Doctrine of Impossibility in Contracts

Published Date: 13 Sep 2016 Last Modified: 15 Jan 2018

Introduction

This essay will consist in an attempt to analyse the doctrine of impossibility and its operation in relation to contracts. It will look closely at both the concept of initial impossibility arising from a common mistake on the part of both parties as to the state of things before the contract was agreed and the concept of subsequent impossibility and frustration. The latter deals with a situation whether the parties enter into agreement on terms both express and implied and then a supervening event renders the performance of that agreement radically different from that which was envisaged by both parties at the outset. These themes will be discussed in greater detail in the first section and will run throughout the work. The essay will examine the concept of objective and subjective impossibility, and the rules relating to discharge of contractual obligations and allocation of risk. It will look at the situation when either the subject matter or a thing essential for performance is destroyed or unavailable, either partially or completely. It will then look at how the death or supervening incapacity of a party will affect a personal contract. Towards the latter part of the essay, it will discuss the problems that arise when a method of performance becomes impossible or a particular source becomes unavailable. It will conclude by looking at the effect of delay and temporary impossibility on a contract.

The concept of impossibility

The concept of impossibility in contract law can be split into two distinct categories. There are the cases where the parties never actually reach a true agreement because they are mistaken as to some element of the contract before the contract is concluded and the cases where the contract becomes impossible to perform subsequent to the agreement having been reached. Generally speaking, in the first instance, the contract is void ab initio and in the second, an otherwise valid contract is brought to an end from the point when the impossibility arises. A basic example to illustrate the difference would be a contract for the sale of a car. If unknown to the parties, the car had blown up 5 minutes before the contract was signed the contract would be void ab initio, whereas if the car blew up 5 minutes after the contract was signed, the contract would be valid, but brought to an end by the fact that its subject matter no longer existed. Essentially the courts are implying into the contract a condition precedent that the subject matter exists and is capable of transfer. This concept of implied condition precedent has been regarded with considerable scepticism among commentators in light of the traditional common law view that the courts should neither make nor amend a bargain.

The main problem arises when dealing with the first type of impossibility. It is not always entirely clear how the courts will formulate the implied condition precedent. Smith and Thomas suggest three possibilities:

1. A impliedly promised B that the thing existed.
2. A impliedly promised B that he had taken reasonable care to ascertain that the thing existed.
3. A and B proceeded on the common assumption, for which neither was more responsible than the other, that the thing existed and its existence was a condition precedent of the contract.^[1]

Which of these options it will be, depends largely on the relative means of knowledge of the parties and whether one is relying on the other. This will be discussed at length through the course of the work.

It also may be that on proper construction of the contract either, or both of the parties have made absolute promises. In that event, the courts will not excuse non-performance for either type of impossibility. There are also cases where the contract has not become entirely physically or legally impossible, but an event has occurred which “strikes at the base of the contract so as to frustrate its purpose.”^[2] This is commonly referred to as frustration and it operates as a form of subsequent impossibility.

Objective and Subjective Impossibility

The contract will have to be objectively impossible to perform before it is held to be void. The case of Thornborow v Whitacre (1705) 2 Ld Raym 1164 held that a party cannot escape liability on the grounds of impossibility purely relating to his individual ability or circumstances. Neither will he be discharged from his obligations simply because he finds the contract particularly difficult or onerous to perform:

“It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play”^[3]

Subsequent impossibility will similarly not excuse the parties from performance if it was brought about by the conduct of one of the parties. The case of Southern Foundries (1926) Ltd v Shirlaw ^{[1940] AC 701} held at 717 per Lord Atkin:

“…conduct of either promisor or promisee which can be said to amount to himself of his own motion, bringing about the impossibility of performance is in itself a breach.”

Clearly, any impossibility that can be attributed to either party will be considered a breach of contract and the defaulting party will become liable in damages in the usual way. Where the impossibility brought about by one of the parties existed at the time of the contract he is likely to be held to have warranted possible performance of the contract and held to be in breach of that warranty.

As discussed above it is sometimes possible for the courts to hold that a party made an absolute promise and therefore accepted the risk of the fact that the contract might be impossible to perform. Whether a contract is considered to be absolute will be a matter of objective construction of the terms of the contract. If the contract is held to be absolute, the party will be held to his performance whether or not the impossibility is his fault or not. In the case Paradine v Jane (1647) Aleyn 26 a lessee was held liable to pay rent even though he had been evicted from the property by armed forces during the civil war. A lease is a type of contract that is commonly regarded as being objectively absolute without reference to the subjective intentions of the parties.

