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University of London (Revision Programme) 2006

Fine-day Holidays Ltd agreed to rent Laurel Cottage, a holiday home in the Lake District, which it owns, to David and
Penny Harpon and their two children, for the two weeks of their summer vacation in June. David Harpon paid the price of
the holiday in full.

There is wet weather just before the holiday, as a result of which there was a substantial leak of water through the cottage
roof. This made Laurel Cottage uninhabitable until it dried out and repairs were effected. These would not be completed
until after the period for which the Harpons had rented the cottage. The Harpons believed that the cottage had not been
properly maintained and this was the cause of the damage.

As a result of the flooding, Fine-day Holidays telephoned and cancelled the Harpons vacation at Laurel Cottage, claiming
that the contract had been frustrated. The Harpons had already travelled to the Lake District. They then booked an
alternative cottage from Jaunty Hols, but as they were booking late there was limited choice and they had to pay an
additional 400. In addition, Penny and the children complain that they are too far from a lake and cannot enjoy the water
sports that they could have participated in at Laurel Cottage.

Are Mr and Mrs Harpon entitled to compensation and, if so, on what basis?

Step 1 Identify the issues

This question involves issues of frustration, breach, and quantum of damages. It may also include some consideration of
anticipatory breach and privity of contract.

Step 2 Address the issues one by one - Privity


Privity arises because David books the holiday for himself and his family. The rule is that only parties to the contract can sue and
be sued on it and hence, strictly speaking, only he has contractual rights when Fine-day cancel. The answer is probably to be
found in Jackson v Horizon Holidays, where Mr Jackson purchased a high standard holiday in Sri Lanka for his wife and three
children. It was very disappointing with a dirty shower and fungus on the walls of the rooms. Lord Denning MR said that it was a
common situation for one person to make a contract on behalf of himself and others. Citing Lush LJ in Lloyds v Harper, where
the judge said, I consider it to be an established rule of law that where a contract is made with A for the benefit of B, A can
sue on the contract for the benefit of B, and recover all that B could have recovered if the contract had been made with himself,
Lord Denning awarded 500 to Mr Jackson for mental distress, an excessive sum if related to him alone. Other commentators
would restrict Lush LJs comment to trusts only. One way of dealing with this would be to make David an agent for his family but
Lord Denning did not follow this route but he had no doubt that damages were not restricted to the contract-maker himself. The
provisions of the Contracts (Rights of Third Parties) Act 1999 put this beyond a peradventure now.

Step 3 Addressing the issues one by one Breach?


This would be significant if there is a breach of contract. The Harpons have contracted to stay in Laurel Cottage and by telling
them they cannot, Fine-day is in breach as contractual obligations are strict: Arcos v Ronaasen. This is an anticipatory breach in
that Fine-day informs the Harpons that the cottage is unavailable before they are due to be there. The Harpons could elect to treat
the contract as repudiated and sue for damages or treat it as subsisting and sue for breach, as in White &Carter (Councils) v Mc
Gregor. There the defendants agreed with the pursuers to place advertisements but then tried on the same day to cancel the
agreement. The pursuers refused to accept the repudiation and sue for the contract price having gone on to place the
advertisements as originally agreed. It appears from this puzzling decision that a party to a contract can continue performing his
obligations despite the unwillingness of the other party. This cannot happen where the innocent party needs the co-operation of the
party in breach: Hounslow LBC v Twickenham Garden Developments Ltd. The innocent party cannot additionally burden the
other by continuing to perform and there is a duty to mitigate the loss.

A party that waits until performance is due when breach is inevitable, risks the possibility of a frustrating event intervening: Avery
v Bowden. In Hochster v De La Tour the plaintiff was hired in April to accompany the defendant as a courier on a tour to begin in
June but it was cancelled in May. Hochster was right to accept the repudiation and sue immediately for damages, and it seems that
the court thought that he should not spend money on useless preparations. Here it seems that the Harpons had already departed for
the Lake District before they were aware of Fine-days breach. It seems reasonable that, having reached their destination, the
Harpons should look for an alternative cottage, claiming the difference in price as part of their damages. In fact, in view of the
time-scale, it must be arguable whether Fine-day has committed an anticipatory breach.

Step 4 Addressing the issues one by one - Frustration


Fine-day claim that the contract is frustrated. Frustration is an unforeseen supervening event that makes the contract impossible to
perform or radically different. The key case is Taylor v Caldwell, where a theatre burnt down and the court held the contract at an
end and discharged the parties from further performance, by implying a term that the theatre should continue to exist over the
season it had been booked. Before this nineteenth century case, Paradine v Jane denied relief when a tenant could not cultivate the
farm he had leased while the English Civil War raged over it. The implied term approach was disapproved in National Carriers
Ltd v Panalpina (Northern) Ltd.

