Intervening circumstances and Contract Law
In this scenario, the two parties, Ben and Angela, have entered into a contract with clear terms which both of them have accepted. An intervening event has then occurred which has rendered it difficult, if not impossible, for Ben to complete his side of the contract. By claiming that Ben is in breach of the contract, Angela has sought to set it aside.
In these circumstances, her position is very favourable, as the greenhouse in question was 90% completed when the explosion occurred (the event which put Ben in a difficult position), and she had paid only 30% of the total agreed price. It is, then, in Angela’s interest to set aside the contract, as she will be in a much better position financially if she can escape paying Ben for the work completed because he is in breach of the original contract.
Ben, obviously, would like to see the contract enforced, as he has expended time and money on completing 90% of the greenhouse in accordance with the agreement, and if Angela is successful in setting the contract aside at this late stage, he will receive no remuneration. He is, by way of defence to the charge that he is in breach of the contract, claiming that the agreement has been frustrated. Frustration is a means by which a contract can be discharged without completion of it (the other way is by the agreement of the parties). Frustration occurs when it becomes impossible to perform a contractual obligation because external circumstances have caused the performance to be radically different from that agreed (Davis Contractors Ltd v Fareham Urban District Council).
The most applicable case in this scenario is that of Taylor v Caldwell. In that case, the defendant hired out a music hall to the plaintiff for the purpose of holding a series of concerts. Six days prior to the first concert, however, an accidental fire destroyed the hall, thereby making it impossible to hold the concerts. It was held that the defendant was not liable for wasted advertising and other expenses. The court suggested that there was an implied term in the contract that excused the parties. The general principle to come out of this case was that where the performance of a contract becomes impossible because of the destruction of the subject matter of the contract, the contract will be frustrated. It was also suggested that the destruction of something other than the subject matter of the contract will still result in the contract being frustrated (and therefore discharged) if the result is the main purpose of the contract is defeated. It is this second point which is of relevance to Ben, as the destruction of the glass factory which supplies his glass makes it impossible for him to complete the contract. Another relevant case is The Evia (No 2), in which it was held that where performance of the contract becomes impossible because a person or object which is essential for performance is unavailable, it may also be frustrated. It would appear, then, that the contract has been discharged by frustration.
It was held, in Davis Contractors Ltd v Fareham Urban District Council, that foreseen or foreseeable events or circumstances which interfere with the performance of the contract will not amount to frustration. The gas explosion at the Hoffman factory which caused the damage can hardly be said to have been foreseeable, so Angela would be unable to claim this as a limitation on the claim of frustration. This is even more the case following the decision in WJ Tatem Ltd v Gamboa, in which it was held that there must be a high degree of forseeability for the doctrine of frustration not to apply. The contract will be frustrated then, because an unforeseen intervening event has rendered the completion of the contract impossible; specifically the completion date set out in clause five of the contract cannot now be met.
What will be the effect of this frustration of the contract? It was held, in Chandler v Webster, that rights accrued under the contract before the frustrating event were enforceable. By the time of the gas explosion at the factory, Ben had completed 90% of the greenhouse. As such, he should be entitled to receive payment for 90% of the agreed price (which was set in clause three). Under the Law Reform (Frustrated Contracts) Act 1943, s1(2), courts have a broad discretion to decide whether to recompense a party who has incurred expenses before the frustrating event. This was confirmed in Gamerco SA v ICM / Fair Warning (Agency) Ltd. This would suggest that Ben was entitled to his money. There is a common law principle, however, that money payable under the contract after the frustrating event need not be paid (Appleby v Myers). In this case, it was held that because both parties were excused from further performance of the contract, the defendant was not obliged to pay the plaintiff anything. It seems probable, however, that despite this principle, in the current scenario, the courts would use their wide discretion afforded them in the Law Reform (Frustrated Contracts) Act 1943 to state that Angela had to make some payment to Ben for the work completed. In this context, the fact that Angela was able to draft in another builder to complete the work using other materials might assist Ben’s case, as Angela was still able to get her greenhouse.
Tags: breach, contractors ltd, contractual obligation, defendant, plaintiff, remuneration