Overall the contract must be objectively impossible to perform, the subjective views of the parties as to their circumstances and their personal ability to perform the contract will not usually be taken into account. Similarly, if a party is active in bringing about the impossibility the contract will not be seen as objectively impossible, but as having been breached. Conversely, some contracts will be held to be objectively absolute and the subjective intentions of the parties in forming the contract and their level of fault in bringing about the impossibility of performance will not be relevant.

Destruction of the Subject Matter

In the case of Taylor v Caldwell (1863) 3 B & S 826 the claimants granted the defendants the use of a music hall and gardens for a series of music concerts. After the contract had been concluded, but before the concerts had begun the music hall was destroyed by fire and the concerts could no longer be held there. The claimants argued that the defendants were in breach of the contract for failing to provide the music hall and sought to recover £58, which they had spent on advertising the concerts. The courts however held that the contract had become impossible to perform and was therefore frustrated. Both parties were therefore released from their obligations under the contract. In coming to this conclusion Blackburn J referred to the dicta of Pothier[4] stating that:

“The debtor is freed from obligation when the ting has perished, neither by his act nor his neglect and before he is in default, unless by some stipulation he has taken on himself the risk of the particular misfortune which has occurred.”

He recognises that the civil law is not binding on English Courts, but states that it is a useful indicator of the principles on which the law is grounded.

Blackburn J also refers to a line of authority involving bailment. For example the case of Williams v Lloyd W.Jones 179 the claimant had delivered a horse to the defendant on the condition that it be returned on request. Without fault on the part of the defendant, the horse became sick and died and was therefore not able to be returned on the request of the claimant. It was held that bailee was discharged from his promise by the fact that the horse had died. Blackburn J stated that it was a settled principle of English law that in contracts for loans of chattels or bailments, if the promise of the bailee or borrower to return the goods becomes impossible because the goods have perished through no fault of his own, the bailee is excused from this promise. It is noted that in none of the cases relating to bailment was it expressly agreed that the destruction of the subject matter would release either party from their obligation, “the excuse is by law implied” ^[5]

This principle established in Taylor and subsequent cases^[6] is now contained in section 7 of the Sale of Goods Act 1979

“Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.”

Partial Destruction of the Subject Matter

It is interesting to note that the contract in Taylor was for the use of ‘Surrey Music Hall and Gardens’. It was therefore only part of the subject matter that was destroyed by the fire; the gardens were still in tact. However, it was held that the destruction of the music hall rendered performance of the contract impossible. This implies that when part of the subject matter is destroyed the courts will investigate the purpose of the contract. If the part that is destroyed renders that purpose impossible the contract will be held to have been frustrated by its destruction.

Discharge and Rules Governing Risk

As discussed above a contract, which is the subject of a mistake made by both parties prior to its formation that makes performance impossible, will be void ab initio. This is not the case if the impossibility arises after the formation of the contract, i.e. the contract is frustrated. In that event, the contract is said to be discharged from the time when the frustrating event arose. The parties are discharged from any future performance without having to elect that that will be the case.^[7] Where the core of the contract is the happening of some future event and that event is cancelled the time of frustration will be the time when the cancellation is announced. In the case of Krell v Henry [1903] 2 KB 740 the defendant hired a flat on Pall Mall to watch the coronation procession of Edward VII, though this purpose was not expressed in the contract. The procession was cancelled before the formation of the contract, but the announcement was not made until after the contract had been agreed.

If the contract is severable, it may be that only part of the contract is frustrated and the other parts remain in force. It seems that even when an entire contract of sale is held to be discharged because it has become impossible to deliver some of the goods, the buyer can ‘waive’ this and demand delivery of the rest of the goods. This was the case in HR & S Sainsbury Ltd v Street ^{[1972] 3 All ER 1127}. Supervening events may also make the suspend the contract without actually discharging it.[8] Temporary impossibility will be discussed in greater detail in a later section. Furthermore, illegality may frustrate a minor obligation without discharging the entire contract. The implications of things like this for a potential doctrine of partial frustration will also be discussed later.