The court will need to consider the obligations originally entered into to determine whether there has been a radical change in the
circumstances of the contract. There may also be a need to see whether the parties have made any provision for the event that has
arisen and for which neither is to blame. The question must focus on the effect of the change in circumstances can the contract
still be effectively performed? It is not sufficient to say that the contract has become difficult or expensive to perform: Tsakiroglou
& Co v Noblee and Thorl, where the closure of the Suez Canal was not a frustrating event because alternative routes could still be
used.
Obviously, the Harpons could have stayed in Laurel Cottage in its flooded state of disrepair but this is hardly a practical option. It
is not quite as dramatic a situation as the fire in Caldwell, but it is analogous with the coronation cases such as Krell v Henry
where a room was hired to watch the procession which was then cancelled. The hirers did not just want to sit in the room and look
at an empty street and the contract was frustrated. On the contrary, in Herne Bay Steam Boat Co v Hutton the contract to hire a
boat to watch the coronation review could still be used to view the canal as the fleet had gathered although the king was absent.
The Harpons belief that Fine-day has brought this problem on themselves by failing to maintain the cottage is relevant as fault
may stop frustration being used at all. In Maritime National Fish v Ocean Trawlers self-induced frustration did not relieve them
from liability for breach of contract.

Assuming that the defence of frustration is successful, and this means that the parties should be separated with the minimum of
pain, the Law Reform (Frustrated Contracts) Act 1943 comes into play. Under common law, Fibrosa v Fairbairn Lawson Combe
Ltd, where there was a total failure of consideration, money paid could be recovered.

Under s 1(2) of the 1943 Act, where money has been paid or is payable before the frustrating event, it should be returned or ceases
to be payable. This does not depend on total failure of consideration. Where expenses have been incurred towards the performance
of the contract, some of that money paid or payable may be retained or is recoverable, to the extent that the court considers just.
The amount recovered or retained cannot exceed the expenses themselves nor the amount paid or payable. As in Gamerco SA v
ICM/Fair Warning Agency a pop concert had to be cancelled because of safety at the stadium but the judge allowed the plaintiffs
to recover all they had paid despite expenses paid by the defendants. Here it seems that David could recover all the money he had
paid for the booking. He has paid the fare to the Lake District but he cannot claim this.

There is nothing that Fine-day has expended that it should be able to retain. Had they, for instance, spent money on making
alterations to the cottage specifically to suit the Harpons requirements, they might well have been able to retain that. Under s 1(3)
where a party has received a valuable benefit other than money, a sum may be recovered from the other as the court considers
just, having regard to all the circumstances of the case. Had the Harpons stayed at Laurel Cottage for most of the rental period
before the flood had occurred, this might have been a benefit for which they should have paid. This has been subject to
interpretation by Goff J in BP Exploration Co (Libya) Ltd v Hunt (No 2). This has no effect here.

In summary, David should sue for breach of contract as this will enable him to recover the additional costs of renting alternative
accommodation from Jaunty, and the disappointment to himself and other members of the family (the point of the contract was
enjoyment), In frustration he will be confined to return of the rent paid to Fine-day and this will be poor recompense.
University of London (Revision Programme) 2007

Kerry is a tour operator who arranges for his clients to travel on barges on the old canals and waterways of England and
Wales. The boats can reach sites of historic interest and outstanding beauty that are otherwise inaccessible. Lionel and
Maria, both local history enthusiasts, book a two-week tour for their honeymoon. Some months before their marriage a
disease affects fish and mammal life in the waterways and government scientists are unsure as to whether it can spread to
human beings.

Government regulations are introduced that require the use of a disinfectant on boats to stop the spread of the disease.
Consequently, the price of the disinfectant goes up and Kerry realises that if he is to comply with the regulations it will
cost more than any profit from running the tours. He decides to cancel all bookings.

Advise the parties.

Step 1 Identify the issues

This question requires an examination of the law regarding discharge of contract. Contracts may be discharged in any of four
ways: performance, breach, variation (agreement), and frustration. The issues here are concerned with frustration and breach but
variation is possible.

Step 2 Address the issues one by one - Performance

A person who enters a contract undertakes to perform obligations that are often strict, i.e. they must be completed by the party
who has promised to perform them to the letter. The absence of fault, or the assertion by the party that he has done his best to
perform does not exonerate him. Where a contract is for the goods and services, it will be implied that the party undertaking these
will use reasonable skill and care. Thus, a doctor will not guarantee to cure his patient nor a lawyer to win his case.

