Thanks to @beamomatic9000 for making this photo available freely on @unsplash 🎁
The COVID-19 crisis continues to throw up some interesting legal questions e.g. employment rights, EU freedom of movement rights, frustration of contract etc.
One area which seems somewhat overlooked is in relation to the actions of many retailers – principally supermarkets and grocery stores – which have been restricting sales of particular items. The items in question include soap, hand gel and sanitiser, bleach, anti-septic wipes, paper towels and even toilet rolls.
The COVID-19 situation has led to panic buying of these essential hygiene items and supermarkets have imposed clear limits on their sale.
Can supermarkets and other retailers impose these sorts of restrictions?
This, of course, takes us back to the basic rules governing the formation of a contract. Retailers are especially guilty when applying the term ‘offer’ to the goods which they stock. It is no such thing: goods on the shelves; on display; or in shop windows are invitations to treat. It is the the customer who is being invited to make the offer (see Fisher v Bell [1961]3 ALL ER 731 where the English Court of Appeal ruled that a knife displayed in a shop window was not being offered for sale, it was merely an invitation to treat. Lord Parker, the Chief Justice being particularly emphatic on this point).
In the seminal case of Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401, the judges of the English Court of Appeal helpfully distinguished between an offer and an invitation to treat. The case arose as a result of a provision in the Pharmacy and Poisons Act 1933 which stipulated that the sale of certain medicines must take place in the presence of a registered pharmacist.
Boots Chemists operated a self service system whereby it’s customers were able to place the medicines which they wished to purchase in their shopping baskets. The key question was whether Boots was breaking the law by allowing customers to do this. In other words, was the sale completed when the customer placed the medicines in their baskets? Now, if goods on shelves were to be regarded as ‘offers’, Boots would indeed be breaking the law because customers would be deemed to be ‘accepting’ these ‘offers’ by placing the goods in question in their baskets.
If, on the other hand, the sale was concluded elsewhere i.e. at the cash register where there was always a registered pharmacist on duty, Boots would be fully complying with the Act.
The Court of Appeal concluded that it was the customer who made the offer by presenting the goods at the cash register. The sales assistant (properly supervised by the pharmacist) could conclude matters i.e. accept the offer by ringing the sale up on the cash register. Furthermore, it was always open to the assistant to refuse the customer’s offer. Goods on shelves were, therefore, merely an invitation to treat.
In more normal times, a customer’s offer would and should be refused by retailers because they are an underage person who is attempting to purchase e.g. alcohol, cigarettes or video games or DVDs which are age specific.
So, in this way, retailers are generally within their rights to impose strict limits on the numbers of certain items that customers wish to purchase. The customer can offer to buy 20 bottles of hand gel or sanitiser, but the store will have the right to refuse.
Presently, retailers are putting these sorts of restrictions into place in order to protect and promote public health by giving as many customers, as possible, reasonable access to basic hygiene products. If we co-opt the language of the Equality Act 2010, retailers are putting restrictions in place because these are a proportionate means of achieving a legitimate aim. So, hopefully, such restrictions – if fairly implemented and monitored – will not be subject to a legal challenge on grounds of discrimination.
I never thought that the subject of impossibility and frustration in relation to contract would become such a popular topic of everyday conversation; but it has.
The phrase “force majeure” has also been making more of an appearance than is commonly the case.
Why?
The continuing fallout from Coronavirus or COVID-19 has led to all sorts of sporting and cultural events being cancelled or postponed. We are also about to enter the holiday season with the Spring Break and Easter Weekend just over the horizon. Many people will have booked getaways to foreign climes and events have now completely overtaken such plans.
Critically, thousands of people will have paid something up front for football season tickets and holidays and they will be anxious to know where they stand legally.
Hearts owner Ann Budge says she would consider legal action should her club be relegated from the Scottish Premiership with eight games left:
There are two ways of dealing with an unexpected situation which affects contractual performance: being reactive or being farsighted.
At the moment, the scale of COVID-19 has completely taken Governments, societies, business, cultural, sporting organisations and individuals completely by surprise. So, in a sense, we are being forced to react to changing circumstances and rely upon established legal contractual principles which govern the termination of agreements i.e. frustration, impossibility and illegality. More about these matters shortly.