The essay will now go on to look at who should bear the risk and hence the loss of a frustrating event. For a long time it was thought that the losses resulting from the frustration of a contract should lie where they fell. This led to the conclusion that any money paid before the frustrating event occurred was irrecoverable and conversely any money already due under the contract for services provided was enforceable. In the case of Chandler v Webster ^{[1904] 1 KB 493}, CA, a room was hired to view the coronation procession, the price being payable immediately. When the procession was cancelled, £100 had been paid on account. It was held that the contract was frustrated thereby releasing the parties from further performance, but leaving promises performable before the frustrating event still standing. On the other side a party who had only partially performed the contract could not recover anything for his services even when he had conferred a benefit on the other side.[9] It is possible however that a party who, after a frustrating event, takes reasonable steps to protect the other party’s interest will be entitled to recover remuneration for his expenditure on a restitutionary quantum meruit basis. This was the case in Société Franco-Tunisienne d'Armement v Sidermar SpA ^{[1961] 2 QB 278}[10].

Until 1942 it was also considered that there could be no recovery for total failure of consideration. This was on the basis that up until the point of frustration the party who had paid any money had the benefit of a executory contractual promise and that was consideration enough^[11]. However, in the case of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd ^{[1943] AC 32} the House of Lords held that a party could recover where there had been a total failure of consideration. This was an improvement on the Chandler position discussed above, but two principle defects in the law remained. The first was that the principle only applied when there was a total failure of consideration; where there was a partial failure the claimant could not recover anything.[12] The second defect was that the payee could not set off any expenditure that he had incurred in the performance of his side of the contract. These defects were rectified by section 1(2) of the Law Reform (Frustrated Contracts) Act 1943. The subsection states:

“All sums paid or payable to any party in pursuance of the contract before the time when the parties were so discharged (in this Act referred to as “the time of discharge”) shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be so payable:

Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.”

This deals with the defects in the common law by stating that monies paid before the frustrating event are recoverable, sums payable prior to the time of discharge cease to be payable and the payee is entitled to set off expenses reasonably incurred in their performance of the contract. Goff and Jones note that whilst the Act does deal in outline with the deficiencies of the common law it does not completely resolve the issues.^[13] For example, the Act does not say what principles the court ought to employ to decide how much the payee is entitled to set off. In the case Gamerco SA v ICM/Fair Warning Agency Ltd [1995] 1 WLR 1226 Garland J felt that the court’s task was to:

“…do justice in a situation which the parties had neither contemplated nor provided for, and to mitigate the possible harshness of allowing all loss to lie where it has fallen.”

Section 1(2) does permit the payee to recover or retain more than he has been paid up to the tine of frustration. I.e. for expenses incurred in expectation of future payment. They may be able to recover such expenditure under section 1(3), which takes effect when one party has conferred a valuable benefit on the other party (other than money) before the time of discharge. In that event, he will be able to recover a just sum, which shall not exceed the value of the benefit conferred.

Robert Goff J held in the case of BP v Hunt [1979] 1 WLR 783 that there were two steps to assessing a claim under section 1(3), the first was identifying and valuing the benefit conferred. Goff J held that usually the benefit would be the end product of any services. In some contracts the services were the end product themselves, for example, a contract for the transportation of goods. He held that if the end product is destroyed by the frustrating event then no benefit is conferred because the other party does not have the product either. This interpretation has been heavily criticised as failing to give effect to the intention of the Act.^[14] This section of the Act was intended to mitigate against the harsh consequences of the common law rule of ‘entire obligations’. In the case of Appleby and Myers (1876) LR 2 CP 651 the claimants contracted to make machinery in the defendants factory and to maintain the machinery for two years. Payment was upon completion of the work. After part of the machinery had been erected, a fire destroyed the whole factory and all the machinery. The claimants could not recover anything, as they had not completed the work. Goff J’s interpretation of section 1(3) would lead to the same result. However, this interpretation has also been adopted in the Commonwealth^[15]. It does appear to accord closely with the wording of section 1(3), which draws a distinction between the performance by on party and the benefit conferred on the other. This implies that the claimant must actually have received the benefit of any performance on the part of the defendant before the defendant can recover or retain any money.

The second step Goff J laid down was the measurement of a ‘just sum’. Contractual allocation of risk will of course be a factor. Goff J thought that it ought to be as much as is necessary to prevent the unjust enrichment of the other party. This approach was rejected by the Court of Appeal in the same case, who simply held that it was in the almost unrestricted discretion of the trial judge. In conclusion, the Act is sadly deficient in its guidance as to the allocation of risk and loss between the parties to a contract that has been discharged for frustration.

