#7289 - Frustration - Contracts 2

Taylor v Caldwell (1863) 122 ER 309

Relevant Facts: On 275/61 the parties entered into a contract where the defendants agreed to let the plaintiffs have use of The Surrey Gardens and Music Hall on four days for the purpose of a series of concerts and fetes for 100/day. After the making of the agreement and before the first day of the concert, the Hall was destroyed by fire

Ratio (Blackburn J)

• Where there is a positive contract to do a thing, the contractor must perform it or pay damages for not doing it, although in consequences of unforeseen accidents, performance has become unexpectedly burthensome or even impossible

• BUT, where, from the nature of the contract, it appears that the parties would have known it could not be complete unless a specified thing continued to exist and that they contemplated its continuing existence as the foundation of what was to be done, in the absence of an express/implied warranty that it will continue to exist, the contract should not be construed as a positive contract, but subject to an implied condition that the parties shall be excused in case, before breach , performance becomes impossible from the perishing of the thing without default of the contract. (Used civil law to back it up)

• Blackburn J analogized to cases (marriage/apprenticeships) where there was an implied condition is the life of a human being and said “the same implication is made as to the continued existence of a thing”

• Looking at the whole of the contract in the present case, it was contracted on the basis of continued existence of the Music Hall when the concerts were to be given – that being essential to performance.

• The Music Hall, having ceased to exist, without fault of either party, both parties are excused from their obligations

Order: Rule Absolute – verdict entered for the defendants

Krell v Henry [1903] 2 KB 740

Relevant Facts: The plaintiff brought action to recover the amount for hire of rooms by the defendant on Pall Mall on two dates under a contract constituted by correspondence between the parties. Evidence was admitted to show that on these dates the coronation of KEVII would take place and pass along Pall Mall. The coronation was postponed and the defendant declined to pay the balance due under the contract.

Ratio (Vaughan Willams LJ):

• The rule in Taylor v Caldwell also applies where the event which renders the contract incapable of performance is the cessation or non-existence of an express condition or state of things, going to the root to the contract, and essential to performance.

• First, it must be ascertained (from terms and from inferences of surrounding circs) what is the substance/foundation of the contract. Then, was performance prevented. Third was the event that prevented performance of such a character that it cannot be reasonably be said to have been in the contemplation of the parties at the date of the contract.

• The coronation procession was the foundation of the contract and its non-happening was an event not reasonable supposed to have been in the contemplation of the parties when the contract was made

How to reconcile with the cab question??

Order: Appeal dismissed

Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143

Relevant Facts: Groups Projects owned 19 acres of land which they wished to develop as a residential subdivision. The BCC agreed to make the application to have it zoned residential in consideration for works to be carried out if approved (constructing roads, footpaths etc). Most of this work was to be carried out off the 19 acres. BCC undertook certain other obligations. The agreement required a furnishing of a $200,000 bound by GP for performance. Some months later, before rezoning was approved, the parties were advised that the Crown was going to resume the land to build a school. The land was vested in the Crown one month before rezoning took effect. GP no longer owned the land and couldn’t proceed with the subdivision. The council contended that GP’s obligations and its obligations on the bond were still in force

Ratio (Stephen J):

• His honour made the point that the advantages under the contract sought after by the Council were not commercial in nature and secondly that this was not a case where obligations were rendered impossible or more onerous since most of the work was to be undertaken off acquired land.

• He then noted that the acquisition by the Crown deprived GP of all desire to proceed with the work – and even the Council’s interest as being diminished. Even though GP can perform its obligations – the resumption by the Crown destroyed GP’s purpose in undertaking any obligations.

• His honour resolved the judgement of Lord Radcliffe in UDC – the paragraph above and also another important, but not determinative, concern that there must be a change in the significance of the obligation.

• He resolved a number of approaches to frustration but preferred Lord Reid’s – but either way saying that under any approach, acquisition by the Crown gave rise to a fundamentally different situation from that contemplated by the parties when the contract was entered into – and hence the contract should be regarded as coming to an end on acquisition.

Order: Appeal dismissed.

Codelfa Construction v SRA of NSW (1982) 149 CLR 337

Relevant Facts: Commissioner of railways calls for tenders to construct parts of the railway system; under a governing Act it was not necessary for the SRA to give notice of intentions to blast rocks or be liable to injunctions restraining it. Codelfa’s tender was accepted on terms that the contract price would not be varied in teh case of difficulties, all expenses were taken care of, and that it be completed in 130 words while also providing that it could not be cancelled or result in damages for delays in completion if notice is given and the extent of delay ascertained. Codelfa commenced doing 3 shifts per day causing noise/dust/vibration and contrary to the Act injunctions restrained Codelfa from performing and made them unable to follow schedule.

Litigation History: Codelfa claims the additional price payable in respect of costs incurred and profit which it didn’t earn by reason of the change in working methods it had to adopt. It did this on the basis of an implied warranty, breach of which would sound in damages, or frustration through injunctions which would lead to recovery on a quantum meruit (more than the price payable under contract). The dispute was submitted to an arbitrator who found that the contemplated work shifts were assumed in the agreement.

Issue for decision: Did the granting of an injunction frustrate the contract

Getting to the principle (Mason J):

• Agreed with both Lord Radcliffe and Lord Reid’s approach (was the new situation wide enough to be covered by the contract; if not at end)

• Resolved the authorities in favour of Krell v Henry – the terms and construction of the contract and the then existing circumstance are to be taken into account

• Mistakes or common assumptions can also be subjected to actual and objective absence of reasonable foreseeability – if established frustration should apply

• A...