Under s 13 of the Supply of Goods and Services Act 1982 it is an implied term where a person undertakes to carry out a service,
that this will be performed with reasonable skill and care. There are regulations relating to Package Travel, Package Holiday and
Package Tours and these provide that the organiser must either repay money paid by the consumer or have a substitute package
arranged. It would be worth looking at these terms in detail and to see if ABTA (Association of British Travel Agents) has any
arbitration procedures in a case like this. For present purposes, however, this problem will be approached from the position of the
general principles of contract law.

Step 3 Addressing the issues one by one Frustration

A contract may be frustrated if a supervening event occurs that the parties have not provided for and makes it impossible to
perform or radically different. Obviously, if a term of the contract provides for a situation such as this, the contract may provide
an answer by, e.g. allowing a variation in price. This might happen where fuel prices or taxes increase and it allows the organiser
to pass on these costs to his clients. There is, however, no doubt that where changed circumstances make a contract more difficult
to perform, or even unprofitable to the extent that a loss will be sustained, it does not exonerate the party from its obligations:
Tsakiroglou & Co v Noblee and Thorl. The plaintiffs agreed to buy 300 tons of groundnuts from the defendants to be shipped
from Sudan to Hamburg, The normal route was via the Suez Canal but this was closed as a result of military operations. The
freight via Suez was 7.10s per ton, but via the Cape was 15 per ton. Tsakiroglou refused to ship via the Cape and Noblee
responded by saying they would buy the groundnuts elsewhere. The House of Lords held that this did not frustrate the contract.
Tsakiroglous argument that the use of the Suez route was implied in the contract also failed. Alternative routes could still be
used.

It looks here as if Kerry takes the decision to cancel the bookings because of increased expense alone but he could still run the
tours. This will not, it is submitted, suffice to frustrate the contract but any attempt by him to repudiate may be accepted by Lionel
and Maria who may decide anyway that they would rather not spend their honeymoon risking their health on polluted waterways.
Were they to contract disease, it is submitted that any attempt to exclude liability by Kerry would be void under s 2(1) Unfair
Contract Terms Act 1977 but the honeymooners would probably need to prove that, despite the requirement of using disinfectant,
Kerry had been negligent in letting them contract the disease. It might also be hard to prove causation as a matter of fact. In those
circumstances they might be inclined to accept the breach and sue for damages.

In this case damages would include loss for disappointment in that the contract should have provided not just for their special
interests but also the special occasion: Jarvis v Swans Tours and Jackson v Horizon Holidays. In Jarvis Lord Denning MR
awarded quite substantial damages for disappointment and distress in respect of an Alpine holiday that was very inferior. In
Jackson a husbands disappointment was more richly compensated because of his familys unhappiness. These commonsense
decisions of Lord Denning are controversial. In Watts v Morrow it was held that damages cannot normally be awarded for distress
but Bingham LJ, as he then was, did say that contracts the objects of which were pleasure, relaxation, peace of mind or freedom
from molestation would be an exception. Disappointment for mere breach is unlikely to be recovered: Farley v Skinner does not
really take the matter further.

It was suggested above that frustration might not be successful here. Nonetheless, it must be considered in advising Kerry. The
legal requirement to disinfect the boats does not make it impossible to perform the contract, but it does, arguably, make it radically
different. Under the Law Reform (Frustrated Contracts) Act 1943 money paid should be repaid and money payable ceases to be
payable. It seems that Lionel and Maria have paid nothing so far but should they have paid a deposit, that should be recoverable
and they will cease to have any further financial obligations. This will mean that Kerry will receive no money for the cancelled
bookings but it should mean that that is the limit of his loss. It is possible under s 1(2) that expenses may be retained but it is
difficult to assess what Kerry could claim here. It is unlikely that the disinfectant costs can or should be retained. Kerry has done,
it is submitted, nothing else. Even in Gamerco SA v ICM/Fair Warning Agency the court held that, w here money had been paid,
it could be recovered without deduction. The main thing is to extricate the parties with the minimum of pain to either side, on the
assumption that the frustrating event is the fault of neither. Kerrys decision not to proceed, even if it is frustration at all, which
seems unlikely, is self-induced by his decision not to pay this enhanced price: Maritime National Fish v Ocean Trawlers.

It remains possible that Lionel and Maria might themselves seek to frustrate the contract. The disease has, after all, struck some
time after their initial arrangements and they may feel that they do not want to spend their honeymoon, presumably a unique
moment in their lives, on waterways where fish and mammals are dying and where they might also contract the illness. They
might have this holiday at a more auspicious time. In fact, the easiest approach would be for both sides simply to agree not to
proceed further with the booking at this time. Kerry might offer to give them a holiday in the future at the same or a discounted
price and Lionel and Maria might agree, if they propose the change, to re-book at a better time.