It is possible for the parties to allocate the risks contractually. This is one of the main reasons that the courts have kept a tight reign on the doctrine of frustration. Parties are expected to be able to foresee the possibility of dramatic price increases and the outbreak of labour disputes etc. Contracts therefore regularly include clauses which allocate the risk of such an unforeseen event occurring. One common example is a ‘force majeure clause’. In the case of Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323 the relevant clause stated:

“A party shall not be liable in the event of non-fulfilment of any obligation arising under this contract by reason of Act of God, disease, strikes, Lock-Outs, fire and any accident or incident of any nature beyond the control of the relevant party.”

The advantages of such clauses are that they provide a degree of certainty and the parties can agree to a wider range of circumstances than are currently available under the doctrine of frustration. For example, an unexpected increase in prices is not considered to be a frustrating event,^[16] but it is common in a commercial contract to see a force majeur clause containing provision for ‘abnormal increase in prices and wages.’ It also allows the parties to determine their future relationship. The frustration doctrine discharges the contract regardless of the wishes of the parties, but they can provide for a continuing, adapted relationship if they so wish.

Unavailability of the Subject Matter

Where both parties are mistaken as to the availability of the subject matter at the time of the contract, this may be sufficiently fundamental to avoid the contract. The leading case on this issue is that of Courturier v Hastie (1856) 5 HLC 637 in which the parties entered into a contract for the sale of a cargo of corn, which was believed to be in transit from Salonica to England. Unknown to both the parties, the corn’s quality had deteriorated to such an extent that the master had sold it. The House of Lords held that the matter turned on the construction of the contract concluding that:

“The contract plainly imports that there was something which was to be sold at the time of the contract, and something to be purchased, no such thing existing,… judgment should be given for the defendants.”^[17]

The exact legal basis for importing this term has been the subject of some debate among commentators and will be discussed briefly now. The draftsmen of section 6 of the Sale of Goods Act 1979 appear to have interpreted the decision as stating that a mistake as to the existence of the subject matter of the contract inevitably renders it void:

6 Goods which have perished

Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void.

The court in Couturier did not however mention the word mistake; they based their reasoning on the construction of the contract and the fact that there was a total failure of consideration on the part of the sellers.

Lord Denning applied a different interpretation in the case of Solle v Butcher [1950] 1 KB 671 at 691 in which he held that there was an implied condition precedent that the contract was capable of performance. He reasoned that in Couturier the parties had proceeded on the assumption that the goods were capable of being sold, when in fact they were no longer available for sale. Lord Denning’s interpretation does seem to give effect to the most likely intention of the parties. However, in the absence of a clear intention to release each other from the agreement if the subject matter is not available, it is not clear when Lord Denning is suggesting a term of this nature should be implied into the contract.

The third interpretation is that whether or not the contract will be void, depends on the its construction. This was the interpretation put on Couturier by the High Court of Australia in the case of McRae v Commonwealth Disposals Commission 84 C.L.R. 377. The defendants invited tenders for the purchase of an oil tanker described as lying on the Jourmand Reef off Papua, together with its contents, which were stated to be oil. The Claimants won the tender and spent a considerable amount of money modifying a vessel for the salvage work. In a bizarre turn of events it was later discovered that no such tanker had ever existed. The court held that:

“The only proper construction of the contract is that it included a promise by the commission that there was a tanker in the position specified.”

On that construction the Commission had assumed the risk of the tanker not existing. They distinguished Couturier, holding that this was not a case in which both parties had entered the contract on a common assumption. The Commission had assumed the existence of the tanker, but the buyers had only relied on their assertion. In policy terms there can be little doubt that the approach taken in McRae is a sound one and one which ought to be followed by the English courts, but its is somewhat difficult to reconcile with section 6 of the Sale of Goods Act. There is the possible argument that McRae does not fall under section 6 because the tanker had never existed and therefore could not have ‘perished’. This distinction does seem somewhat artificial and not within the intention of the court in McRae.

If the subject matter becomes unavailable after the contract has been concluded this may also render the contract frustrated for impossibility. For example in the case of Bank Line Ltd v Arthur Capel & Co [1919] AC 435 a charterparty was held to be frustrated when the ship was requisitioned and so unavailable to the charterer. Temporary unavailability may also suffice, but this will be discussed later.

Destruction or Unavailability of a Thing Essential for Performance

Lord Atkin in the case of Bell v Lever Brothers Ltd [[1932] A.C. 161, discussed the circumstances in which one might wish to imply a condition into the contract. He states that a condition derives its efficacy from the consent of the parties, express or implied. He supposes a possible term:

“Unless the facts are or are not of a particular nature, or unless an event has or has not happened, the contract is not to take effect.”

