THE COMMON LAW DOCTRINE OF FRUSTRATION OF CONTRACT AN ANALYSIS OF ITS APPLICABILITY IN NIGERIA

ABSTRACT

The basic principle of contract law is pactasuntservanda,the maxim that contractual promises must be kept. The principle of sanctity of contract is not, however, an absolute one, for when supervening circumstances are such that lead to radical alteration of the purpose of the contract, they create an exceptional situation known in English law as frustration. The doctrine of frustration, adopted in Nigeria via Statutes of General Application, has many challenges which include: its inability to recognize the most celebrated doctrine of hardship, its unsatisfactory legal effects, and the difficulties it poses to contracting parties in some of Nigerian States which have not burdened to statutorily remedy the defects encountered at common law. This project aims to analyze the juristic basis of frustration, its scope of operation, the legal effects of its operation, and the application of the doctrine in Nigeria. The Project concludes by recommending the expansion of the doctrine of frustration, uniformity in Nigerian Laws of contract, and the inclusion of hardship clause when drafting force majeure in Nigeria. The methodology adopted in this work is historical, critical, analytical, and reviews on text-books, statutes, articles, journals, case laws, and scholarly works published on the internet.
TABLE OF CONTENTS
Title page ……………………………………………………………………………………..i
Certification …………………………………………………….……………………….........ii
Dedication.…………………………………………………………………..………………..iii
Acknowledgement …………………………………………………………………………....iv
Abstract ……………………………………………………………………………………….v
Table of Contents …………………………………………………………………….………vi
Table of Cases ………………………………………………………………………………..ix
Table of statutes …………………………………………………………………………...….x
List of abbreviation ……………………………………………………………..……………xi

CHAPTER ONE
1.0 Nature and Theories of frustration………………………………………………………...1
1.1 Introduction ……………………………………………………………………………….1
1.2 Emergence of the Doctrine …………………………………………………………....….2
1.3 Theories of Frustration ……………………………………………………………………5
1.3.1 Implied Term Theory …………………………………………………………....……...5
1.3.2 Just Solution Theory …………………………………………………….......................8
1.3.3 Foundation of Contract Theory …………………………………………………………9
1.3.4 Construction Theory ……………………………………………………………….......11

CHAPTER TWO
2.0 Scope of Operation ……………………………………………………….....................13
2.1 Instances of Subsequent Impossibility ……………………………………………….....13
2.1.1 Destruction of Subject Matter of Contract …………………………………………….13
2.1.2 Non-occurrence of a Particular Event …………………………………………….…...15
2.1.3 Death or Incapacity of Personal Service …………………………...……………….…17
2.1.4 Change of Law …………………………………………………..……………….……18
2.1.5 Charter Party Agreement ……………………………………………...…………….....20
2.2 Incidence of Risk ………………………………………………………………………...21
2.2.1 Express Provision ……………………………………………………………………...21
2.2.2 Foreseen Events ………………………………………………………………………..23
2.3 Self-induced Frustrations ………………………………………………………………..23
2.4 Leases and Contracts for the Sale of Land ……………………………………................24

CHAPTER THREE
3.0 Legal Effect of Frustration ………………………………………………………………26
3.1 Contracts Determined Automatically …………………………………………………...26
3.2 Future Obligations Discharged ……………………………………………...................26
3.3 Statutory Intervention (Frustrated Contract) Act 1943,England………………………....28
3.3.1 General Provision of the Act ………………………………………………………….29
3.3.2 Contract Excluded from the Act ………………………………………………….……33

CHAPTER FOUR
4.0 Application of the Doctrine of Frustration of Contract in Nigeria— a Comparative Analysis ………………………………………………….........................................36
4.1 National Doctrines………………………………………………………………….……36
4.1.1 Force Majeure under Civil Law …………………………………………………….....37
4.1.2 Force Majeure under Common Law ………………………………………………......40
4.2 International Instruments on Doctrine of Force Majeure……….………………….…...44
4.2.1 Approach under CSIG ………………………………………………………………....45
4.2.2 Approach under UNIDROIT Principle ………………………………………………..45
4.2.3 Approach under the PECL ……………………………………………………….……46
4.2.4 Conditions for Exempting Impediment ………………………………………………..47
4.2.5 The Doctrine of Hardship ……………………………………………………………...48
4.3 Differences between Common Law Doctrine of Frustration and the Concept of Hardship ……………………………………………………………….....................51
4.4 A Comparison of Doctrine of Change of Circumstance in Civil Law, Common Law, UNIDROIT principles and PECL …………………………………...........................52

CHAPTER FIVE
5.1 Conclusion …………………………………………………………………...................54
5.2 Recommendation ……………………………………………………………..………….56
Bibliography ……………………………………………………………………………..….58
















