleby v Myers 1867).

Lou’s contract with Mel

An unforeseen event which destroys the subject matter of the contract relieves parties from performance of their obligations Taylor v
Caldwell (1863). In the current case the subject matter i.e., the bath has been destroyed. And from the facts of the case, the event is
unforeseen and neither party seems to be at fault; nor was the risk allocated expressly to either party. The destruction of bath renders the
contract impossible to be performed. Hence, the contract between Lou and Mel is likely to be frustrated and discharged at the date of the
unforeseen event.

Hence under common law, Lou would be obligated to pay the £500 he has received from Mel because she has not received any
consideration (Fibrosa v Fairbairn); and he will be barred from setting off the expenditure of £1000 he made in performance of the
contract (Appleby). More so, the remaining amount of £4500 due from Mel cannot be recovered because that amount was due after the
completion of the contract.

Under frustrated Contracts Act 1943, the position will be different. s.1(2) of the act deals with money paid or payable prior to the
frustrating event. This section has a threefold approach:

1) Amount paid prior to the event is recoverable.

2) Amount payable prior to the discharge cease to be payable.
3) Payee may be entitled to set-off, against the sums payable, the expenses which he has incurred before discharge of the
contract. This is at the discretion of the courts and is decided based on the facts of the case whatever is just and reasonable.
However, the set-off cannot be be more than sums payable.

Hence, Lou is obligated to return the £500 that he has received from Mel. However if the court finds it just, he may be able to set-off the
expense that he has incurred to perform the contract (Gamerco v Fair Warning 1995). However, this set-off cannot be more than the
prepayment. Therefore, Lou would only be able to set-off £500 against the prepayment of £1000. Where as Mel will not be obligated to
pay the remaining £4500 due under the contract. Lou could rely on s.1(3) to recover the entire expense of £1000 if he has conferred any
valuable benefit to Mel. The facts suggest that no valuable benefit was conferred upon Mel. Therefore, Lou is advised that he will not have
to return the prepayment of £500 received from Mel since the entire prepayment will be set-off against his expenditure of £1000. Hence,
Lou would loose £500.
Lou’s contract with Ned

In this situation, the subject matter i.e., floor/tiles has been destroyed. An unforeseen event which destroys the subject matter of the
contract relieves parties from performance of their obligations Taylor v Caldwell (1863). The event is unforeseen with fault of neither of
the party. Hence the contract is likely to be frustrated.

Under common law, there is unlikely any claim against Lou. The facts suggest that contract between Lou and Ned was a ‘entire obligation’
one i.e., the payment of £8000 was due after the completion of the contract. And any payment due after the frustrating event is not
recoverable under common law. And the Ned will also be precluded from claiming any value of the tiles that he had installed at Lou’s
warehouse (Appleby).

Under the Frustrated Contracts Act (1943), Ned’s claim would probable lie under s.1(3) because there is no money paid in advance hence
s.1(2) will be inapplicable. Under s.1(3), a party who has conferred a ‘valuable benefit’ on the other party may be entitled to recover a ‘just
sum’ not exceeding the value of benefit conferred (BP v Hunt 1979). However, the is an exception to this rule. The claim would only
succeed if the conferred benefit has not been destroyed by the frustrating event (Appleby). The facts suggest that the vandals had set fire
to the workshop hence any benefit, that was conferred upon Lou, has been destroyed.