If there are express words in the contract such as ‘a foundation essential to the existence’, there need not be any further enquiry, but when there are no such words the court must investigate the circumstances of the agreement to see whether any such condition can be implied. Lord Atkin uses the example of the hire of a professional vocalist whose continued health would be essential to the performance of the contract.

The case of Krell v Henry [1903] 2 KB 740 has been discussed earlier. For present purposes it can be described in the following terms: The contract was for the hire of a room on Pall Mall to watch the coronation procession of Edward VII. The subject matter of the contract was the room and that was still in tact. However, the purpose of the contract was to watch the procession and without the procession the contract was not capable of full performance. Vaughn Williams LJ refers in his judgment to the case of Nickoll v Ashton [1901] 2 K.B, which is authority for the proposition:

“ English Law applies the principle not only to cases where performance of the contract becomes impossible by the cessation of existence of the thing which is the subject matter of the contract, but also to cases where the event which renders the contract incapable of performance is the cessation or non existence of an express condition the continued existence of which is necessary for the fulfilment of the contract, and essential to its performance.”

This concept was extended in Krell to include a situation in which that particular set of circumstances (the viewing of the coronation) was not expressly mentioned in the contract. The contract in Krell was, however a strange one; the room was only hired out by the day, not the night, and the purpose for the contract on both sides was the viewing of the coronation. It is clear that the particular set of circumstances must have been in the contemplation of the parties and one that they both realised was necessary for the full performance of the contract. There is some dispute surrounding the Krell case. Cheshire and Fifoot point out that the cancellation was probably not in the contemplation of the parties, but with regard to the proposition that the buyer should be discharged from his obligation to pay on cancellation:

“It is incompatible with the character of a hard bargainer to say that the owner of the room would have agreed to this proposal if it had been put to him during negotiations.”^[18]

It is more likely that the owner would have told the hirer that that was a risk he would have to take. It seems somewhat unreasonable to import to the seller a state of mind which he may well not have been in had he thought about it. McElroy and Williams, on the other hand say that the contract was impliedly for the hire of “rooms to view the procession”, the fact that there was no procession therefore amounted to a complete failure of consideration on the part of the owner of the rooms, discharging the hirer from his obligation to pay.^[19]

The circumstances in which Krell will apply are extremely limited. The set of circumstances, which the parties assume to be continuing, must be the common foundation of the contract. In the case of Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 the claimant hired a ship from the defendant to watch the naval review and for a day’s cruise around the fleet. After the contract, the naval review was cancelled owing to the same illness of Edward VII, but the contract was held not to have been frustrated. This is thought to be because the hirer could still see the fleet and the boat had not been hired out by the owner for the specific purpose of seeing the Naval Review. This meant that seeing the Naval Review was not the common purpose of the contract and its cancellation was not therefore a frustrating event. Thus interpreted, Krell can be seen as a very narrow decision and as indeed been distinguished in more recent cases.^[20]

The Death of a Person Essential to Performance

In the case of Galloway v Galloway (1914) 30 TLR 531 the defendant thought that his first wife had died and married the claimant. The defendant and claimant subsequently separated and entered into a deed of separation under which the defendant agreed to pay the claimant a weekly sum in maintenance. The defendant then discovered that his first wife was actually alive and stopped paying the maintenance payments to his second wife. When she sued for recovery of the arrears, it was held that she could not do so as the settlement agreement had been entered into under the common mistake that she had been married to the defendant, when in fact she could not have legally been.

Effect of Death on a Personal Contract

Under general contract law, the death of a party will have no effect whatsoever on the contract or any of the rights accrued under it.^[21] The personal representatives of the deceased person are bound to complete performance on his behalf, insofar as the estate allows^[22] and they may sue for the return side of the agreement. This is not the case when personal relations are the foundation of the contract. In that event, the death of one or other of the parties, the contract is prima facie discharged.

