TOPICDISCHARGE BY FRUSTRATION

INTRODUCTION

A contract may be discharged as follows:1. Discharge of contract by frustration;2. Discharge by agreements;3. Discharge by Performance; or4. Discharge by breach.

A contract is formed if there is an offer, an acceptance and a consideration. But the contract is not necessarily enforceable. There may be a defence to its enforcement. These defences may arise due the subject matter of the contract or because of the behavior of a party or the status of a party.

No person can be held liable to perform the contract if, since acceptance, there has been a radical change which makes performance impossible or illegal. Under certain circumstances, a person can be relieved of his duties under a contract, which is known as "frustration". For example, an act of God may have destroyed the object of the contract.

DEFINITION OF FRUSTRATION

*At common law a contract may be discharged on the grounds of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to perform, or makes the obligations radically different from those undertaken when the contract was executed.

Frustration concerns with contracts which are clearly valid when formed but later on one party seeks to escape because subsequent event had changed the nature of the contract which renders the contract impossible to be performed by the parties or the contract becomes unlawful.

THE EFFECT OF FRUSTRATION

*The effect of frustration is that the contract is automatically and immediately discharged. Both parties are thus released from further obligations under the contract, including the obligation to make any payments otherwise due

The effect is the contract are as follows:

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The contract is void; The contract is brought to an end automatically when the frustrating event occurred; The parties to the contract are discharged from contractual obligations that would have

fallen due after the frustrating event. However, they are still liable on any obligations which arose before frustration The discharge of a contract on the ground of frustration occurs automatically upon the happening of the frustrating event and does not require any repudiation of the part of either party.

In short, the basic rule is it (frustration) happens not due to the act or election of the party relying on it, but in fact it is due to unforeseen circumstances which has changed of the situation of the original contract.

Remedy?

In the case of Denny, Mott and Dickson Ltd v James B Fraser & Co Ltd (1944) AC 274 the issue before the court was whether the contract of service was broken by the company or was void due to frustration.

On this, Lord Wright in his judgment says:-

It is now I think well settled that where there is frustration a dissolution of a contract occurs automatically. It does not depend, as does rescission of a contract on the ground of repudiation or breach, on the choice or election of either party. It depends on what actually has happened on its effect on the possibility of performing the contract. Where, as generally happens, and actually happened in the present case, one party claims that there has been frustration and the other party contests it, the court decides the issue and decides it ex post facto on the actual circumstances of the case.

It is the rule that the frustrating event must not have caused by either party. On the issue of impossibility, the court in Taylor v Caldwell (1863) 3 B & S 826 which set out the doctrine of subsequent impossibility (frustration) stated that the parties to a contract are excused further performance of their obligations if some event occur, without fault of either party, which makes further performance

TESTS/ BASIS FOR THE DOCTRINE OF FRUSTRATION

1. It was based on implied term where the party is unable to perform his contract without his default, he shall be excused from performance

This principle stems from the case of Taylor v Caldwell (1863) 3 B & S 826. In this case, the defendant (the owner of the hall) had agreed to hire to the plaintiff (the hirer) a music hall on certain specified days for the purpose of holding concerts. The hall was accidentally destroyed by fire before the contract date. The hirer sued the owner for damages for breach of contract.

The Court of Queen’s Bench held that the owner was not liable to pay damages as the contract must be construed as subject to an implied term that the parties shall be excused in case, if performance becomes impossible.

*The beginning of the doctrine is said to be the case of Taylor v Caldwell in 1863, a case involving the hire of a hall. Before the day on which the hirer was to use the hall, it burnt down. This was held to be a frustrating event which caused the contract to be terminated and neither party was in breach. Frustration cases since then have involved a number of different types of frustrating event. The key question is always: is this an event which excuses the parties from further performance or is it an event which is the type of risk which the contract expressly or impliedly contemplated? If the latter then the contract is not frustrated and, if a party does not perform, he or she is in breach.

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/n Yong Ung Kai v Enting [1965] 2 MLJ 98 the defendant (the seller) agreed to sell timber on a piece of land to the plaintiff (the purchaser). It is the rule that In order to cut down the timber, a licence was required from the Forest Department. The written document executed by the parties did not refer to the importance of obtaining a licence. The seller did apply for a licence but his application was rejected. It was held that there was an implied term that the sale of the timber was to be subject to the necessary licence. The license in this case is impliedly necessary. The contract is therefore frustrated because it is impossible for the seller to perform without the license.

2. Radical Change in the obligation and disappearance of foundation of contract

Under common law, frustration may occur when performance of the contract would require something “radically” different from that which is agreed. However, if the event can be foreseen, it does not amount to frustration. See of Davis Contractors Ltd v Fareham UDC.

In this case contractors had agreed to construct 78 houses for a local authority which was suppose to take 8 months for 94,000 pound. However, they took 22 months because of unexpected labour shortages and the cost had increased to 115,000 pound.

/The contractor contended that there was a frustration of the contract and claimed for the actual cost incurred. The House of Lords rejected the claim. The delay was not a new state of things which the parties could not reasonably be thought to have foreseen. The events which caused the delays were in fact within the ordinary range of commercial probability and it had not brought about a fundamental change of circumstances.

The House of Lords held that there was no frustration even though due to labour shortages, the contractor took almost 3 times longer than what the parties agreed to. The fact that the contract became more expensive did not discharge the agreement. Frustration occurs whenever the law recognizes that without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.

It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for."

Lord Loreburn explained in FA Tamplin v Anglo-Mexican Petroleum [1916] 2 AC 397, that the court:

'… can infer from the nature of the contract and the surrounding circumstances that a condition which was not expressed was a foundation on which the parties contracted … Were the altered conditions such that, had they thought of them, the parties would have taken their chance of them, or such that as sensible men they would have said "if that happens of course, it is all over between us".'

*In answering this question, the courts have stressed the importance of first looking at the construction of the contract and the circumstances surrounding it. The original obligations can then be compared to those following the supervening events. Only if there is a fundamental or radical change in those obligations will the contract have been frustrated.