As lawyers, could we have pre-empted or foreseen that events (I’m speaking in the general sense here) might render contractual performance highly unlikely or well nigh impossible? Well, yes the concept of Force Majeure clauses is recognised in contract law – although the linguists amongst us may recognise that it’s not a native species of English or Scots law.
“words ‘force majeure’ are not words which we generally find in an English contract. They are taken from the Code Napoleon and they were inserted by this Romanian gentleman or by his advisers, who were no doubt familiar with their use on the Continent.”
In the English case of Matsoukis v Priestman [1915]1 KB 681 Bailhace J, sitting in English High Court was of the view that force majeure clauses could cover events such as industrial action, but certainly not bad weather or football or funerals:
“these are the usual incidents interrupting work, and the defendants, in making their contract, no doubt took them into account”.
Yet, in the later English High Court decision LebeaupinvRichard Crispin[1920]2 KB 714, force majeure clause was given a much broader meaning to include events such as war, bad weather, industrial action and, interestingly, epidemics. That said McCardie J was at pains to point out:
“A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract. The effect of the clause may vary with each instrument.”
Essentially, such clauses are inserted into contracts to deal with the consequences of events outwith the control of the parties which may render performance of the contract impossible.
Ross Campbell of Brodies Solicitors who has pointed out that the rules of last year’s Rugby World Cup tournament in Japan contained a force majeure clause addressing the cancellation of matches due to extreme weather. The clause was not utilised and, therefore, not challenged, but it’s an interesting example of how parties to an agreement might attempt to address situations which can have serious consequences for contractual performance.
A link to Ross Campbell’s article can be found below:
The very phrase force majeure conjuresup images of an unstoppable force that sweeps away the accepted rules or conventions – almost akin to the idea of damnum fatale or an act of God.
So whether, will the courts permit the application of a force majeure clause will turn on the wording of the clause.
Could anyone have predicted the situation that we are now in with COVID-19 and drafted an appropriate clause to address these unprecedented times? It’s extremely doubtful. I’m not pretending to be Nostradamus (or for our Scottish readers, the Brahan Seer or Thomas the Rhymer) when I predict that many lawyers and their clients will actively be looking at the usefulness of force majeure clauses.
Triggering a force majeure clause
For those parties wishing to rely upon force majeure clauses, drafting the term may be crucially important. It might be highly advisable to have a list of events or circumstances which trigger operation of the clause; and then have a catch-all provision or belt and braces term to cover things you might not have explicitly specified (as per McCardie J’s remarks in Lebeaupin v Richard Crispin [1920]. Be aware, however, that extremely wide catch-all provisions may be disallowed because they are not within the normal meaning of the term (see Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm)).
Frustration, impossibility and illegality
Let’s now turn to situations where individuals have to react to unexpected events without having the benefit of a force majeure clause in the agreement.
Since the formation of a contract, circumstances affecting the agreement may have changed dramatically (i.e. the pandemic). The contract may now be impossible to perform or the contract may have been rendered illegal by changes in the law.
Physical destruction of the subject-matter of the contract can also frustrate contracts.
Perhaps one of the best known examples of frustration can be seen in the case below:
Taylor v Caldwell (1863) the Surrey Gardens and Music Hall was hired by the pursuers from the defenders for the purpose of holding four grand concerts and fêtes. Before the first concert on 17 June 1862 could took place, the hall was completely destroyed by fire. Neither party was responsible for this incident. The pursuers, however, brought an action for damages against the defenders for wasted advertising costs.
Held: By the English High Court that it was clearly impossible for the contract to be performed because it relied on the continuing existence of the venue. The pursuers claim for damages was dismissed on the grounds that the purpose of the contract had been frustrated.
In another case, Vitol SA v Esso Australia 1988The Times 1 February 1988, a contract for the sale of petroleum was discharged on the grounds of frustration when both the ship and its cargo of petroleum were completely destroyed in a missile attack in the Persian Gulf during the Iran-Iraq War (1980-1988). The sellers had attempted to sue the buyers for the price of the goods, but this claim was dismissed.
The ‘coronation’ cases
Two famous cases which are particularly instructive are the ‘Coronation Cases’ because they concern the consequences of changing circumstances. Both cases arose due to the illness of King Edward VII. The new King was unable to participate or attend a variety of events to celebrate his accession to the British throne following the death of his mother, Queen Victoria.