Importantly, the Law Reform (Frustrated Contracts) Act 1943 will apply in some situations. Where part of the contract can be severed and those parts of the contract had been performed before the contract was discharged due to the death of the party, or they were discharged but for payment of an ascertainable sum, the courts must treat that part as a separate contract that had not been frustrated. This provision keeps in tact severable obligation already performed, but departs from the common law refusal to allow the recovery of money paid or benefits conferred.^[23]

Contracts that might be discharged because of the death of one of the parties, include contracts between principle and agent^[24] as in Graves v Cohen (1929) 46 TLR 121 in which the death of jockey rendered contract to ride horses, dissolved. In terms of employment contracts, the common law position is relatively simple; that either the death of the employee^[25] or the employer^[26] will discharge the contract. This common law position stands, but has diminished in importance owing to statutory provisions in relation to the most important parts of employment, which deal with the effect of death on a contract of employment. One statutory example can be found in the Employment Rights Act 1996, section 176. Where an employee whose employer has given him notice to terminate his contract of employment dies before the notice expires, the statutory provisions relating to redundancy payments apply as if the contract had been duly terminated by the employer by notice expiring on the date of the employee's death. This may not be the case when the employer is in a partnership and only one of the partners dies. In the case of Phillips v Alhambra Palace Co [1901] 1 KB 59 the death of one partner of a firm who owned a music hall was held not to discharge the contracts of performance.

In relation to partner generally, a partnership will be dissolved as regards all the partners on the death of any of the partners^[27] unless there has been an alternative agreement. Neither the surviving partners nor the personal representatives of the deceased are obliged or entitled to carry on the partnership.^[28] If a partner gives valid notice of the dissolution, but dies before the receipt or expiration of the notice, the dissolution will take effect on the date of the death rather than the expiration of the notice.^[29]

Supervening Incapacity

A contract for personal services, if it is to be performed by the promisor himself, will be discharged if, without default on his part, he becomes physically incapable of performing the contract. In the case of Joseph Constantine Steamship Line Ltd v Imperial Smelting Corpn Ltd ^{[1942] AC 154} at 166 Viscount Simon LC indicated that the default required was less than that which would be required in a general commercial sense which he described as being something akin to negligence:

“Yet in cases of frustration of another class, arising in connection with a contract for personal performance, it has not, I think, been laid down that, if the personal incapacity is due to want of care, the plea fails.”

Examples of when party might become incapable of performing the contract include when an employee becomes incapacitated by illness. In the case of Hart v AR Marshall & Sons (Bulwell) Ltd [1978] 2 All ER 413, [1977] 1 WLR 1067, EAT the contract of employment was held to be frustrated by the indefinite illness of the employee. It is likely that the length of service will be a relevant factor in determining whether the contract is frustrated by prolonged illness.[30] The test of whether illness will be sufficient to frustrate the contract will be whether the illness is such as to put an en, in the business sense, to the engagement. In the case of Mount v Oldham Corpn ^{[1973] QB 309}, [1973] 1 All ER 26, CA it was held that the absence of a headmaster from a school through illness was not sufficient to put an end to his employment relationship with the education authority.

An employment contract will also be frustrated by the imprisonment of the employee. In the case of Hare v Murphy Bros Ltd [1974] 3 All ER 940, CA a 12 month prison sentence was considered sufficient to render the contract of employment impossible. A temporary internment will not be sufficient to discharge a contract of agency.[31] Call up for military service has also been held to frustrate a contract of employment.^[32]

Method of Performance Impossible

A mistake may be sufficiently fundamental to avoid the contract where both parties believe that the contract is capable of being performed,^[33] when in fact it is not. Professor Treitel divides these cases intro three categories:

1) Physical Impossibility

In the case of Sheikh Brothers Ltd v Ochsner [1957] AC 136 Sheikh Brothers granted a licence to Ochsner to enter their land and cut sisal growing there. In return they wanted Ochsner to provide them with 50 tons of cut sisal per month. Unknown to both parties, the land was in fact not capable of producing that amount of sisal per month for the duration of the agreement. The Privy Council held that the contract was void ab initio. The parties’ mistake went to the route of the contract and neither party had assumed the risk of the land being incapable of producing that amount of sisal, i.e. neither party had warranted that the land would be able to produce 50 tons of sisal per month. This distinguishes this case from that of McRae discussed above where the Commission was held to have warranted that the tanker was in existence in the place where they stipulated.

2. Legal Impossibility

This is the case when a contract provides for something to be done which cannot as a matter of law, be done. In the case of Cooper v Phibbs (1867) LR 2 HL 149 one party agreed to take a lease for a salmon fishery from the other party. It later transpired that the first party was the tenant in tail of the fishery and as such already owned it so could not be a lessee under law. Both parties had originally believed that the fishery was owned by the respondents so there is no suggestion of any fraud.