This case calls for an amicable settlement. There may well be sufficient time for the honeymooners to book elsewhere. It remains
possible, however, that, as in White &Carter (Councils) v Mc Gregor, the parties intend to adhere to their rights and insist on
performing their part of the contract rather than accepting any purported repudiation. In White & Carter a contract was made to
undertake advertising and then some short time later the same day, the person who had booked space cancelled it. The advertisers
refused to accept this repudiation and proceeded, long after, to perform their obligations, suing for the price. The case, a majority
decision in the House of Lords, has been criticised, rightly so in this writers opinion, as it seems to reflect a remarkably hard-
nosed attitude to business to hold a party to a contract that he does not want. From that point of view the decision in Williams v
Roffey Brothers, however awkward it makes the treatment of a variation in obligations, is a sensible answer to a commercial
situation and it displays a practical attitude to solving the problem. It might be mentioned in passing that this approach is endorsed
in the current Civil Procedure Rules of which CPR 1.1 states as an overriding objective:

(a) Dealing with a case justly includes, so far as is practicable


(b) saving expense;
(c) dealing with the case in ways which are proportionate to the
(i) amount of money involved;
(ii) importance of the case;
(iii) complexity of the issues; and
(iv) financial position of each party.

If the parties agree to disentangle themselves, no further contract is needed. A simple letter waiving rights should suffice as each
is giving up something in return for not having the other enforce his rights. This would, it is submitted, act as an estoppel as well,
should the other suddenly seek to renege on the agreement. Indeed, assuming that both sides are prepared to keep cool in this
matter the situation may be easily salvaged, provided they have acted with sufficient notice: Ickards (Charles) v Oppenheim.
University of London Past Paper 2008

Magic is a popular and boisterous rock group made up of 12 musicians. In February, 2008 it embarked upon a European
tour of 25 different cities. Magic contracted with Nonentity Productions Ltd, a small and unknown promoter, to stage its
London concert. Nonentity guaranteed payment to Magic of 2,000,000 or 85% of the profit of ticket sales, whichever was
greater. Nonentity provided Magic with an advance of 500,000. While in Warsaw, Magics lead singer was photographed
back stage consuming illegal drugs. The effect of the drugs was to impair his singing performance so badly that he was
booed off the stage by the audience, many of whom demanded the return of their money. Potential concert goers in
London were offended by the singers acts and concerned about the quality of the groups performance. Ticket sales were
extremely poor. In addition one of the Magic musicians was so depressed that he took his own life shortly before the date
of the London concert. The concert was never held. Nonentity was forced to refund the money on those tickets sold.

Magic claim that it has incurred substantial expenses in travelling to London and preparing for the concert. It does,
however, have insurance to cover loss arising from the cancellation of any concerts. Nonentity is very busy handling other
concert promotions which arose due to its increased reputation in the rock music world as a result of its contract with
Magic. However, Nonentity is concerned about the sum it paid Magic and wishes to recover the money and to withhold the
balance of 1,5000,000.

Advise Nonentity.

How Nonentity contract with Magic has been discharged and what relief they may be able to seek in the circumstances.

The essential issue in this case is whether the contract has been discharged by frustration or by breach. Has Magics performance
become impossible according to the criteria established in the leading cases (National Carriers Ltd v Panalpina (Northern) Ltd,
Davis Contractors Ltd v Fareham Urban District Council) such that the contract is discharged by law, or has the contract been
breached by Magic?

What is the general effect of frustration on a contract at common law?


Frustration automatically discharges both parties from performance of their future obligations
under the contract. It may therefore operate to excuse a breach of contract.

How do courts decide whether frustration has occurred?


Nowadays the courts adopt a construction approach, i.e. they first assess the terms of the contract as a whole and then assess the
effect the extraneous events, which have occurred, have upon the nature and terms of that contract. "...the circumstances in which
performance is called for would render it a thing radically different from that which was undertaken by the contract" (Lord
Radcliffe in Davis Contractors). This position on juridical basis was also reaffirmed in Great Peace Shipping

Name the three basic frustratory events.


Impossibility, Illegality and Destruction of the common purpose (foundation of the contract) for both parties.

There are problems in establishing this as a case of frustration it is not clear that this is a supervening event which prevents
performance or whether the group has simply become unpopular and thus unsaleable to concert goers (and, if unpopular, whether
Magic has caused the unpopularity).