Codelfa Construction Pty Ltd v State Rail Authority of NSW    HPH 740 at 749

*We looked at this case before when we were examining implied terms. It will be recalled that the building of the eastern suburbs railway in Sydney was overtaken by disaster when residents obtained an injunction which prevented work being done at night. Codelfa, the contractor, had quoted on the basis of being able to work a three 8-hour shift day. It attempted unsuccessfully to argue that an implied term should meet the new circumstances whereby Codelfa obviously could

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not finish on time and there were extra costs incurred as a result of the new arrangements. The High Court was however prepared to order that the contract had been frustrated. The result was that the contract came to an end once the injunction was granted. In fact Codelfa finished the work. This work had to be paid for on the basis of a fair and reasonable remuneration, that is, on the basis of restitution, because there was no longer any contract to determine how much Codelfa should be paid for the work.

*In the course of discussion about the proper basis for the operation of the doctrine of frustration, Mason J made it clear that the court’s task is to compare performance of the contract under the new conditions with the performance contemplated by the contract before the changed circumstances. If performance is radically different, then the contract is frustrated. In this case, this was so even though there was a clause - cl 8(2)(c) discussed on p 752 - which appeared to cover the events which arose. But Mason J said that it was not intended to cover such a radically disruptive event - a court injunction - which prevented the basic system of work from being employed.

STATUTORY PROVISIONS IN MALAYSIA

The common law doctrine of frustration is part of our local law and has been codified in section 57(2) of the Contracts Act 1950.

Sec. 57 (2) of the Contracts Act 1950 provides the rule on discharge of a contract by supervening impossibility of performance.

A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

1. Unlawful

As to unlawful element, a contract may be valid when it is formed but with the passage of time, the contract may be held to be unlawful in view of the changed situation.

2. Impossible

Section 57(2) envisages two main instances of frustration that are impossible or unlawful. In relation to supervening event: it occurred after contract has been made; it occurred without default of either party; and the contract does not contain sufficient provision to be applied for such radical changes.

Categories of impossibility Initial impossibility; and Supervening impossibility.

One factor to consider is whether the destruction has rendered performance of the contract impossible or radically different from what originally agreed to.

Visu Sinnadurai in his book on the Law of contract in Malaysia and Singapore -- Cases and Commentary, had this to say when dealing with the doctrine of frustration at p 487:     

The Act does not define the word 'impossible'. However, it appears that the wording of the section envisages two main instances of frustration -- when a contract to do an act becomes (a) impossible or (b) unlawful.   It is clear that the frustration should be supervening and subsequent to the formation of the contract. Furthermore, it should be some event which the promisor could not prevent, as a 'self-induced frustration' does not discharge a party of his contractual obligation (Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524).

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Chitty on Contracts -- General Principles" 24th Edition p. 658/9 as follows:

"In view of the decision of the House of Lords in Davis Contractors Ltd v Fareham UDC [1956] AC 696, 720-721, 723, 729 the proper test for frustration may be formulated as follows: If the literal words of the contract were to be enforced in the changed circumstances, would this involve fundamental or radical change from the obligation originally undertaken? In this case Lord Radcliffe said: " ... frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do ... There must be ... such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for. Lord Reid put the test for frustration in a similar way. 'The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not, then then it is at an end.' Later in his speech, he approved the words of Asquith L.J. that the question is whether the events alleged to frustrate the contract were 'fundamental enough to transmute the job the contractor had undertaken into a job of a different kind, which the contract did not contemplate and to which it could not apply'. (Parkinson (Sir Lindsay) & Co Ltd v Commissioner of Works [1949] 2 KB 632).

The application of the doctrine was referred in the case of Ramli bin Zakaria & Ors v Government of Malaysia [1982] 2 MLJ 257 where at p 262, the Federal Court after referring to a number of English authorities, expressed its views of the doctrine in the following manner:

In short, it would appear that where after a contract has been entered into there is a change of circumstances, but the changed circumstances do not render a fundamental or radical change in the obligation originally undertaken to make the performance of the contract something radically different from that originally undertaken, the contract does not become impossible and it is not discharged by frustration.

Fact

In this case, the appellants were a group of 86 vocational school teachers, whereas the respondent was the government. The teachers who were successful in their application for teacher training. One of the conditions of the contract was that the teachers would, on completion of the course be accepted as teachers on the Unified Teachers Scheme (UTS) scale. By the time they completed their course of training the UTS scale had been abolished and the Abdul Aziz scheme came into force.

The teachers were offered salaries under the Abdul Aziz scheme. They claimed that they should have been paid salaries and allowances under the UTS scheme. The government pleaded that as the recruitment of teachers into the UTS had been discontinued the teachers could not be offered under the UTS. The government pleaded that recruitment of teachers into UTS had been discontinued as from December 15,

What the teachers want is first to be placed under UTS and then opt into Aziz Scheme. The rule 103 of the Service Circular No. 10/1971 however provides that the right to opt was given only to those who were employed before the coming into force of the Scheme. Those who were recruited under the Scheme are not in the position to opt as they are already in it. Further the right to opt is never envisaged in the agreement between the parties. They cannot reject the Aziz Scheme and apply for right of option under it at the same time.

The High Court dismissed the claim and the teachers appealed to the Federal Court. It was held that even though the contract has been changed, but the changed circumstances do not render a fundamental or radical change in the obligation originally undertaken. Thus, the contract does not become impossible and it is not discharged by frustration. Appeal dismissed.

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In short, it would appear that where after a contract has been entered into there is a change of circumstances but the changed circumstances do not render a fundamental or radical change in the obligation originally undertaken to make the performance of the contract something radically different from that originally undertaken, the contract does not become impossible and it is not discharged by frustration.

The introductory passage in a chapter dealing with discharge by frustration in 'The Law of contract in Malaysia and Singapore -- Cases and Commentary" by Visu Sinnadurai at p. 487/8 reads:     

"A contract is frustrated when there is a change in the circumstanceswhich renders a contract legally or physically impossible of    performance. According to the House of Lords in the case of Joseph Constantine Steamship Line, Ltd v Imperial Smelting Corpn Ltd [1942] AC 154 the doctrine 'is only a special case of the discharge of contracts by an impossibility of performance arising after the contract was made.