A subsequent change to the law may also frustrate a contract and hence discharge the parties from future performance obligations. Where performance of the contract has been rendered impossible by an Act of Parliament passed after the contract was made, and then the promisor is excused from performing his promise. The presumption is that parties intend the contract to operate in accordance with the law on force at the time when the contract was agreed.^[34] This rule has, for example, been used in the context of employment agreements. In the case of Reilly v R ^{[1934] AC 176}, PC the statutory abolition of an office was held to frustrate the contract of employment. The same principle applies when the method of performance is rendered illegal by an act of the state under delegated legislation or a declaration of war or a ban on exports etc.[35] Again, if the contract requires performance in another country, it will be discharged if that performance becomes illegal under the law of that country.^[36]

3. Commercial Impossibility

In another of the coronation cases, Griffith v Brymer (1903) 19 TLR 434 the parties entered into a contract for the hire of a room to view the procession of the coronation of Edward VII. They entered into the contract ay 11 am not realising that the decision to operate had been taken at 10 am. It was held that the contract was void ab initio because their mistake, i.e. that the procession would be taking place, went to the commercial heart of their contract. It was void even though it was both physically and legally possible to complete.

Unavailability of a Source

Whether or not the unavailability of a source will frustrate the contract will depend on the contract itself. In the case of Blackburn Bobbin Co. Ltd v T.W. Allen and Sons Ltd [1918] 2 K.B. the defendants were timber merchants who agreed to sell the plaintiffs a quantity of timber. Before the war broke out the invariable practice in cases such as this was to load Finnish timber at Finnish docks and transport this to England. The plaintiffs did not know this. When war broke out the presence of German ships in the Baltic prevented this from happening. When the defendants sought to rely on the doctrine of frustration, claiming that their performance had become impossible because this source was no longer available, the court held:

“The sellers in this case agreed to deliver the timber free on rail at Hull, and it was no concern of the buyers how the sellers intended to get it there...(this was not) a matter which both parties contemplated as necessary for the fulfilment of the contract.”^[37]

It is clear then that if a party is seeking to rely on the fact that their performance has become impossible because of the unavailability of a source to discharge them from their obligations under the contract, the source must have been one which was in the minds of the both the parties at the outset.

Partial Impossibility

Where the contract is severable it is possible that one part of the contract may become frustrated and hence discharged whilst other parts remain intact.^[38] Furthermore, it may be that legislation renders a part of the contract illegal. It may be that illegality will excuse a minor obligation under the contract without discharging the entire thing. For example war time building restrictions may temporarily excuse a covenant to build as was the case in Cricklewood Property and Investment Trust Ltd v Leighton's Investment Trust Ltd ^{[1945] AC 221}.

Aside from these specific examples it is unlikely that there is any general doctrine of partial frustration. The cases in which it might appear that the courts are applying such a doctrine can usually be explained by other means. For example in the case of Egham and Staines Electricity Co Ltd v Egham UDC [1944] 1 All ER 107 the courts held that the electricity company were excused from their contractual obligation to provide electricity for lighting during the time when a war time lighting restrictions prevented them from doing so. Though this may on first sight appear to be suggesting the contract was partially frustrated, the courts actually held that it came within a force majeur clause, which stated that the parties would not be liable if their default was due to an unavoidable cause.

It has been held that where a part enters into several contracts and his supplies are subsequently reduced by other events, he is not excused from performance and must therefore pay damages for any contractual promises that he cannot meet.[39]

Temporary Impossibility

It is possible for supervening events to suspend the contract without discharging it all together. For example the illness of an employee might excuse his absence from work for the course of the illness without actually discharging the whole employment contract.^[40] Temporary impossibility may also be sufficient to frustrate the entire contract. For example, temporary unavailability of the subject matter of the contract as in the case of Jackson v Union Marine Insurance Co (1874) LR 10 CP 125. A ship was chartered in November with a provision that it proceed with all possible dispatch from Liverpool to Newport where it was to load a cargo and proceed to San Francisco. The ship ran aground between Liverpool and Newport and was not fully repaired until August the following year. The contract was held to be void because the ship was unavailable for the voyage for which she was chartered. A voyage in August the following year was though to be radically different from that which was agreed. It is clear that even if the impossibility is only temporary it may be that the delay is sufficient to render the contract impossible to perform.

Time is of the Essence

Where the contract is one of fixed duration and the unavailability of the subject matter is only temporarily unavailable the court must:

“…consider the ratio of the interruption in contractual performance to the duration of the contract. The higher the ratio the more likely the contract is to have been frustrated. ”^[41]

In the case of The Nema [1982] AC 724 a charterparty became frustrated when a strike closed the port at which the ship was due to load. There were seven voyages contracted for between April and December and only two could be completed.