Consider the circumstances when it not possible to rely on the frustration doctrine despite the fact that it appears that a frustratory
event has occurred

(a) If the event in question is one which is attributable to the fault (or choice) of one of the parties (self-induced frustration) - since
frustration depends upon there being an event which is outside the control of both parties.
(b) If the contract has expressly allocated this risk by providing for what is to happen in the event of this occurring (express
provision).
(c) If one party foresaw or should have foreseen the event and failed to provide for it (it is at his risk). It is not, however, clear
what the position is if both parties foresaw or should have foreseen the event and failed to cover it. The House of Lords in Davis
Contractors was of the opinion that this would prevent reliance on the frustration doctrine.

Consider what relief is available to Nonentity in relation to frustration. A good answer would
compare this to the damages available for a breach of contract. In the event that the contract has become frustrated, it is necessary
to apply the provisions of the Law Reform (Frustrated Contracts) Act 1943 and the interpretative criteria set out in Gamerco v
ICM.
i.e
Under the Act, any money paid before the frustrating event can be recovered, and any money which would have been payable
before the frustrating event, ceases to be payable after frustration: s 1.(2)

Nonentity has conferred a monetary benefit upon Magic, but has Nonentity received a practical benefit as a result of their increase
in business brought about by their increased reputation resulting from their contract with Magic?
University of London Past Paper 2007

In January, Nicola decides to convert her garage into an office and rent it out at a fee of 2,000 a month. She employs Paul
to build the office at a price of 50,000, which she pays immediately. Paul promises to finish the building by the end of
March. Nicola then contracts with Roger to rent him the office from the 1st April. She also pays Intercom Ltd for a years
internet subscription for the office to start on the 1st April.

At the end of February, Paul approaches Nicola and demands a further 5,000 to pay his employees, who are threatening
to go on strike due to poor pay and working conditions. Nicola reluctantly pays by the end of March, the work is still not
complete. She is forced to cancel her contract with Roger, who threatens to sue her for breach of contract, and finds that
she is bound by her contract with Intercom. Under stress, she collapses while driving and crashes her car. Although Paul
finally completed the work on 1st May, the local authority has recently required that the garage be completely
demolished. ..... Advise Nicola.

This question raised issues of contractual performance and breach.

In addition, Paul has exerted duress upon Nicola to pay more money for the same performance. She needs to act to set aside this
agreement (North Ocean Shipping v Hyundai). Nicola has a right to sue Paul for his breach of the original contract. Can Roger
terminate his contract with her? If he can, can Nicola recover damages from Paul for this loss? Is Paul also liable for the sums paid
to Intercom?

The situation is made more complicated by the order of the local council. This order gives rise to the problem that the contract
may be discharged by frustration and the liabilities of the parties determined not by damages but by the Law Reform (Frustrated
Contracts) Act 1943 and the case law interpreting its provisions.

What is the general effect of frustration on a contract at common law?


Frustration automatically discharges both parties from performance of their future obligations
under the contract. It may therefore operate to excuse a breach of contract.

How do courts decide whether frustration has occurred?


Nowadays the courts adopt a construction approach, i.e. they first assess the terms of the contract as a whole and then assess the
effect the extraneous events, which have occurred, have upon the nature and terms of that contract. "...the circumstances in which
performance is called for would render it a thing radically different from that which was undertaken by the contract" (Lord
Radcliffe in Davis Contractors). This position on juridical basis was also reaffirmed in Great Peace Shipping

Name the three basic frustratory events.


Impossibility, Illegality and Destruction of the common purpose (foundation of the contract) for both parties.

Under the Act, any money paid before the frustrating event can be recovered, and any money which would have been payable
before the frustrating event, ceases to be payable after frustration: s 1.(2)

However, where the party to whom the money was paid or payable has incurred expenses as a result of the contract before the
frustration occurred, the court can order that these expenses, or part of them, can be kept back from the money recovered, or
claimed for the other party, but only where the contract made provision for advance payment. Expenses may include overheads
and the cost of work done.

Gamerco v ICM/Fair Warning Garland J should also be discussed.


It confirms the courts discretion when determining whether to allow retention of expenses out of any advance payment under
s.1(2). The judge rejected suggested approaches of allowing total retention and equal division (apportioning loss) in favour of a
broad discretion approach i.e. look at all the circumstances and losses of both parties and use this information to determine
whether it was just for the recipient of the advance payment to keep all or any of the advance to cover expenses. On the facts not
allowed anything for expenses.
University of London Revision Question

Bernard is the owner of a mansion called Stately Grange, which contains a collection of 50
valuable oil paintings. Bernard contracts with Artistic Cleaners Ltd to have all the paintings cleaned and re-hung, at a cost
of 200 per painting. He pays Artistic Cleaners 2,000 in advance, with the balance of 8,000 to be paid when all the
pictures have been cleaned and re-hung.

