Keenan and Riches’BUSINESS LAW

Chapter 7Introduction to the law of contract

decide whether a charterparty had been frustrated. Rix
LJ stated that the application of the doctrine required
a multifactorial approach. The factors to be considered
included the terms of the contract, its context, the parties’
knowledge, expectations, assumptions and contemplations,
in particular as to risk, as at the time the contract was
concluded, the nature of the supervening event, and the
parties’ calculations as to the possibilities of future per-
formance in the new circumstances. The test of ‘radically
different’ is important: it means that the doctrine should
not be invoked lightly. The mere incidence of expense or
delay or onerousness is not sufficient. There has to be a
break in the identity between the contract as provided for
and contemplated and its performance in new circum-
stances. As Rix LJ put it ‘the doctrine is one of justice’.

The consequences of frustration

At common law, a frustrating event has the effect of
bringing the contract to an immediate end. The rights
and liabilities of the parties are frozen at the moment
of frustration. The rule was that money payable before
frustration remained payable and money paid before
frustration could not be recovered. Any money which
did not become payable until after frustration ceased to
be payable. The harsh consequences of this rule were
modified by the House of Lords in the Fibrosacase
(1943) and wider changes were introduced under the
Law Reform (Frustrated Contracts) Act 1943. The Act
made two important changes:

1 money payable before frustration ceases to be payable
and money paid before frustration can be recovered
(the court may in its discretion allow the payee to
recover or retain all or part of the sums to cover any
expenses incurred);
2 a party who has carried out acts of part performance
can recover compensation for any valuable benefit
(other than a payment of money) conferred on the
other party.
The Act does not apply to (a) contracts for the carriage
of goods by sea, (b) insurance contracts, or (c) contracts
for the sale of specific goods, which are covered by s 7 of
the Sale of Goods Act 1979. The parties may exclude the
effect of the Act by express agreement.

Breach

A breach of contract may occur in a number of ways. It
may be an anticipatory or an actual breach.

Anticipatory breach

This is where a party states in advance that he does not

intend to carry out his side of the contract or puts him-

self in a position whereby he will be unable to perform.

The injured party may sue immediately for breach of

contract or, alternatively, wait for the time for perform-

ance to arrive to see whether the other party is prepared

to carry out the contract.

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Hochsterv De la Tour(1853)

The claimant was engaged by the defendant in April

1852 to act as a courier for travel in Europe from 1 June

1852. On 11 May the defendant wrote to the claimant
      to inform him that his services were no longer required.
      The claimant started an action for breach of contract on
      22 May. Although the date for performance had not yet
      arrived, it was held that the defendant’s letter constituted
      an actionable breach of contract.

It can be dangerous to wait for the time for perform-

ance. The injured party may lose the right to sue for

breach of contract if in the meantime the contract is

discharged for frustration or illegality.

Averyv Bowden(1855)

The defendant chartered the claimant’s ship, the

Lebanon, and agreed to load her with a cargo at Odessa

within 45 days. During this period, the defendant told the

claimant on a number of occasions to sail the ship away

as it would not be possible to provide a cargo. The

claimant kept the ship at Odessa hoping that the defend-

ant would carry out his side of the contract. Before the

45 days had expired, the Crimean War broke out. Odessa

became an enemy port and it would have been illegal to

carry out the contract. Assuming that the defendant’s

repeated statements amounted to an anticipatory breach,

the claimant could have accepted the breach and sued

at once. However, by choosing to keep the contract alive

he lost his right to sue because of the illegality.

Actual breach

One party may fail completely to perform his side of the

bargain or he may fail to carry out one or some of his

obligations. Not every breach of contract has the effect

of discharging the parties from their contractual obliga-

tions. The terms of a contract may be divided into those

terms which are important (conditions) and the less