Contract Law

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“The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate – a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to the execution, or the like. Yet this does not in itself affect the bargain which they have made…” (per Lord Simon in British Movietonews Ltd. v. London and District Cinemas [1952] A.C. 166 at 185).

Discuss this dictum and explain the respects in which it needs to be qualified.

This quote refers to the doctrine of frustration. In order to adhere to the essay question, it is important to establish what frustration is. The essence of frustration was identified in Davis Contractors Ltd v Fareham Urban District Council[1] by Lord Radcliffe. He asserts that “Frustration occurs whenever the law recognises that without the default of either party, a contractual obligation has become incapable of being performed because of the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract”. The doctrine excuses parties from further contractual performance when unforeseen events, subsequent to contract formation, make performance illegal, impossible, or radically different from the obligations the parties undertook at formation[2]. The doctrine was established in the nineteenth century. Prior to this, supervening events provided no excuse for non-performance therefore contractual duties were regarded as absolute. The leading case for this is Paradine v Jane[3]. The claimant sued the defendant for rent. The claimant sued the defendant for a failure to pay rent for three years on leased lands. Jane asserted as a defense that the lands had been seized and occupied by Prince Rupert of Germany, and that Jane had been put out of possession and frustrated in the performance of his duties under the lease and was not bound to perform under the contract. The court held that when a party creates "a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract."

In British Movietonews Ltd. v London and District Cinemas[4]. The contract was made with regards to film distribution. It included a stipulation in the contract which allowed the defendant to end the arrangement given that there was a four week notice. The parties entered into a supplementary agreement which affirms that the original contract would remain until the order was cancelled. This was due to the fact that the Cinematograph Film Order proscribed them from distributing or obtaining any films without license except it was for “securing public safety, the defence of the realm, maintenance of public order or efficient prosecution”. However this order went on for longer than expected. The claimant contended that this meant that payment would persist but the defendants opposed.

On first instance Lord Slade agreed with the claimants. The appeal was allowed as it was held that the delay could not have been envisaged and the situation had altered significantly from the intentions the parties had created the contract on, hence it couldn’t continue.

Lord Simon, on appeal in the House of Lords stressed that the meaning of “an unexpected turn of events” had been misconstrued and applied too generally thus includes non-frustrating events. He avows that a “frustrating event must be regarded as introducing a new situation to which no limit can be put”. The appeal was allowed.

Looking at the dictum by Lord Simon, it is possible to infer that he is not in favour of the doctrine of frustration but leans towards the approach of absolute liability as he states “The parties to an executory contract are often faced, ...... with a turn of events which they did not at all anticipate....... Yet this does not in itself affect the bargain which...
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