There is a stable yard in the grounds of Stately Grange from which Bernard runs pony trekking holidays. Christine books
a weeks holiday for herself and her five children for the week 815 August. She pays a deposit of 150 with the balance of
850 to be paid at the start of the holiday.

Consider the effect of the following events on these contracts.


a On 6 August Artistic Cleaners Ltd have cleaned and re-hung 40 of the paintings. Of the remaining 10, five have been
cleaned but remain at Artistic Cleaners workshop. The other five are still at the Grange. That evening Stately Grange is
badly damaged by fire and all the paintings in the Grange are destroyed.
b The fire means that Christines holiday party will not be able to be accommodated in the Grange, as was planned, but
will have to use tents in the grounds. In addition an outbreak of foot-and-mouth disease on a neighbouring farm means
that riding will be restricted to the Granges own grounds, rather than including tours of the very attractive local
countryside. On learning of this Christine seeks to cancel the holiday and reclaim her deposit.

While there is some overlap in between the two sections of this problem, the facts and the issues involved are sufficiently separate
for you to deal with each independently.

Has the contract with Artistic Cleaners been frustrated? Clearly it cannot be completed, as
five of the pictures concerned have not been cleaned and have now been destroyed. Full performance is therefore impossible and
this suggests that the contract is frustrated. On the other hand, you might also wish to consider the possibility that this contract is
divisible into a series of separate obligations, since the price seems to have been calculated at a rate per painting (see, for example,
the discussion of entire obligations and substantial performance).

On this basis might it be possible to argue that it is only as regards the final five paintings that the contract is frustrated, so that
Bernard is obliged to pay for the work that has already been done?

What is the general effect of frustration on a contract at common law?


Frustration automatically discharges both parties from performance of their future obligations under the contract. It may therefore
operate to excuse a breach of contract.
How do courts decide whether frustration has occurred?
Nowadays the courts adopt a construction approach, i.e. they first assess the terms of the contract as a whole and then assess the
effect the extraneous events, which have occurred, have upon the nature and terms of that contract. "...the circumstances in which
performance is called for would render it a thing radically different from that which was undertaken by the contract" (Lord
Radcliffe in Davis Contractors). This position on juridical basis was also reaffirmed in Great Peace Shipping

Name the three basic frustratory events.


Impossibility, Illegality and Destruction of the common purpose (foundation of the contract) for both parties.

If the contract is frustrated, the 1943 Act will apply. Under s.1(2)
(a) Advance payments made before frustration are recoverable.
(b) Any payment which should have been made before frustration ceases to be payable. (Compare with Chandler v Webster).
(c) BUT the court MAY allow the recipient of the advance payment to retain a sum to cover his expenses (as the court decides) up
to the maximum of the advance payment.

Bernard could reclaim the 2,000 he has paid. Artistic Cleaners would wish to set off their expenses, but this will only allow them,
at a maximum, to retain the 2,000.

If they wish to recover for the work done on the 45 paintings which they have dealt with the claim will have to be based in s.1(3).

s.1(3) operates to prevent unjust enrichment by requiring a party who has received a benefit for which he has not paid, to
compensate the other party for that benefit based on the value of the benefit to the recipient of it (and no more). This is intended to
prevent the recipient from being unjustly enriched at the expense of the performing party. N.B. No unjust enrichment if the end
product of the benefit is not there because it has been destroyed by the frustrating event.
Explain how the courts would assess the just sum to award under s.1(3) of the Act.
The case authority on this is the decision of Robert Goff J in BP v Hunt
(a) Identify the benefit (as end product of services and not the services themselves) and value that end product benefit to the party
receiving it after having taken account of any monies already paid for that benefit and the effect of the frustration on the benefit. If
the end product is destroyed by the frustration them the award must be nil.

(b) Ascertain the just sum to award by fixing a reasonable value to award the party conferring the benefit and award that sum (up
to the maximum of the value of the end product to the party receiving it).