 In Ramli bin Zakaria & Ors v Government of Malaysia [1982] 2 MLJ 257 at p 262, Abdul Hamid FJ (later CJ) enunciated what amounts to frustration. He said:      In short it would appear that where after a contract has been entered      into there is a change of circumstances but the changed circumstances      do not render a fundamental or radical change in the obligation      originally undertaken to make the performance of the contract something      radically different from that originally undertaken, the contract does      not become impossible and it is not discharged by frustration.

We accept that statement to be an accurate proposition governing the law of frustration. In the words of s 57(2) of the Contracts Act 1950:

      A contract to do an act which, after the contract is made, becomes      impossible, or by reason of some event which the promisor could not      prevent, unlawful, becomes void when the act becomes impossible or      unlawful.

In Standard Chartered Bank v Kuala Lumpur Land Mark Sdn Bhd [1991] 2 MLJ 251, the Standard Chartered granted a loan of RM20 million to a borrower (a third party) in 1986. To secure the loan, the defendant (KL Land Mark Sdn Bhd) charged its land to the Bank as security for the loan. The borrower defaulted in repayment of the loan and the Bank initiated a legal proceeding and applied for an order for sale of the charged lands to settle the debts.

The parties (the Bank and KL Land Mark) entered into an agreement whereby the KL Land Mark will pay RM2 million to the bank and another RM18 million by way of bank guarantee which was payable on demand on or before 2/12/1989. In return, the Bank would suspend the legal proceedings.

On 1/12/1989, another company, Monsia Investment Pte Ltd, obtained an injunction to restrain both the Bank and the KL Land Mark from proceeding with the said agreement. As the result, the KL Land Mark could not comply with the agreement to pay the RM18 million to the Bank as agreed. Due to that failure, the Bank revived their claim to foreclose the charged land.

The High Court held that the redemption agreement was frustrated by an injunction obtained by a third party (Monsia) restraining both the Bank and Land Mark from acting on the redemption agreement. The very essence of the agreement was rendered impossible to perform because of the injunction granted by the court in favour of the Monsia.

On appeal, the Supreme Court however held that since the Bank are only obliged to discharge the charges (after they have received RM18 million together with the interest due), therefore the injunction in the Monsia suit did not frustrate the agreement.

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In HA Berney v Tronoh Mines Limited [1949] 1 MLJ 4, on the invasion of Malaya by the Japanese forces, the European staff of the defendant company (the company) was evacuated from Tronoh, Tanjong Tuallang and other places but the plaintiff elected to remain at Tanjong Tuallang. The plaintiff, a Swiss national (the employee) however elected to remain in Malaya and claimed for damages from the company for sued for breach of contract of service. The company contended that as the result of the Japanese occupation of Perak, the contract of employment between them and the company was discharged from contract by frustration. The court accepted the company’s argument and held that the invasion of Malaya by the Japanese frustrated the contract and therefore there was no breach of contract by the company.

It is evidenced when the principle in the Davis Contractor was applied Dato’ Yap Peng v Public Bank Bhd [1997] 3 MLJ 484.

*In this case, the Bank Negara Malaysia (BNM) issued the Essential (Protection of Depositors)(No 14) Order 1986 ordering the first vendor and all companies in which he had an interest, be prohibited from dealing with their assets, except with consent from BNM.

At the time, the second and fifth appellants had borrowed monies from each of five respondents upon security of shares and land. Upon default in repayment, the respondents, in some cases after obtaining BNM’s consent, liquidated some of the securities.

*The apps sued the respondents for damages, claiming for a declaration that the sale of properties was illegal and void.

Upon the respondents’ application, the deputy registrar struck out these claims whereupon the appellants appealed to the Court of Appeal on the ground that the BNM order frustrated the rights of the apps for redemption and discharge under the security transactions.

CIRCUMSTANCES OF APPLICATION OF SUPERVENING IMPOSSIBILITY (UNDER COMMON LAW)

The kind of events which have been recognized as giving rise to frustration includes the supervening impossibility in the following situations:

(a) Impossibility due to destruction of the subject matter of the agreement

The existence of the subject matter (the physical object) must be essential to the attainment of the fundamental object of the agreement as intended by the parties. In the case of natural disaster such as if the subject matter is no longer available, the contract is discharges due to impossibility of performance.

In Taylor v Caldwell (1863) 3 B & S 826 , as has been mentioned previously, a music hall was rented but burnt down just before the event. In this case the court excused both parties from their obligations because there was an implied condition that the parties contracted on the basis of the continued existence of the particular person or chattel. Thus, the Court of Queen’s Bench held that the owner was not liable to pay damages as the contract must be construed as subject to an implied term/ that the parties shall be excused in case, before breach, performance becomes impossible to perform.

Krell v Henry  

This is generally regarded as the high water mark of frustration cases, that is, the court taking the most liberal view of the operation of the doctrine. The contract was for the hire of a room overlooking the coronation route for the coronation of King Edward VII. The coronation was cancelled because of the King’s illness. This was held to be a frustrating event. You can see from this case that it is necessary to adduce extrinsic evidence in order to argue frustration, a point specifically made by Mason J in Codelfa. On the face of it this was just a contract to hire a

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room. The defendant got what he bargained for. Yet he was successful in arguing frustration with the result that he did not have to pay the balance supposedly owing under the contract.

Krell v Henry has been the subject of critical comment but probably it would be decided the same to-day in the light of what was said in the High Court in Codelfa. Nevertheless, it is by no means easy to say what is the correct solution to these kinds of cases. In Krell v Henry one might ask: who should take the risk of the coronation being cancelled - the landlord or the person hiring the room?

In Appleby v Myers (1867) LRCP 651, there was a contract between the plaintiff (the contractor) to erect machinery on the defendant’s premises (the owner) for 459 pound. It was agreed that payment is due only upon completion of the work and the contractor would also maintain the same for 2 years. When the work was almost completed, the factory and the partly constructed machinery were destroyed by fire. It is clear that the contract was frustrated, therefore the parties were no longer bound to perform their obligation under the contract. However, but another issue to consider is whether the owner is liable to make payment for the work done by the contractor?

It was held that the contract was frustrated and the parties were no longer bound to perform their obligation under the contract. Thus, owner had no obligation to pay because the work was not completed and the owner did not receive any benefit because all the work were destroyed. Since the contract is frustrated, the contractor had no duty to continue with the work and he has also has no basis to make a claim to the owner, since the obligation to pay did not arise until completion.