The English Court of Appeal took different approaches in each of the cases:
Krell v Henry [1903] 2 KB 740 the pursuer was the owner of a flat in the central London district of Pall Mall. The pursuer’s flat was on the route of the proposed coronation procession of the new King, Edward VII, which was scheduled to take place on 26 and 27 June 1902. The pursuer had advertised his flat for rent during the daytime on 26 and 27 June for the purpose of viewing the procession. The defender, who was anxious to view the procession, responded to the advertisement and entered into an agreement to hire the flat on the days specified. An announcement was made on 24 June stating that the procession was to be cancelled owing to the King’s illness. The defender refused to pay the balance of the rent for the flat by reason that events had frustrated performance of the contract. The pursuer brought an action against the defender for payment of the balance of the rent.
Held: by the English Court of Appeal that the cancellation of the event frustrated the contract and discharged the parties from their obligations under it. The clinching argument in the defender’s favour was that both parties clearly entered into the contract with the same intention.
The reason behind the hire of the flat was, therefore, a material term of the contract. Had the defender failed to communicate his motivation for hiring the flat, then the contract would have remained capable of enforcement by the pursuer.
Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract. It was also important to identify the substance or the purpose of the agreement. In other words, did the parties share the same intentions?
The illness of King Edward resulted in a second legal action. This time, however, the English Court of Appeal took a completely different approach to the issue of frustration of contract.
Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 the pursuers had entered into a contract to hire a steamship to the defender for two days. The Royal Navy was assembling at Spithead to take part in a naval review to celebrate King Edward’s coronation.
The King was to review the fleet personally. The defender wished to transport paying guests from Herne Bay to Spithead to see the naval review. Due to the King’s illness, an official announcement was made cancelling the review. It would still have been perfectly possible for the defender to take his passengers on a cruise to see the assembled fleet. The defender, however, refused to use the vessel claiming that the contract had been frustrated. The pursuers brought an action against the defender for the balance of the fee of £250 (a considerable sum in those times) owed by the defender who was refusing to pay for the hire of the boat.
Held: the contract was not discharged by reason of frustration. The main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet.
Why the difference in approach?
In Krell v Henry [1903], Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract.
The difference in Herne Bay Steamboat Co v Hutton [1903] was that the contract was the main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet – despite the fact that King Edward VII would not be personally reviewing the fleet due to his unexpected illness.
This difference in approach taken by the Court of Appeal in both cases is sometimes difficult to understand. In Krell v Henry, both parties had clearly intended that the purpose of the contract was to view the coronation procession (which was postponed). Reinforcing this fact, was the fact that the defender was only entitled to use the flat during the daytime.
In Herne Bay Steamboat Co v Hutton, the purpose of the defender in hiring the steamship was to see the naval review, but this was not the purpose of the owners who were not the slightest bit interested why the vessel had been hired.
Lord Justice Vaughn-Williams compared the situation in Herne Bay Steamboat Co to someone who hires a carriage to go and see the Epsom Derby, but the outbreak of some unforeseen epidemic means that the races are cancelled. This makes no difference to the owner of the carriage who will still expect to be paid for the hire of his vehicle.
It will, however, be important to identify the substance or the purpose of the agreement. The cancellation of an event can frustrate the performance of a contract where that event is an absolutely material term of the agreement.
The limits of frustration …
Frustration can only be used to have the contract discharged in situations where neither party is to blame. When one party is to blame for the failure to perform his obligations under the agreement, this represents a breach of contract and the innocent party can raise the appropriate action.
Tsakiroglou v Noblee Thorl GmbH [1961] 2 ALL ER 179 the sellers had agreed to transport Sudanese ground nuts from Port Sudan in the Red Sea to Hamburg in Germany. The ship was to take the fastest route to Europe through the Suez Canal. This proved to be impossible because the Canal was closed as a result of military hostilities following the Anglo-French-Israeli invasion of Egypt causing the Suez Crisis in late 1956. The sellers would have to ship the goods around the alternative route of the Cape of Good Hope in South Africa. This meant that the distance the ship had to travel from Port Sudan to Hamburg was greatly increased and this would also mean a dramatic increase in the costs of carriage in respect of the goods.