The difficulty is that Appleby v Myers and BP Exploration v Hunt suggest that Bernard has not received any valuable benefit,
other than in relation to the five paintings in Artistic Cleaners workshop. At the contractual rate of 200 per painting this only
entitles Artistic Cleaners to 1,000 as a maximum that is, less than the 2,000 they have already received. It seems unlikely,
therefore, that if the contract is frustrated, Artistic Cleaners will be able to do more than retain the 2,000 and even this is at the
discretion of the court.

b Again, the first question is to ask whether the contract for the holiday has been frustrated?
Clearly it has not been rendered impossible. Christine and her family can still stay at the Grange (albeit camping rather than living
in the house itself) and can still spend the week riding ponies. Do the changes and restrictions mean that the holiday is radically
different
from what had been contracted for? This will depend to some extent on what exactly was
promised in the contract, and how important a part of that contract the elements which have changed were. In the end, however, it
is a matter of judgment, which can be argued either way.

If the contract is frustrated, again the 1943 Act will apply. Christine will be entitled under s.1(2) to reclaim the 150 she has paid,
subject to the deduction of expenses by Bernard (to the extent considered just by a court). She will not be liable to pay any of the
balance.

Under the Act, any money paid before the frustrating event can be recovered, and any money which would have been payable
before the frustrating event, ceases to be payable after frustration: s 1.(2)

However, where the party to whom the money was paid or payable has incurred expenses as a result of the contract before the
frustration occurred, the court can order that these expenses, or part of them, can be kept back from the money recovered, or
claimed for the other party, but only where the contract made provision for advance payment. Expenses may include overheads
and the cost of work done.

Discuss Gamerco v ICM/Fair Warning Garland J


It confirms the courts discretion when determining whether to allow retention of expenses out of any advance payment under
s.1(2). The judge rejected suggested approaches of allowing total retention and equal division (apportioning loss) in favour of a
broad discretion approach i.e. look at all the circumstances and losses of both parties and use this information to determine
whether it was just for the recipient of the advance payment to keep all or any of the advance to cover expenses. On the facts not
allowed anything for expenses.

Section 1(3) does not seem to have any role to play in this part of the problem. If the contract has not been frustrated, then
Christines remedies, if any, will depend on whether Bernard is in breach of contract and the seriousness of the breach.
Question 6......... University of London Revision Question 2010
Hotdog contracts with Ivor to hire him his reception suite and to provide the catering for 200 guests for the wedding of
Ivor's daughter Judy to Keith, which is to be held on the afternoon of 1st May. Ivor makes a pre-payment of 2000 and
agrees to pay the balance of 5000 on the morning of the wedding. On 25th April, by which time Hotdog has made the
wedding cake and procured supplies of champagne, but has not prepared any of the food for the reception, Keith is very
seriously injured in a road accident and admitted to hospital, where he lies in a coma. Ivor telephones this news to Hotdog
on the same day and tells him that the wedding is off. Hotdog replies: That's your business: you are paying me to put on a
reception and so far as I'm concerned the show goes on. Hotdog prepares the food and makes all the other arrangements
for the reception, but no guests come. (a) Is Ivor entitled to the return of the 2,000, or any other sum? (b) Is Hotdog
entitled to claim the 5,000, or any other sum?

Pointers for no.6......... You are asked to look at this contract from the point of view of (a) Ivor and (b) Hotdog, but both need to
know whether the contract has been frustrated (assuming the contract does not allocate the risk of this eventuality, expressly or
impliedly, which in practice it would probably do).
If it has been frustrated, you will need to apply the Law Reform (Frustrated Contracts) Act 1943 to sort out whether Ivor can seek
repayment of the 2,000 already paid and whether Hotdog can recover anything for the work he has done.
If on the other hand it hasnt been frustrated, you will need to consider whether Hotdog can claim the 5,000 having fully
performed his side of the bargain, even though Ivor had purported to cancel the contract.
So the crucial issue is whether the contract has been frustrated in the first place. Notice that the injured groom is not one of the
contracting parties, so there is no question of the injury in itself frustrating the contract.
Notice too that it is a contract to provide a venue and food - so performing the contract has not become impossible or even more
onerous or difficult, it is just that the underlying contractual assumption / context has changed. In this respect the fact pattern is
very similar to Krell v Henry, but remember how exceptional, indeed unique, that case was. The usual result is the counter-
example given in the case about the Epsom Derby and this case is much closer to the Epsom Derby fact pattern, because Hotdog is
in business hiring out his hall and providing catering (unlike the claimant in Krell v Henry). So the contract probably isnt
frustrated by the cancellation of the wedding; however, for the purpose of answering the problem fully, you need to explore what
would happen if it was.
This means systematically applying s.1(2) and 1(3) of the Law Reform (Frustrated Contracts) Act. Ivor has a right to claim his
2,000 back, subject to the courts discretion to allow Hotdog to keep some or all of it to cover expenses incurred before the
frustrating event. More difficult is applying s.1(3) - has Ivor incurred a valuable benefit by anything Hotdog has done? Why does
the statute not allow Hotdog any reimbursement unless Ivor has benefitted from his efforts before the frustrating event?
University of London Revision Question 2009
Question
Larry agrees to ride Speed Ltd's bike in the Tour de France in return for a sponsorship fee of 10,000 to be paid in
advance. Speed spent 5,000 designing and building Larry's bike. The Tour is cancelled when yet another cyclist tests
positive for performance enhancing drugs and Larry has only been paid 5,000 of the sponsorship fee.
Advise both parties.