Gamerco S.A. v ICM / Fair Warning (Agency) Ltd [1995] 1 WLR 1226 (use of venue banned)

The plaintiffs agreed to promote a rock concert to be performed by Guns N Roses as part of a European tour at the football stadium of Atletico Madrid. The stadium was closed by the local authorities on safety grounds. The plaintiffs had paid U.S. $412,5000 to the defendants in advance, and incurred expenditure in excess of U.S.$400,000. The defendants also incurred preparatory expenditure for that purpose.

The issue was whether the plaintiff were allowed to recover their entire US412,500 advance payment.

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(b) by the supervening event, defeating the object of the agreement/non- occurrence of an essential event that form the basis of the contract

In Krell v Henry [1903] 2 KB 740, the defendant agreed to hire a flat for 75 pound from the plaintiff (landlord) for 26 and 27 June 1902. He paid 25 pound on the contract date and agreed to pay the balance of 50 pound on 24 June 1902.

The contract did not refer to the coronation processions even though the landlord had put on advertisements outside the flat offering to let windows to view the coronation procession of the new King, which is to take place by passing the flat. The processions were cancelled due to illness of Edward VII. The landlord claimed the balance of 50 pound.

The Court of Appeal held that the cancellation of the coronation had frustrated the contract. The viewing of the procession was the foundation of the contract. The hiring of the flat overlooking the procession to Westminster Abbey was dependent on the coronation taking place. The defendant had rented the room to view the procession. It was the foundation from both the parties point of view. The landlord’s failure to provide that “view” frustrated the contract even though it was not the landlord’s fault.

However, in Herne Bay Steamboat v Hutton [1903] 2 KB 683, the Court of Appeal took a different stand. In this case the defendant chartered the SS Cynthia from the plaintiff for 28 and 29 June 1902 for the express purpose of taking paying passengers to see the coronation naval review by Edward VII at Spithead, and for a cruise round the fleet. On cancellation of the event due to the King’s illness, the Court of Appeal held that the contract was not frustrated. The court of the view that the view was not regarded as the foundation of the contract (they were matters of importance to the charterer only and not to the owner). The review and the tour could still be effected.

In Chandler v Webster [1904] 1 KB 493 the plaintiff agreed to hire from the defendant a room in Pall Mall to watch King Edward VII’s coronation procession. The price was 141 pound, payable immediately. The plaintiff paid 100 pound but before he could pay the balance, the procession was cancelled and the plaintiff sought to recover the 100 pound paid.

The House of Lords held that the plaintiff failed to recover his 100 pound and he was liable to pay the balance of 41 pound, an obligation which fell due before the occurrence of the frustrating event. The reason was that the contract is valid until the occurrence of the frustrating event.

(c) by the death or personal incapacity of a party where personal performance is essential

A contract of employment may be frustrated if one part is unable to perform due to death, illness or incapacity. It is the duty of the court to consider how long he is unable to perform

Severe sickness of one of the parties is an example where frustration might apply to relieve one of the parties of their obligations under a contract.

See illustration (e)

Notcutt v Universal Equipment Co Ltd [1986] 1 WLR 641Contract of employment – heart attackA contract of employment determinable by notice on either side can be frustrated by long term illness.

Robinson v Davidson (1871)

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Piano player

(d) by the occurrence of a supervening illegality.

Illustration (e) to section 57

(i) Outbreak of war e.g. trading with enemy

In war period, generally there will be a change in the operation of the law in the country. Public interest must be protected. It may have the effect on the outstanding obligation by reason of the supervening illegality. In the event one of the parties resides in this country and the other party is in the enemy country, the contracts between them involves commercial transaction with the enemy. In this situation, the contract is frustrated.

Any amount of money paid and spent before the contract is frustrated is not recoverable.

The decision in Chandler v Webster (which provides that the money paid is not recoverable in the case of frustration) was partly overruled in

The Fibrosa [142] 2 All ER 122 where a different decision however can be in this case. The facts of the are as follows. The respondents contracted with the appellants, a Polish company, to manufacture certain machinery and to deliver it to Gdynia. Part of the price was to be paid in advance, and the appellants paid 1,000 pound. When Gdynia was occupied by hostile German forces in September 1939, the contract is frustrated. The appellants requested the return of the 1,000 pound he has paid and expenses had been made for the considerable work done on the machinery, thus the claim was rejected.

Thus, the House of Lords held that the appellants could recover the 1,000 pound on the ground that this was not the contract which had ceased, but an action in what is known as quasi-contract for the restitution of money paid where there has been total failure of consideration.

Consideration in quasi-contract does not have the same meaning as the consideration necessary to formation of contract as what we understand.

Therefore, if the party paying the money has not received part of the performance for which he bargained (in this case, none of the machinery had been delivered), there is total failure of consideration.

Despite some improvement in Fibrosa, the situation was still unsatisfactory, due to the following reasons:

1. The party who had to return the pre-payment might have incurred expenses, but he would not be entitled for anything.

2. If the party seeking to recover the pre-payment had received any part of what he bargained for, no matter how small is the amount (eg. 1 cent) , there would be no total failure of consideration.

The position of this matter is even worse in the case of Stocznia Gdanska SA v Latvian Shipping Co [The Times, 27 February 1998] whereby the court in this case held that the test for total failure of consideration does not depend upon whether the buyer has received anything under the contract, but on whether the seller has performed any part of the contract for which the payment due.

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Due to difficulties in this matter, The law Reform (Frustrated Contracts) Act 1943 was enforced.

Finelvet AG v Vinava Shipping Co. Ltd

(ii) Changes in law rendering object of contract illegal

As to unlawful, if during the validity of the contract, there is a change in the law which renders the performance of the contract illegal, the contract is said to have been frustrated. This situation may involve the laws or policies imposed by the government.

(e) Governmental interference which strikes at the root of the contract

/A contract may also be frustrated because the government as prohibited its performance. However, sometime the government prohibition may be only for temporary. Thus, such prohibition operates a frustrating event only if it is final and affects the performance of the contract.