Held: by the House of Lords that a party will still have a duty to perform a contract even if this means that performance is more difficult or expensive than was originally intended by the parties. The closure of the Suez Canal did not mean that the sellers’ duties were discharged by reason of frustration of contract.
Contracts for personal services
Such a contract is discharged by the death of the person who was to perform it. The incapacity of a person who is to perform a contract may discharge it. However, temporary incapacity is not enough unless it affects the performance of the contract in a really serious way. If an employee is killed or permanently incapacitated, it will be very difficult to argue that the employment contract should be allowed to continue. Employees who have had a lengthy prison sentence imposed on them by a criminal court may find it very difficult to argue against the employer’s proposition that the contract of employment has been terminated by reason of frustration.
Some words of warning: the courts may be unwilling to use frustration as a means of terminating an employment contract if other ways of achieving this result are available. This could occur in situations where it is possible for the employer to dismiss the employee entirely fairly by reason of a lack of capability (e.g. on grounds of ill health) as per the Employment Relations Act 1996.
Notable cases on frustration in connection with employment contracts include the following:
Davis Contractors Ltd v Fareham UDC [1956] AC 696
Marshall v Harland & Wolff [1972]IRLR90
G F Sharp & Co Ltd v McMillan [1998]IRLR 632
The purpose of the contract becomes impossible to perform
As we have seen, a situation involving the physical destruction of the subject-matter of the contract will discharge the parties from performance of their duties by reason of frustration. However, frustration can also occur in situations where physical destruction of the subject-matter of the contract may not be the issue.
Jackson v Union Marine Insurance Co (1874) LR 10 CP 125 the pursuer owned a ship which had been chartered to go with all possible speed from Liverpool to Newport for the purpose of loading a cargo bound for San Francisco. The pursuer had insurance with the defenders to protect himself in the event that the charter might be prevented from being carried out. The vessel was stranded whilst on its way to Newport. It was not refloated for over a month and could not be properly repaired for some time. The charterers hired another ship and the pursuer turned to the insurers. They suggested that the pursuer should sue the charterer for breach.
Held: the fact that the ship was stranded effectively frustrated the agreement’s commercial purpose and, therefore, the charterers were free to go elsewhere. The pursuer had no remedy against the charterers and was in turn entitled to seek compensation under the insurance policy.
Illegality
We are seeing the introduction of emergency powers legislation across the World in response to COVID-19 and this will undoubtedly have a huge impact on a range of contractual obligations. Many European Union countries have reintroduced border controls and curbs on free movement of persons which would normally be a clear breach of European Treaties (e.g. the Treaty on the Functioning of the European Union; the Treaty on European Union; and the Schengen Agreement), but these are not normal times. These drastic measures can all be justified on grounds of public security and public health – legitimate derogations or grounds for withdrawal from key EU legal principles. Travel and tourism will obviously be disproportionately affected by these restrictions.
Contracts can become illegal because Parliament introduces legislation to this effect. After the murder of schoolchildren and a teacher at Dunblane Primary School in 1996 by Thomas Hamilton, the British government made it illegal to own particular models of firearms. Therefore, anyone who entered a contract to purchase firearms shortly before the legislation was introduced could not force the supplier to perform the contract. If the buyer insisted on performance of the contract by the seller, the seller would be complying with his contractual duty, but he would also be breaking the law as the contract would be illegal.
Events can also make further or future performance of contracts illegal e.g. the outbreak of war. Two House of Lords’ decisions are excellent authority for this proposition –
Stevenson & Sons Ltd v AG für Cartonnagen Industrie (1918) AC 239 an English company, Stevenson, was in partnership with a German company acting as a sole agent to sell the German company’s goods. By continuing to carry on business with an enemy during wartime (the First World War had broken out), Stevenson would be committing a criminal act and there was no alternative but to have the partnership dissolved (see also Cantiere San Rocco SA v Clyde Shipbuilding & Engineering Co Ltd (1923) SC (HL) 105 where, again, the First World War had a similar effect on a contract between a Scottish company and an Austrian buyer of a ship).
Conclusion
The Coronavirus or COVID-19 is not merely a health issue – it has also become something of a legal minefield for society. This is where knowledge of the circumstances of termination of contractual obligations and performance is vital. The doctrine of frustration, impossibility and supervening illegality are highly relevant to this debate.
