CONTRACT LECTURE 12 TRANSCRIPT FRUSTRATION
C STRICKLAND TOTAL TIME = 55 mins 34 secs
Track/slide 12 7.42
The courts have not ruled on the degree of fault that amounts to self induced frustration but it is likely that a ‘negligent’ act by the defendant ‘will’ amount to self induced frustration because when someone is negligent and an adverse event happens it cannot be said that the alleged frustrating event was altogether outside the control of either party, nor unforeseen. This is confirmed in the case below, that also explores the issue of the defendant having a ‘choice’ in what he does in relation to frustrating the contract.
The case we can consider is Lauritzen AS v Wijsmuller BV (The Super Servant Two) 1990.
The defendants, Wijsmuller, agreed to carry the plaintiff’s (Lauritzen’s) drilling rig, the Dan King, from Japan to a location off Rotterdam. The rig was to be moved by a self-propelled barge, either Super Servant One or Super Servant Two as would be decided by Wijsmuller. The defendants put a Force Majeure clause in the contract, clause 17, which stated that they could cancel their performance under the contract in the event of, inter alia:
‘Acts of God, perils or danger and accidents of the sea, acts of war and so forth’ – quite a long list of eventualities beyond the control of either party.
Before the Dan King was due to be moved, Super Servant 2 sank in the Zaire river. Super Servant 2 had been allocated to move the Dan King rig. Super Servant 1 could not be used to move the Dan King because it had been allocated to other contracts during the relevant period for moving the Dan King.
To effect a solution, the parties entered into a ‘without prejudice’ agreement to move the Dan King on a barge. This involved both parties in extra expenses. The plaintiffs claimed the losses they had suffered and the defendants counter-claimed for their losses.
The defendant’s appeal to the Court of Appeal was based on 2 grounds:
First, that the contract was frustrated by the sinking of SS2, and/or
Second, that they were entitled to regard the contract as ‘discharged’ or cancelled, under the
force majeure clause provided in clause 17 even if the sinking of SS2 was caused by
their negligence
Bingham LJ noted that the clause 17 force majeure was NOT an EXCLUSION CLAUSE. This seems to be based on the fact that the things in the list of the Force Majeure clause related to events that might occur and be totally beyond the direct or indirect control of Wijsmuller. Whereas he felt that clause 16 was an exclusion clause.
With regards to frustration, he held that had the contract provided that the Dan King was ONLY to be moved by SS2, then the contract would have been frustrated, so long as there was no negligence by Wijsmuller. However, that was not the case because they had a choice – during the time Dan King was to be moved by SS2, SS1 had been available but had been used on another job. Thus, the sinking of SS2 was not a frustrating event – it was not totally beyond their control. In addition, when SS2 sank, Wijsmuller waited 2 weeks before telling Lauritzen that they couldn’t use SS2 – in other words, the contract was not ‘automatically ended’ by a frustrating event.
With regards to the force majeure clause, clause 17, Bingham LJ said that the defendants could not rely on the Force Majeure clause to say that the contract was discharged, if the event in the Force Majeure list that actually happened was in any way caused by their own negligence. As the plaintiffs had listed in some detail the grounds on which the sinking of SS2 was caused by the carelessness of Wijsmuller, then Bingham LJ stated that Wijsmuller would be precluded from relying on the force majeure clause.
You can see that the courts are reluctant to allow contracts to end by frustration. In this case Wijsmuller was in breach of contract.
The onus of proof for self induced frustration lies on the party raising this allegation.
Professor Treitel takes a different view and suggests that where a businessperson makes several contracts with various parties and an uncontemplated event happens such that one or more contracts cannot be fulfilled by him, then the event may frustrate such contracts so long as the businessperson has ‘acted reasonably’ in deciding which contracts to perform. Bingham LJ rejected this view.
In Davies on Contract, 9th edition, on page 261 it states:
‘A difficulty with this reasoning [in the Super Servant 2 case] is that the Maritime National Fish case could surely be distinguished on the basis that in that case it was perfectly foreseeable that the Minister would not issue enough licences. The charterers took a commercial gamble. In the Super Servant 2 nobody considered the possibility that the ship would sink and it seems artificial to say that the carriers had much of a choice of election in the matter. They were unable to perform their contract in unforeseen circumstances for which they may not have been responsible. That is surely just when frustration should come into play.’