In Metropolitan Water Board v Dick, Kerr & Co. Ltd [1918] AC 119, Messrs. Dick, Kerr & Co (DK) contracted with Metropolitan Water Board (MWB) to build a reservoir within six years. Two years later, the Minister of Munitions (under his statutory powers) instructed DK to cease work. MWB claimed the contract subsisted on the basis of a contract provision allowing a time extension in the event of difficulties. The House of Lords held that that the contract was frustrated on the basis that even if it were resumed after such interruption, it would effectively be a different contract.

When the land was compulsorily acquired and compensation awarded, the subject matter of the agreement ceased to exist and performance of the agreement became impossible. For that reason, the compulsory acquisition of the land frustrates the agreement so as to discharge both the purchaser and the vendor of their obligations under the agreement.

In Lee Seng Hock v Fatimah bte Zain [1996] 3 MLJ 665 (CA) the vendor (the purchaser) was the registered proprietor of a 1/2 share in a certain piece of land (the land). The other 1/2 share formed the asset of the estate of one Hatijah bte Hj Jusoh (the deceased).

In December 1979, the vendor (the seller) in her capacity as the administratrix, sold the deceased's 1/2 share of the land at a purchase price of RM40,000. The purchaser paid to the vendor a sum of RM4,000 representing 10% of the purchase price. In March 1980, a kadi's certificate was issued distributing the 1/2 share of the land in the estate of the deceased to the vendor and Baitulmal in the proportion of a 1/2 share each, resulting in the vendor and baitulmal having a 1/4 share each in the land. In May 1994, the whole land was acquired by the government.

Compensation was awarded to the purchaser for his 1/2 share of the land, and the vendor for her 1/4 share of the land. The purchaser filed an application claiming for the compensation due to the vendor less the balance of the purchase price due under the agreement. The vendor contended that the agreement had been frustrated because of the compulsory acquisition of the whole land by the government, and it was impossible to perform the agreement.

Whether the acquisition of the land had radically changed the obligation of the respondent to sell the 1/2 share of the land to the appellant. Can the purchaser claim such compensation as being due and payable to him?

The trial judge agreed with the vendor’s argument and ordered that the compensation payable to the vendor for her 1/4 share of the land be paid out to her less the sum of RM4,000 being the 10% deposit to be refunded to the appellant. the purchaser appealed.

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The principal issue raised in this appeal was whether the doctrine of frustration applied so as to discharge the parties from their obligations under the agreement.

In dismissing the appeal, the Court of Appeal held section 57(2) of the Contracts Act 1950 was applicable in this case. The acquisition of the land had radically changed the obligation of the vendor to sell her 1/2 share of the land to the purchaser , as what was agreed and intended by the parties and affirmed by the agreement was a transfer of a 1/2 share of the land from the vendor to the purchaser by way of a sale. The case of  Ramli bin Zakaria & Ors v Government of Malaysia was followed.

Furthermore, it was held that since the subject matter of the agreement had been taken away and replaced by way of compensation, the purchaser could not claim such compensation as being due and payable to him because the basis of the appellant's claim was dependent on the agreement. Since the agreement was void under section 57(2) of the Act, the purchaser could not claim any right to such compensation. At most, under s 66 of the Act he was entitled to be refunded the 10% deposit he had paid to the respondent.

In Public Finance Bhd v Ehwan bin Saring [1996] 1 MLJ 331 the finance company granted a loan by way of hire purchase to purchase a motor vehicle. The car however was seized and forfeited by the Custom and Excise Department for an alleged offence. It was held that the agreement has become void because it is impossible for the finance company to maintain its rights or interest in the vehicle as the title have now defective. Thus, the hirer has no duty to continue with the hire purchase.

LIMITATIONS TO THE DOCTRINE OF FRUSTRATION

A contract is not frustrated in the following circumstances:

(a) Where event is foreseen and express provision is made for it

It was originally said that the doctrine of frustration was based on an implied term. The law is clear that express terms shall overrule implied provision. In short, the doctrine of frustration cannot override express contractual provision for the frustrating event.

To see whether the doctrine applies, one would have to construe the contract and see whether the parties have themselves provided for the situation that has arisen. Thus, If the parties had foreseen the new situation might occur after the contract and made provisions for it, they may treat the contract to end, should the foreseen situation occur.

Differences between frustration and conditional contract

In certain contracts, one party’s obligation is conditional on something else, in which, his obligation to perform is subject to a condition. It is known as a conditional contract.

There are two types of conditional contract:

Condition precedent involves an event which must take place before a party to a contract must perform or do their part.

Condition subsequent is a happening which terminates the duty of a party to perform or do his/her part.

To put it is a simple term, what the parties have agreed is that one party must completely fulfill the condition before the other’s obligation arises. Thus, in the case of conditional contract for the sale of land, the contract is binding, but the other party’s obligations (for example, obligations to pay the purchase price) is subject to the said condition being fulfilled. The enforceability of such contract depends on the occurrence of the specified event. In the event consent has been obtained, then only the purchaser has the obligation to pay the balance of the purchase price within the agreed period.

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In contract law, a condition is an event that is not certain to occur. There are two types of conditions that are condition precedent and condition subsequent. In the case of condition precedent, an event must occur before performance becomes due. If a condition does not occur, then the obligation of the other party does not arise when the condition is not fulfilled.

It is common to have a clause that the vendor must apply for a consent from the relevant authority to effect the sale. Even though the contract takes effect upon its creation, if the condition is not fulfilled, the contract will come to an end and has no further effect. Under such circumstances both parties are released from liability but the purchaser is entitled to recover the deposited sum paid to the vendor.

Therefore, either party without consent of the other party cannot waive or terminate a conditional contract. However, non-fulfilment of condition without fault of the party does not amount to a breach of contract even though the contract will come to an end. The contract is therefore discharged without the other party’s consent.

To avoid problem on interpretation, it is advisable that the condition must be clearly defined. It has to be made precise and certain.

The effect of a conditional contract is illustrated by the case Aberfoyle Plantation Ltd v Khaw Bian Cheng1 where in this case the vendor has agreed to sell a plantation part of which consisted of 182 acres comprises in seven leases that had expired in 1950. The vendor had failed to obtain a renewal of the leases. The agreement between the parties provided that “the purchase is conditional on the vendor obtaining a renewal of the lease”. The vendor failed to obtain the renewal. The Judicial Committee of the Privy Council held that the condition stated in the agreement had to be fulfilled by the vendor and until the condition was fulfilled, there was no contract of sale to be completed.