Length and Effects of Delay

It is important to remember firstly that the delay must not be attributable to either of the parties if it is to be considered a frustrating event. This means that long delays in the arbitration itself, which are brought about because of inactivity on both sides cannot frustrate the contract because they are self-induced.^[42] It is the length of the delay that is important in determining whether or not the contract will be frustrated. As we saw in the Jackson above, the delay has to be:

“of such a character that the fulfilment of the contract, in the only way or ways contemplated and practicable, is so inordinately postponed that the delayed fulfilment will involve something commercially or fundamentally different from that contemplated in the contract^”[43]

War is one example of an event that could cause delay to the performance of a contract. Delay caused by war might be long enough to frustrate the contract, but there is no irrebuttable presumption that the outbreak of war will do so. In the case of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] A.C. 32 the contract was frustrated by the delay caused by the outbreak of war. The contract was for the building of machinery in Poland, which was to be delivered to England within three to four months of the settlement of the final contract details. Before the delivery the Germans occupied Poland and the machines were not able to be delivered. This was a contract in which the time for delivery was specified and the length of the occupation did frustrate that purpose of the contract, but each situation will depend on its facts.

It seems likely that the delay will have to be something that the parties would not have thought to contract against and something that would be of equal concern to both of them. In the case of Davis Contractors v Fareham Urban District Council [1956] A.C. 696 The claimant contractors agreed to build 78 houses for the defendants for £94,000. The work was scheduled to last for 8 months, but owing to a shortage of skilled labour it actually lasted for 22 and the cost was in the region of £115,000. It was argued that the contract had bee frustrated by the length of the delay. The court held that the contract had not been frustrated. Lord Radcliffe stated:

“The possibility of their not being enough labour was before their eyes and could have been the subject if special contractual stipulation….Though timely completion was no doubt important to both sides, it is not right to treat the possibility of delay as having the same significance for each.”

He concluded that the doctrine of frustration ought not to be used to get the contractor out of an unfortunate contractual predicament that he could have guarded against.

The relationship between delay and frustration can be said to be one of degree, depending on the facts of the specific situation at hand. It has been held that the appellate courts should therefore be reluctant to interfere with the findings of the lower courts and arbitrators. In the case of Kodros Shipping Corpn v Empresa Cubana de Fletes, The Evia ^{[1982] 3 All ER 350 at 368} The House of Lords held in relation to the exact date of frustration caused by delay:

“The choice of date in this case, as in the others, was for the umpire or arbitrator concerned and is not a matter for your Lordships' House”

Whether or not delay will cause frustration may also depend to some extent on the type of contract under examination. If the contract is a commercial contract it seems that delay is more likely to effect its substance. In the case of National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 at 706 Lord Simon stated that:

“Commercial men must be entitled to act on reasonable commercial probabilities at the time they are called upon to make up their minds”

Businessmen are thus often thought by the courts to be entitled to know where they stand and not to be required to wait upon events.

With regard to delay, the same principles apply as across the whole doctrine of frustration. The courts will be concerned to look at the details of what the parties agreed, whether expressly or impliedly. They will then look at whether the delay was self-induced and whether it was something that could have been foreseen and dealt with by a contractual stipulation. If it was not they will look in detail at whether the length or effects of the delay actually altered the substance of the performance to a degree that it was substantially different from that which the parties had contemplated when they entered into the agreement.

Conclusion

In conclusion it is clear that in both the case of initial and subsequent impossibility the courts are dealing with the allocation of risk between the parties of an event which neither of the parties foresaw occurring when they entered into a contractual relationship. In both cases the courts are dealing with the construction of the contract. If the contract made provision for the event then the contract governs the situation. Both doctrines operate within very narrow confines and operate on the premise that men should be held to their bargains. If the parties have not expressed a term dealing with the event in question, the courts will have to analyse the entirety of the contract to establish whether one can be implied as having been in the contemplation of both parties as something essential for the performance of the contract. In this respect both doctrines are similar, but Treitel[44] reminds us that they are different juristic principles one relating to the formation of contracts and the other to their discharge. The doctrine of initial mistake operates to rectify a situation in which the parties were never in genuine agreement because they were mistaken as to the presence of a particular set of circumstances. In the case of subsequent impossibility or frustration the parties must have been in genuine agreement as to the essential features of the contract whether expressly or impliedly, but a supervening event has rendered those features substantively and radically different from that which they envisaged.

BIBLIOGRAPHY

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