Doubtless, the use of force majeure clauses will become more common – especially, if as predicted, we are going to be experiencing further waves of disruption due to this pandemic.
In a number of previous blogs (Stormy Weather, I’m at the end of my tether! Locking Horns; and Frustration of Contract?), I discussed the issue of termination of contract when unforeseen factors outwith the control of the parties intervene.
It might be the destruction of the subject matter of the contract; death of one of the parties in an agreement involving the provision of personal services; or even particularly bad weather or unforeseen events.
Potentially, these factors may frustrate the contract in the sense that it can no longer be carried out or performed in the manner which the parties originally intended. In such cases of genuine frustration, the contract or agreement is terminated and the parties are discharged from their obligations.
There have been some famous cases over the years with frustration of contract at their heart:
Taylor v Caldwell [1863] EWHC QB J1; 122 ER 309;3 B. & S. 826
Krell v Henry [1903] 2 KB 740
Herne Bay Steam Boat v Hutton [1903] 2 KB 683
Vitol S.A. v Esso Australia Ltd. (The Wise) [1989] 1 Lloyd’s Rep. 451
A contract is not frustrated if it becomes more expensive or difficult to perform or if the alleged frustrating event could have been foreseen (and presumably dealt with) (see Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 and Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93).
The Emiliano Sala Affair
This leads me back to a story which I have been following with interest over the last few months: the tragic death of the Argentinian footballer, Emiliano Sala in a plane crash over the English Channel in January 2019.
It will be recalled that Sala’s former Football Club, the French side FC Nantes had just agreed to him transferring to the English Premier League side, Cardiff City FC. The transfer fee was £15 million, but shortly after the accident, Cardiff City claimed that the transfer had not gone through and it had no obligation to pay the first part of this figure. In other words, Sala was never an employee of Cardiff City according to this argument because the paperwork had not been finalised.
In normal circumstances, where a contract involves the provision of personal services (and a contract of employment certainly fits into this category), the death of a new or prospective employee would tend to terminate the agreement. Death is pretty much the ultimate frustrating factor – especially in cases involving unforeseen deaths.
The world of top flight football, however, would seem to be different and does not seem to be bound by the considerations that govern us mere mortals.
FIFA, the governing body, has now spoken and determined that Cardiff City will have to pay the first part of the transfer fee (£5 million in case you’re asking) to FC Nantes. Failure to do so may result in FIFA sanctions being imposed on Cardiff (a signing ban).
Please find a link below to the FIFA press release:
It would seem that FIFA rules transcend events such as death which ordinarily would throw a spanner in the works in the context of an ordinary employment contract situation.
Cardiff City can appeal against the decision of FIFA by going to the Court of Arbitration for Sport and, in October 2019, the Club indicated that it would so:
Ultimately, whatever way this tragic story ends, I can’t help but wonder whether FC Nantes or Cardiff FC had the foresight to insure Sala’s life in the event of untimely and unforeseen death. Sadly, the fact that a young man with a promising future died in a horrible accident seems to have got lost along the way while Nantes and Cardiff polish up their legal arguments.
We know summer is finally here when people are enthused about the prospect of attending the ever growing list of open air music festivals across the UK and Ireland.
Everyone involved in these events always hopes that the sun will come out, but the reality is that you have to prepare for the likelihood of bad weather. Most of the time, revellers will be able to put up with poorer conditions and it is unlikely that the event will be cancelled.
On occasion, the predicted weather can be very poor, not to say downright dangerous and festival organisers are left with the agonising decision of having to make the call to cancel the event.
This happened at the beginning of August when the Houghton Music Festival in East Anglia was cancelled due to severe weather warnings. Now clearly, by making this decision, the Festival organisers were implementing their duty of care to the artists, the workers and the music lovers.
A link to the story on the Sky News website can be found below:
I was more interested in the contractual implications of cancelling the event. More specifically: does the cancellation of an event result in frustration of contract? In other words, will the frustrating event lead to termination of the contract?
The Festival organisers were very quick to say that the fans were entitled to seek a refund of the ticket price (no doubt minus the booking fee). Admittedly, I was less interested in this aspect of the story. In particular, I was mulling over the impact of cancelling the Festival on local businesses – particularly the local hotel/accommodation/B&B industry.