Structure for no.7.....................Would your advice be any different if Larry had been the cyclist who had tested positive for drugs?
What if the Tour was not cancelled but Speed had sponsored five cyclists and, because lightning had hit their manufacturing plant,
they could only supply bikes to four of their riders, and because Larry was the least likely to win the Tour, they refused to provide
him with a bike?

Paragraph 1 - Frustrating event


Performance of Larry's obligation to ride in the Tour de France has become impossible because the Tour has been cancelled.
Performance was possible at the time of the contract because the Tour had not been cancelled at that stage and so this is not a
mistake case.

Paragraph 2 - Consequences of frustration


s.1(2) Law Reform (Frustrated Contracts) Act 1934 provides that sums paid are recoverable and sums to be paid no longer have
to be paid - therefore Speed Ltd. may recover the 5,000 paid to Larry and are released from their obligation to pay a further
5,000.
This is subject to the court's discretion to allow for any expenses incurred by Larry. However, there are no such expenses (the
expenses in this case are incurred by the payor, Speed Ltd) and so the court has no discretion to interfere with the repayment of
5,000 and release of Speed's obligation to pay a further 5,000.
Larry had not received any benefit (other than money) under the contract at the time of discharge and so there can be no award
under s.1(3) of the Act.

Paragraph 3 - Alternative 1
If Larry had tested positive for drugs then Speed Ltd. could argue that Larry is not entitled to rely upon frustration to release him
from his obligation to ride on the tour.
The burden of proving that the frustrating event (cancellation of the Tour) was caused by Larry is on Speed Ltd.(Joseph
Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd).
If the contract continues then Larry will be liable for breach of contract as he will be unable to compete in the Tour and will have
to compensate Speed Ltd. by paying damages. You may briefly whether the difficulty of proving expectation damages (lost
exposure, potential profits?) would allow Speed Ltd. to claim its reliance loss instead; i.e. the money spent on designing and
building Larry's bike (see Anglia Television Ltd v Reed).

Paragraph 4 - Alternative 2
Speed Ltd are compelled to 'frustrate' one of their rider contracts because they do not have enough bikes for each rider. The
situation is therefore different from Maritime National Fish Ltd v Ocean Trawlers Ltd where it was possible to allocate one of the
three licences and allow the contract to continue.
Following the Super Servant Two case, Speed Ltd will not be able to rely upon frustration of the contract because they self-
induced the frustrating event by choosing not to provide Larry with a bike. However, you could question whether the bikes had
been set aside for a particular rider or whether Speed Ltd was permitted to supply any bike from a pool of five.
If each bike was made for a particular rider and Speed Ltd were obliged to provide only that bike then the contract with Larry
would be frustrated if the lightning had destroyed Larry's bike; it would then probably be impossible for Speed Ltd. to perform the
contract (assuming another bike could not be made in time).

Further issues for consideration are...... Would your advice be any different if Larry had been the cyclist who had tested positive
for drugs? What if the Tour was not cancelled but Speed had sponsored five cyclists and, because lightning had hit
their manufacturing plant, they could only supply bikes to four of their riders, and because Larry was the least likely to win the
Tour, they refused to provide him with a bike?
Question 8..........University of London past paper 2015......... " In November 2014, Lottie booked a holiday to do a bungee
jump and sports based adventure in March 2015. The cost of the holiday was 1100. Lottie paid 100 deposit with the
remaining 1000 to be paid in two installments; 500 on 28 February, one month before the holiday and 500 upon
arrival. On 21 February, one month before the holiday, Lottie discovers that the bungee jump has been cancelled and so
Lottie calls to cancel the holiday. The Adventure Centre tell Lottie that there are still all the other activities available and
they will keep her place open and expect full payment. Lottie is very annoyed but, on reflection, she decides she will go.
She makes the payment of 500 on 28 February.
On 26 March, two days before Lottie's holiday is due to start, the Adventure Centre is hit by food poisoning and is closed
for inspection. It is discovered that the poisoning is due to contaminated milk being sent from the manufacturer and used
in the puddings.
Advise Lottie on any claims.