In Setapak Heights Development Sdn Bhd v Tekno Kota Sdn Bhd [2006] 3 MLJ 131, the purchaser who was the defendant (the vendor) in the court below is the registered proprietor of a piece of land held under Grant No 10101, Lot No 14271, Setapak, Kuala Lumpur measuring pproximately 283,026 square meters (the said land).

The vendor and the respondent (the purchaser) entered into a sale and purchase agreement on 23 August 1995 whereby the vendor agreed to sell and the purchaser agreed to purchase the said land at the purchase price of RM54,500,000 and upon the terms and conditions contained in the agreement. The 10% deposit of RM5,450 million was paid by the purchaser to the vendor upon the execution of the agreement. Another 10% of the purchase price amounting to another RM5,450,000 was to be paid by the purchaser to the vendor within 14 days after the purchaser is in receipt of both the layout plan approval and the foreign investment committee (FIC)’s approval.

The remaining balance of 80% of the purchase price amounting RM43,600,000 was to be paid by the purchaser to the vendor’s solicitors as stakeholders within 3 months from the date the agreement becomes unconditional which means that all the conditions precedent have been fulfilled by the parties.

There were three conditions precedent to be fulfilled under the agreement. The first condition was for the vendor to obtain the layout plan approval. The second condition precedent was for the vendor to furnish the purchaser the proof of

submission of the development order by the vendor to the various relevant authorities. The third condition precedent was for the vendor to obtain the FIC approval. The time

period for the fulfillment of the above three conditions precedent was six months from the date of the agreement or such extended period as to be mutually agreed upon by the parties.

1 [196] MLJ 47

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The period of six months stipulated in the agreement had expired on 22 February 1996. The vendor obtained the FIC approval on 30 January 1996. Meanwhile, the vendor obtained the layout plan approval from the relevant authority but only on 12 March 1996, that is after the agreement had lapsed on 22 February 1996. The vendor however, did not obtain the development order approval and hence did not fulfill the second condition precedent required of it.

Arab-Malaysian Bank Bhd (AMMB) (the financier), had by letter dated 11 April 1996 offered to the purchaser a term loan/bridging loan facility of RM60m to complete the purchase under the principal agreement.

As the second condition precedent was not fulfilled by the vendor and that the layout plan approval was obtained by the vendor only after the agreement had lapsed, the parties were desirous of reviving the agreement and of varying and amending the terms of the first agreement (the principal agreement).

In the result the parties entered into a supplemental sale and purchase agreement on 23 August 1996 upon the terms and conditions contained therein (the supplemental agreement).

Under the terms of the supplemental agreement, the balance purchase price amounting to RM49,050,000 was to be paid by the purchaser to the vendor’s solicitors as stakeholders within 10 weeks from the purchaser’s solicitors receiving the several documents stipulated in the supplemental agreement. the purchaser was also required to pay the vendor a further sum of RM500,000 as lump sum interest.

Subsequently by letter dated 23 January 1998, AMMB notified the purchaser that the said term loan/bridging loan facility of RM60m will be temporarily suspended with immediate effect.

Despite the series of correspondence, the vendor terminated the principal agreement and the supplemental agreement. The purchaser, on the other hand demanded the refund of the deposit from the vendor. The vendor took the stand that the said deposit is to be forfeited.

After a full trial, the High Court allowed the purchaser’s claim and ordered the vendor to pay the purchaser the sum on RM5,540,000.00 together with any accumulated interest thereon. The Court of Appeal affirmed the order made by the High Court. In the event the transaction cannot be completed due to reasons beyond the control of the, all money’s paid by the purchaser shall be refunded to the purchaser. If events is prescribed in the agreement, the doctrine of frustration does not apply. In Chan Buck Kia v Naga Shipping & Trading Co Ltd [1963] MLJ 159 a time charterparty provided a clause that “if for any reason whatsoever the vessel shall be detained at any port by any authority having domination over that port, the charterers shall continue to pay the charter hire”. The ship in question was detained by the Indonesian Government when it sailed into an Indonesian port until charter period expired.

When the ship-owner claimed the charges but the defendant pleaded frustration. The court held that the provision was intended to have effect in the circumstance which had arisen in this case, and full effect should be given to it. Therefore, the defendant must pay the hire charges for the whole period of the time charterparty.

(b) Where performance is rendered mere difficult, more expensive or delayed

However, frustration cannot be invoked just because the contract has suddenly become more onerous or more expensive for one of the parties, if the party was partly responsible for the intervening event which destroyed the object of the contract, or if the event was foreseeable. Thus, to make frustration applies, it must be more than merely more difficult or more expensive. It must be clearly unjust to hold the parties bound by the contract.

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The circumstances under which the doctrine may be invoked have been clearly explained by Lord Denning MR in the English Court of Appeal case of The Eugenia2[1964] 2 QB 226.

In this case cited, the Suez Canal was closed in 1956 as a result of military operations between Egypt and Israel. The exporter in East Africa who had sold goods for shipment to Europe could not ship the goods on the date the Suez Canal was closed.

The question arose whether the necessity to ship by alternative route constituted a radical difference on the seller’s obligation. On this issue, the House of Lords held that it was still possible to ship the goods to their destination via Cape Town, even though the seller has to incur an expensive cost.

The same sentiment has been echoed by the Malaysian court in Tai Kim Yew & Ors v Sentul Raya Sdn Bhd [2004] 4 MLJ 227. In this case, each plaintiff (the purchasers) entered into a sale and purchase agreement (the SPA) with the defendant (the developer) for the sale of the respective condominium units to be built by the developer. The SPA was in the form of Schedule H of the Housing Developers (Control and Licensing) Regulations 1989 . The developer failed to deliver vacant possession on the stipulated time and when the purchasers claimed liquidated damages for the delay in the delivery of vacant possession, the developer among other things raised the issue of frustration of the contract due to the defendant's dire financial position brought about by the 1997-1998 national economic crisis which was beyond its control.

The High Court held that even though the court prepared to take judicial notice of the national economic crisis of 1997-1998 and to accept that there was evidence of consequential financial hardship suffered by the developer, but the court refused to decide that, by reason of this economic crisis and the consequential financial hardship, a fundamentally different situation had arisen that rendered it impossible for the defendant to complete the condominium project, or to complete it with reasonable delay.