TABLE OF CASES
Ajuna Uche Johnson v U A C Nigeria (unreported) High Court of Lagos State.Suit No co/1443/72,1975…………………………………………………………………...…19
Albert D Gaon v Societe Inter-professionelle (1959) 2 WLR 622………………………..….31
Appleby v Myers (1867) LRCP 651…………………………………………………..15,27,32
Araka v Monier Construction Company (Nigeria) (1978)2 LNR 60………………………...24
Asfar& Co v Blundell [1896] 1 QB 123………………………………………………….....14
Asphalt International v Enterprise Shipping,667 F.2d 261( 1981)…………………………..42
Baily v De Crespingy (1869) LR 4 QB 180………………………………………………….19
Bank line v Cappel (1919)AC 435…………………………………………….………19,22,23
British Movietonew v London and District Cinemas [1952] AC 166……………….……..12
CAN GOVT Merchant Marine v CAN Trading ,64 SCR 106……….…………..…………41
Carapanayoti v ET Green (1958)………………………………………..……………….20,21
Chandler v Webster (1904)1 KB 493………………………………………………..27,31,56
Constantine SS Line LTD v Imperial Smelting Corp LTD [1914] All ER 165……………….8
Cutter v Powell (1795)6 TR 320……………………………………………………...…..17,30
Davis Contractors v Fareham UDC [1956] AC 696……………………………….5,11,40,54
Denny,Mott and Dickson LTD v James fraser [1944]AC 265……………………………….9
Ertel Bieber v Rio Tinto [1918]AC 260……………………………………….………19,22,40
FibrosaSpolkaAkcyina v Fairbairn,Lawson,Combe,Barbour [1943] AC32……..27,28,29,56
Ganga Saran v Firm Ram Charan,AIR 1952 SC 9…………………………………...………42
Graham v Wagman (1976),73DLR (3d) 667………………………………………………..55
Herne Bay Steamboat v Hutton [1903] 2 KB 683……………………………………………16
HirjiMulji v Cheong Yue SS LTD [1926]AC497………………………………..………8,26
Jackson v Union Marine Insurance (1874) LR 10 CP 125……………………………...……17
Joseph v Imperial Smelting Corporation [1942] AC 154,P.179 ………………………….…24
JP Dawodu v B Anderson (1925) 6 NLR 106………………………………………….……44
Krell v Henry [1903] 2KB 740………………………...………………………….…………15
Larrinaga Co vSociete Franco-Americaine des Phosphates de Medulla, Paris (1923)39 TLR 316………………………………………………………………………………..….40
Mazin Engineering LTD v Tower Aluminimum [1993] 5 NWLR (pt.295)p.526……...........8
Metropolitan Water Board v Dick, Kerr [1918]AC 119……………………………………..22
Minera Park land v Howard,172 Cal 289,156 p.458………………………………………....41
National Carriers LTD v Panalpina (Northern) LTD [1981] AC 675……………...….11,25,56
Paradine v Jane (1647) Aleyn 26………………………..……………………….………….2,3
Pioneer Shipping LTD v BTPTioxide LTD [1982] AC…………………………………..…31
Robinson v Davison (1871) LR 6 EX 269……………………………………………….......28
Stubbs v Holywell Railway [1867] LR 2 EX 311…………………………………………....33
Tamplin(FA) SS v Anglo-Mexican Petroleum LTD [1916]2 AC 399……………….5,10,19
Tatem LTD v Gamboa [1939] 1KB 132……………...…………………………………….10
Taylor v Caldwell (1863) 3 B&S 826………………………….…………….2,3,4,13,14,15,40
Tramp Tankers Corp v Sofracht: The Eugenia (1964) All ER 161…………………...……….8
Tsakiroglou vNobleeThorl GMBH [1962] AC 93……………………..………...20,21,40,53
Tyrie v Fletcher (1777) 2 Cowp 666………………………………………………………....34
Walton Harvey v Walker &Homfrays [1931]1 ch 274…………………………………..….23
Whincup v Hughes (1871) LR 6 CP 78,……………………………………………………..31

















TABLE OF STATUTES
NIGERIAN LEGISLATION
Anambra State Contracts Laws,Cap32, 1986, Anambra State
Interpretation Act, Cap 192, Laws of the Federation of Nigeria, 1990, Nigeria
Lagos State Law Reform (Contracts) Act (No 64) 1961 (Cap 114), Lagos State
Western Nigerian Contracts Laws, Cap 25, 1959,Old Western Nigeria