In 2016, research published by UK Music (Wish You Were Here) demonstrated a number of things:
the number of people attending UK music festivals had risen from 27.7 million to 30.9 million between 2015 and 2016;
the number of people travelling between different parts of the UK had increased; and
the number of foreign tourists willing to attend UK music festivals had risen by 20% in 2016.
So, what if you’re in the business of running a hotel, B&B or renting out a property on Airbnb and the bad news is announced that the local music festival has been cancelled, where do you stand legally?
Is the contract that you entered into with prospective guests capable of enforcement or has it been cancelled due to frustration?
It really depends on the circumstances …
What if the accommodation provider is aware of the fact that the guests have specifically booked rooms or a property in order to attend the festival? Some hotels go even further and might put together event all inclusive packages for guests – so called ‘special offers’ which might include things like all meals provided, spa treatments and even transport to and from the festival site.
This is quite different from a situation where the guest books rooms or hires a holiday property and does not disclose to the accommodation provider the purpose of his or her visit to the local area.
In the famous case of Krell v Henry [1903] 2 KB 740, Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract. It will be important to identify the substance or the purpose of the agreement. The cancellation of an event can frustrate the performance of a contract where that event is an absolutely material term of the agreement.
In Krell, the pursuer was the owner of a flat in the central London district of Pall Mall. The pursuer’s flat was on the route of the proposed coronation procession of the new King, Edward VII, which was scheduled to take place on 26 and 27 June 1902. The pursuer had advertised his flat for rent during the daytime on 26 and 27 June for the purpose of viewing the procession. The defender, who was anxious to view the procession, responded to the advertisement and entered into an agreement to hire the flat on the days specified. An announcement was made on 24 June stating that the procession was to be cancelled owing to the King’s illness. The defender refused to pay the balance of the rent for the flat by reason that events had frustrated performance of the contract. The pursuer brought an action against the defender for payment of the balance of the rent.
The English Court of Appeal stated that the cancellation of the event frustrated the contract and discharged the parties from their obligations under it. The clinching argument in the defender’s favour was that both parties clearly entered into the contract with the same intention. The reason behind the hire of the flat was, therefore, a material term of the contract.
Had the defender failed to communicate his motivation for hiring the flat, then the contract would have remained capable of enforcement by the pursuer. Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract. It was also important to identify the substance or the purpose of the agreement. In other words, did the parties share the same intentions?
The illness of King Edward resulted in a second legal action. This time, however, the English Court of Appeal took a completely different approach to the issue of frustration of contract.
The decision in Krell v Henry can be contrasted with the decision below:
Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 the pursuers had entered into a contract to hire a steamship to the defender for two days. The Royal Navy was assembling at Spithead to take part in a naval review to celebrate King Edward’s coronation. The King was to review the fleet personally. The defender wished to transport paying guests from Herne Bay to Spithead to see the naval review. Due to the King’s illness, an official announcement was made cancelling the review. It would still have been perfectly possible for the defender to take his passengers on a cruise to see the assembled fleet. The defender, however, refused to use the vessel claiming that the contract had been frustrated. The pursuers brought an action against the defender for the balance of the fee of £250 owed by the defender who was refusing to pay for the hire of the boat.
The contract was not discharged by reason of frustration. The main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet.
Conclusion
The difference in approach taken by the Court of Appeal in both cases is sometimes difficult to understand. In Krell v Henry, both parties had clearly intended that the purpose of the contract was to view the procession. Reinforcing this fact, was the fact that the defender was only entitled to use the flat during the daytime. In Herne Bay Steamboat Co v Hutton, the purpose of the defender in hiring the steamship was to see the naval review, but this was not the purpose of the owners who were not the slightest bit interested why the vessel had been hired. Lord Justice Vaughn-Williams compared the situation to someone who hires a carriage to go and see the Epsom Derby, but the outbreak of some unforeseen epidemic means that the races are cancelled. This makes no difference to the owner of the carriage who will still expect to be paid for the hire of his vehicle.
In Chapter 2 of Introductory Scots Law, I discuss termination of contractual agreements. One way in which a contract can come to an end – albeit in rather an abrupt or unexpected manner – will be when the agreement is said to be frustrated.
Frustration will often arise when unexpected events intervene. Since the formation of the contract, the circumstances surrounding the agreement may have changed dramatically. The contract may now be impossible to perform or the contract may have been rendered illegal by changes in the law.