Furthermore, the court highlighted that every businessman knows that there is a risk in any commercial venture that he undertakes and that economic conditions, be it international or national, is never static but always fluctuates; and he must be prepared for any eventuality, whether favourable or adverse to him. Therefore justice demands that he should not be allowed to use such an adverse eventuality as an excuse to evade performance of the contract.

In short, in order to successfully invoke the doctrine of frustration, it is not sufficient for the defendant to merely refer to the national economic crisis of 1997-1998 and the consequential dire financial position of its parent company. More needs to be established. There had to be a radical change in circumstances. In the present case, there is no evidence that it had become impossible to complete the Condominium.

To conclude, it is the rule that unprofitability is not itself a ground for discharge for frustration.

(c ) Self-induced frustration

*One limitation on the doctrine of frustration is that a person cannot argue frustration if he or she has caused the frustrating event. This is called self-induced and is no frustration in law. It may be possible to escape this rule if the person who has apparently caused the event can argue that it was not his or her fault. The rule about self-induced frustration is discussed in a rather odd setting in

*One of the principles relating to the operation of the doctrine is that the frustrating event must have not due to the fault of either party. If the alleged frustrating event is due to the fault of one of the parties, the frustration is said to be self-induced. An example is that failure to renew a

2 Sometimes it is known as the Suezcanal case.

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licence is a self-induced frustration. In this event, the party at fault is liable for breach of contract and he will be liable for breach of contract.

In relation to self-induced frustration, the Court of Appeal in Yee Seng Plantations Sdn Bhd v Kerajaan Negeri Terengganu & Ors [2000] 3 MLJ 699 at p710 held that:

Now, it is well settled that the doctrine of frustration has no room where there is fault on the part of the party pleading it. Another way of putting it is that self-induced frustration is no frustration. See Dato Yap Peng & Ors v Public Bank Bhd & Ors [1997] 3 MLJ 484

In Maxisegar Sdn Bhd v Silver Concept Sdn Bhd [2005] 5 MLJ 1, the purchaser (the developer) had entered into a sale and purchase agreement with the respondent (land owner) to purchase a piece of land. The developer had made payment of deposit and several further payment towards the purchase price. Its application for a loan to pay the balance of the purchase price had been rejected. The developer therefore claimed that it should had been lawfully discharged from further performance of the agreement. The landowner however insisted that the developer should complete the transaction as agreed.

The developer then initiated proceedings in the High Court for a declaration that the contract had been frustrated and consequently it was discharged from its obligation to perform the contract. The developer also sought for refund all of monies paid under the contract. On the other hand, the landowner filed a counter-claim and sought for a specific performance of the contract, compensation and damages and other remedies.

The High Court dismissed the developer’s claim with costs. The court rejected the application for a specific performance but in lieu, it awarded damages and ordered the forfeiture of the deposit and a further sum of equivalent to 11% pa on the third instalment.

On appeal, the Court of Appeal held that the contract was not frustrated because there was no supervening event at all. The developer in fact had refused to comply with the Bank Negara Guidelines on lending to the property sector and due to that circumstances, the banks were unable to grant the loan. This was in fact, a deliberate act of non-compliance by the developer.

Further, even if the High Court were wrong on this issue, on the fact of the case the frustration of the contract, if any, was self-induced by the developer itself.

d) Interruption in performance is not substantial

In National Carriers Ltd v Panalpina (Nothern) Ltd [1981] AC 675 the House of Lords held that the doctrine of frustration can apply to leases. But the circumstances of its operation would be very rare.

National Carriers Ltd v Panalpina (Northern) Ltd    HPH 789 This case was important because, before it was decided, it was generally thought that the doctrine of frustration could not apply to real estate, including leases. This is because real estate is land and land is for ever. The National Carriers case involved a commercial lease of a warehouse. The only access to the warehouse was cut off by a local authority order which closed the street because of the unsafe state of a building in the street. The lease was for 10 years. The street would be closed for about 18 months. The tenants argued that the lease was frustrated.

e) The essence of “frustration” is that it should not be due to the act or election of the party.

In Maritime National Fish Ltd v Ocean Trawels Ltd [1935] AC 524 the plaintiffs chartered to the defendants a stream trawler with an otter trawl. Both parties knew that it was illegal to use an otter trawl without a license from the Canadian government. The

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defendants applied for five licences for the trawlers they were operating, including the respondents’ trawler. They were granted three licences only. The plaintiffs were instructed to decide which of the three trawlers to be licensed. They decided to license the three trawlers, that is by excluding the defendant’s trawler., which they used for their own vessels and proceeded to repudiate the charterparty on the grounds of frustration. The Privy Council held that there was no frustration since the failure of the charter party was the result of the defendants’ own election.

BURDEN OF PROOFThe burden of proof of self-induced frustration rests upon the party alleging it.

5. EFFECT OF FRUSTRATION

The effect of frustration is that the contract is discharged from the date of frustrating event.

Section 57(3) provides that the promisor must pay compensation if he knows that the contract will be impossible.

Section 66 of the Contracts Act 1950 ……

Sections 15 & 16, Civil Law Act 1956 (pari materia the Law Reform (Frustrated Contracts Act 1944) UK

Effect of Frustration

The legal effect of frustration: common law (Chandler v Webster 1904) ‘the loss lies where it falls’ - money paid before frustrating event could not be reclaimed. Unfair, especially when Fibrosa case so passed the Law Reform (frustrated contracts) Act 1993 p.9 S.1(2).

Money payable ceases to be payable and money paid is recoverable (subject to an allowance for expenses). S 1(3) may have to pay a ‘just sum’ - gives the court the right to split the losses.

i) Prior to Fibrosa’s case

At common law, the effect of frustration is that each party must fulfil his contractual obligations so far as they have fallen due before the frustrating event, but he is excused from performing those that fall due later. See Krell v Henry [1903] 2 KB 740 (CA)

In this case there was a contract by a British manufacturer to manufacture some tailor-made machinery for a Polish buyer. After the machinery was made, Germany invaded Poland, and then the goods could not be delivered to Poland. The Polish company wanted their down payment of £1000 back. The seller had refused to pay and argued that they are entitled to keep the down payment. One of the issues is can the party who has paid a down payment can get the money back? Different approach may be seen in Fibrosa, where the answer is positive.

