THE JURISTIC BASIS OF FRUSTRATION

In National Carriers Ltd. Respondents v Panalpina (Northern) Ltd. the Court of Appeal had to consider the juristic basis of frustration in English law. This is an important decision for businesses who rely on goods being transported overseas, as it establishes when they can be released from their obligations to deliver those goods. Here, we will look at the case in more detail and explore what it means for companies who deal with transport issues.

THE JURISTIC BASIS OF FRUSTRATION

THE FACTS

In this case, National Carriers had contracted with Panalpina to transport a consignment of perishable goods from Puerto Rico to Hamburg. The contract stated that National Carriers would use their own ships to carry the goods, and that they would be delivered within 21 days. However, due to bad weather and a strike by National Carriers' employees, the goods were not delivered within the 21 days. When Panalpina attempted to claim damages from National Carriers, they argued that the contract had been frustrated and that they should be released from their obligation to deliver the goods.

THE COURT

The case National Carriers Ltd. Respondents v Panalpina (Northern) Ltd. was heard by the Court of Appeal in England in 1980. The court had to consider whether or not the contract between the two companies had been frustrated, and if so, whether National Carriers could be released from their obligation to deliver the goods.

THE DECISION

The Court of Appeal held that the contract had not been frustrated, and that National Carriers could not be released from their obligation to deliver the goods. The court held that National Carriers had made a mistake in entering into the contract, and that they should have been aware of the risks associated with transporting perishable goods.

FRUSTRATION

The definition provided by Lord Radcliffe at page 729 in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 is that Frustration occurs:

"whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni; "It was not this that I promised to do."

However, Rix LJ at paragraph 111 in Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The Sea Angel) [2007] EWCA Civ 547 said the application of this doctrine requires a:

"multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix or context, the parties' knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties' reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances."

As Lord Bingham at page 8 of J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd's Rep 1, the doctrine is "to give effect to the demands of justice but not to be lightly invoked".

THE MULTI-FACTORIAL APPROACH

1. The first is the “implied term” or “implied condition” theory on which Blackburn J. plainly relied in Taylor v. Caldwell, as applying to the facts of the case before him. To these it is admirably suited. The weakness, of the implied term theory is that it raises once more the spectral figure of the officious bystander intruding on the parties at the moment of agreement. See Rothschild, Jay Leo. "The Doctrine of Frustration or Implied Condition in the Law of Contracts." Temp. LQ 6 (1931): 337.

2. Second “Total failure of consideration” theory - Counsel for the respondent in Panalpina sought to argue that Taylor v. Caldwell, 3 B. & S. 826 , could as easily have been decided on the basis of a total failure of consideration. This principle is based on a test of whether it had “performed any part of the contractual duties in respect of which payment was due” and is the test contained in s.1(2) Law Reform (Frustrated Contracts) Act.

3. Third “Absolute contracts are reconciled with a special exception which justice demands” theory - In Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497 , 510 Lord Sumner seems to have formulated the doctrine as a “... device [sic], by which the rules as to absolute contracts are reconciled with a special exception which justice demands” and Lord Wright in Denny, Mott & Dickson Ltd. v. James B. Fraser & Co. Ltd. [1944] A.C. 265 , 275 seems to prefer this formulation to the implied condition view. The weakness of the formulation, however, if the implied condition theory, with which Lord Sumner coupled it, be rejected, is that, though it admirably expresses the purpose of the doctrine, it does not provide it with any theoretical basis at all.

4. Fourth “foundation of the contract” theory - Hirji Mulji v. Cheong Yue Steamship Co. Ltd. is, it seems to me, really an example of the more sophisticated theory of “frustration of the adventure” or “foundation of the contract” formulation, said to have originated in Jackson v. Union Marine Insurance Co. Ltd. (1874) L.R. 10 C.P. 125. This, leaves open the question of what is, ill any given case, the foundation of the contract or what is “fundamental” to it, or what is the “adventure.”

5. Fifth “Construction theory” Earl Loreburn in F. A. Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd. [1916] 2 A.C. 397 . is that the doctrine is based on the answer to the question: “What in fact is the true meaning of the contract?”: see p. 404. This is the “construction theory.” In Davis Contractors Ltd. v. Fareham Urban District Council [1956] A.C. 696 , 729 Lord Radcliffe put the matter thus, and it is the formulation I personally prefer: “... frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable or being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.”

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