Physical destruction of the subject-matter of the contract operates to frustrate the agreement (see Taylor v Caldwell (1863) EWHC QB J1 and Vitol SA v Esso Australia (1988) The Times, 1 February1988).
Frustration as a practical issue came to mind a few months ago, when I was teaching contract law to two groups of students. Some of the more switched on members of the classes highlighted a story which had received a lot of media coverage.
This story involved the sale of a painting (Girl with Balloon) by the artist known as Banksy. In October 2018, the item was being auctioned at Sotheby’s in London. The successful bidder agreed to pay £860,000 – quite a coup for Sotheby’s. Unfortunately, for the bidder, the artist had other ideas. The frame contained a hidden device which partially shredded the painting.
Would the contract have been capable of enforcement or was this an example of frustration my students wanted to know?
Banksy’s painting is a unique item i.e. it cannot be replaced with a similar item. Arguably, the bidder would have been entitled to use frustration as a means of withdrawing from the agreement. Clearly, the circumstances of the painting being partially destroyed made performance of the contract very different from that which the bidder originally anticipated.
Imagine, for instance, if two parties had agreed terms concerning the sale of a vintage car. What if the car was stolen before it could be delivered to the buyer? It is later found by the Police on waste ground, completely burnt out by the thieves/vandals. Would the buyer really consider herself to be bound by the terms of the agreement concluded with the seller or would it be reasonable to assume that the contract was terminated due to frustration?
Risk
This area of the law of contract involves risk. The issue of risk relates to any harm or damage caused to the goods and, more importantly, who will have to bear the loss should this happen i.e. the seller or the buyer?
In Chapter 4 of Introductory Scots Law, I discuss the implications for transactions involving the sale of physical/corporeal property and the application of risk.
The question to ask is what kind of category of sale does the transaction fall under?
Consumer sale (B2C)?
Business to business sale (B2B)?
A sale between two private individuals (C2C)?
Section 29 of the Consumer Rights Act 2015 now addresses the issue of risk in relation to consumer contracts of sale before and after the physical possession of the goods has been transferred to the buyer (i.e. delivery has taken place). This is an area of the law which has been much simplified over the years in relation to consumer contracts for the sale of goods (the same cannot be said of business to business contracts of sale). The basic rule is that risk will lie with the trader until such time as s/he is able to transfer physical possession of the goods to the consumer or someone identified by her to take possession of the goods.
Presuming that sale of the vehicle was a consumer transaction, I think most reasonable people would opt for frustration of contract in this situation. Presumably, the seller of the car (the trader) has an insurance policy in place to cover such eventualities as theft and destruction.
In business to business sales and private sales, risk will pass from the seller to the buyer when the parties intend that it should pass or depending upon the classification of the goods (as per Section 18 of the Sale of Goods Act 1979 with its 5 rules).
In the strange environment of the international art world, the semi-destroyed Banksy painting became even more valuable and the bidder was happy to pay the purchase price. This, however, is not normal behaviour for most ordinary people.
Football: it’s a funny old game
On a more tragic note, the issue of possible frustration of contract rose once more in relation to the death of the Argentinian footballer, Emiliano Sala who had completed a transfer agreement to leave the French club, FC Nantes and go to Cardiff City, the English Premier League club.
Before he could play his first competitive game with his new club, Mr Sala was killed in a plane crash over the English Channel. This led to demands by Nantes for payment of the first part of the transfer fee of £15 million from Cardiff City FC.
Such a contract i.e. for personal services could conceivably be discharged by the death of the person who was to perform it. Additionally, the incapacity of a person who is to perform a personal contract may discharge it. However, temporary incapacity is not enough unless it affects the performance of the contract in a really serious way. If an employee is killed or permanently incapacitated, it may be very difficult to argue that the employment contract should be allowed to continue.
Sadly, in the Sala tragedy, it looks as if the lawyers will be the only winners here.
Links to media stories about the Sala dispute can be accessed below:
Nantes demand first slice of £15m Emiliano Sala fee from Cardiff
Frustration can only be used to have the contract discharged in situations where neither party is to blame. When one party is to blame for the failure to perform his obligations under the agreement, this represents a breach of contract and the innocent party can raise the appropriate action.
Seán Crossan's Scots Law 