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd   HPH 796 In this case a Polish company ordered a machine from an English company. The Polish company was obliged to pay £1600 up front when it sent in its order. It paid £1000 of this. The English company started work on making the machine. Then war broke out and the contract was frustrated. The Polish company claimed its £1000 back. The English company said that it had already done a considerable amount of work on the machine.

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The House of Lords applied a restitutionary principle which dictates that if there has been what is called a total failure of consideration, then any money paid in advance can be recovered. T

So, in this case, the Polish company had received nothing for its money and it could therefore recover the £1000. But this was not a satisfactory result for the English company because it had performed work. Maybe it could find another buyer for the machine but this would depend whether it was a one-off machine or one which was readily saleable.

ii) After Fibrosa’s case

Law Reform (Frustrated Contracts) Act 1943 of UK

MALAYSIAN LAW

Section 15 of the Civil Law Act 1956

15. Adjustment of rights and liabilities of parties to frustrated contracts

(1) Where a contract has become impossible of performance or been otherwise frustrated, and the parties thereto have for that reason been discharged from the further performance of the contract, subsections (2) to (6) shall, subject to section 16, have effect in relation thereto.

(2) 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.

(3) Where any party to the contract has, by reason of anything done by any other party thereto in, or for the purpose of, the performance of the contract, obtained a valuable benefit (other than a payment of money to which subsection (2) applies) before the time of discharge, there shall be recoverable from him by the said other party such sum (if any), not exceeding the value of the said benefit to the party obtaining it, as the Court considers just, having regard to all the circumstances of the case and, in particular--(a) the amount of any expenses incurred before the time of discharge by

the party benefited in, or for the purpose of, the performance of the contract, including any sums paid or payable by him to any other party in pursuance of the contract and retained or recoverable by that party under subsection (2); and

(b) the effect, in relation to the said benefit, of the circumstances giving rise to the frustration of the contract.

(4) In estimating, for the purposes of subsections (1) to (3), the amount of any expenses incurred by any party to the contract, the Court may, without prejudice to the generality of the said subsections, include such sum as appears to be reasonable in respect of overhead expenses and in respect of any work or services performed personally by the said party.

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(5) In considering whether any sum ought to be recovered or retained under subsections (1) to (4) by any party to the contract the Court shall not take into account any sums which have, by reason of the circumstances giving rise to the frustration of the contract, become payable to that party under any contract of insurance unless there was an obligation to insure imposed by an express term of the frustrated contract or by or under any enactment.

(6) Where any person has assumed obligations under the contract in consideration of the conferring of a benefit by any other party to the contract upon any other person, whether a party to the contract or not, the Court may, if in all the circumstances of the case it considers it just to do so, treat for the purposes of subsection (3) any benefit so conferred as a benefit obtained by the person who has assumed the obligations as aforesaid.

16. Provisions as to application of section 15

(1) Section 15 shall apply to contracts whether made before or after the coming into force of this Act.

(2) Section 15 shall apply to contracts to which the Government is a party in like manner as to contracts between subjects.

(3) Where any contract to which section 15 applies contains any provisions which, upon the true construction of the contract, is intended to have effect in the event of circumstances arising which operate, or would but for the said provision operate, to frustrate the contract, or is intended to have effect whether those circumstances arise or not, the Court shall give effect to the said provision and shall only give effect to section 15 to such extent, if any, as appears to the Court to be consistent with the said provision.

(4) Where it appears to the Court that a part of any contract to which section 15 applies can properly be severed from the remainder of the contract, being a part

wholly performed before the time of discharge, or so performed except for the payment in respect of that part of the contract of sums which are or can be

ascertained under the contract, the Court shall treat that part of the contract as if it were a separate contract and had not been frustrated and shall treat section 15 as only applicable to the remainder of that contract.

(5) Section 15 shall not apply—

(a) to any charterparty, except a time charterparty or a charterparty by way of demise, or to any contract (other than a charterparty) or the corresponding provisions of any written law for the carriage of goods by sea;

(b) to any contract of insurance, save as is provided by subsection (5) thereof; or

(c) to any contract to which section 7 of the Sale of Goods Act 1893 of the United Kingdom [56 and 57 Vict.c.71] (which avoids contracts for the sale of specific goods which perish before the risk has passed to the buyer) or the corresponding provisions of any written law applies, or to any other contract for the sale, or for the sale and delivery, of specific goods, where the contract is frustrated by reason of the fact that the goods have perished.

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In Govindram Seksaria & Anor v Edward Radbone (1947) 74 1A, an appeal case from India, the purchaser an oil refining and hydrogenating plant from German. Payment were made by instalment. The 90% of the machiney were delivered. When two small further consignment were dispatched from Germany, war broke out in September 1939 and the items did not reach the purchaser. The seller claimed from the purchaser the difference between the value of the machinery delivered less the sum paid by the appellant. (R 96,010)

The Privy Council held that based on the Indian Law (equivalent to section 66 of the Contracts Act 1950, the value of the machinery was the value of the machinery in India after the contract had become void. The court has to take into account the balance of the machinery that had not been supplied from Germany and the seller failed to prove that the purchaser has received the machinery where the value was greater than R96,010. Therefore the claim was dismissed.

The court in Hirji Mulji v Cheong Yue Steamship Co. Ltd. [1962] AC 497 held that when a contract is discharged by frustration, the outcome is simple. The contract does not come merely voidable but it is brought to an end forthwith and automatically.

EFFECT OF FRUSTRATION

1. Obligations which fall due prior to the occurrence of the frustrating event is unaffected. Thus, payment due must be paid to the other party.

2. If the case involves payment, and the frustration event occurred after payment has been made, the person who has made the payment, is not entitled to recover his money unless he is in a position to prove that there is a total failure of consideration.

3. If one party had done his work as agreed and incurred expenses under the contract prior to the frustrating event, he may apply the principle of restitution to enable him to recover compensation.

RELIEFS

Many provinces have short "frustrated contracts" legislation which sets out the allocation of reimbursements or "restitution" in the case of frustrated contracts. The thrust of most legislation is to allow recovery of benefits conferred before discharge of the contract.

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