FOREIGN LEGISLATION
French Civil Code, 1804, France
German Civil Code, 1900, Germany
Greek Civil Code, 1946, Greece
India Contract Act, 1872, India
Quebec Civil Code, 1994, Canada
Restatement (Second) Contracts,1979,USA
Sale of Goods Act, 1893, England
Uniform Commercial Code, 1979, USA

INTERNATIONAL INSTRUMENTS
Principles of European Contracts Law,part 1 and part 2,2000,Europe
UNIDROIT principles of International Commercial Contracts, 1994, International Organisation
United Nations Charter, 1945, United Nations
United Nations Convention on Contracts for the International Sale of Goods, 1988, United Nations
















LIST OF ABBREVIATIONS

AC Appeal Cases
ALL ER All England Reports
AM.J comp American Journal of Comparative Law
Art cit Same article by this author cited in an earlier footnote but not immediately preceding

Ch Law Reports, Chancery
CISG United Nations Conventions on Contracts for the International Sale of Goods
Ed Editor
Edn Edition
Ibid Referring to the same book as in footnote immediately preceding

IJRESS International Journal of Research in Economics and Social Science

JL&C Journal of Law and Commerce
KB Law Reports, King’s Bench
Loccit Referring back to a book already cited
NLR Nigeria Law Reports
NWLR Nigeria Weekly Law Reports
P page
PECL Principles of European Contracts Laws
Pp pages
QB Law Reports,Queen’s Bench
SCR Supreme Court Report ( Canada)
Supra Referring to a case cited with full citation particulars in an earlier footnote

TLR Times Law Reports
U.L.J UNIZIK LAW JOURNAL
UCC Uniform Commercial Code
UPICC UNIDROITprinciples of International Commercial Contracts
V Versus
Vol Volume
WLR Weekly Law Reports

CHAPTER ONE
1. Nature and Theories of Frustration
1.1. Introduction
A basic and universally accepted principle of contact law is ‘pacta sunt servanda’. This principle means that each party to an agreement is responsible for its non-performance, even if the cause of the failure is beyond his power and was not or could not be foreseen at the conclusion of the contract. The principle reflects natural justice and economic requirements because it binds a party to his promises and protects the interest of the other party . Since effective economic activity is not possible without reliable promises, the important of this principle has to be emphasized.
On the other hand, practice has demonstrated that on many occasions application of these principles may lead to the opposite of its object. That is to say, the situation existing at the conclusion of the contract may subsequently have changed so completely that the parties, acting as reasonable persons, would not have made the contract, or would have made it differently, had they known what was going to happen.
There are different legal concepts which deal with the problem of changed circumstances and provide for the discharge of the duty to perform of one or both parties when a contract has become unexpectedly onerous or impossible. In England, the concept is known as frustration, while in America it is known as the doctrine of commercial impracticability. Nigeria follows common law doctrine of frustration.
This project aims to analyze the application of the common law doctrine of frustration in Nigeria. First, the juristic basis, otherwise known as the theories of frustration, will be discussed and analyzed. The detailed analysis of the doctrine’s scope of operation will then follow, as this will reveal whether in fact the doctrine has scope. This work will also discuss the legal effect of frustration at common law; comment on the attitude of Nigerian States towards remedying the defects encountered in Fibrosa’ s decision. The next discussion will be on the comparatives analysis of the doctrine of frustration as applicable in Nigeria. Finally, the project concludes with the following recommendations: expansion of the doctrine of frustration, uniformity in Nigeria law of contract, andinclusion of hardship clause when drafting force majeure in Nigeria.
1.2 Emergence of the Doctrine
It was a general rule of the law of contract, before 1863, that a man was absolutely bond to perform any obligation which he had undertaken, and could not claim to be excused by the mere fact that performance had subsequently become impossible; for where there is a positive contract to do a thing not in itself unlawful, the contractor must perform it or pay damages for not doing it ,although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burdensome or even impossible . So in Paradine case , Paradine sued Jane for rent due upon a lease. Jane pleaded that a certain German Prince, an alien born, enemy to the king and kingdom, had invaded the realm with hostile army of men and with the same force enter upon her possession, thus denying her the profit of the lease. This plea was in substance a plea that the rent was not due because the lease had been deprived, by event beyond his control, of the profit from which the rent should have come. The court held that this was no excuse:
when the party by his own contract 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 contractand therefore if the lessee covenant to repair a house,though it be burnt by lightening or thrown down by enemies, yet he ought to repair it.
The rule that impossibility of performance does not excuse the promisor could only be relaxed by positive stipulations in the contract that the contract shall be discharged without liability if impossibility supervenes to prevent performance .In the absence of such stipulation, the parties were bound to make good their contract, notwithstanding any subsequent supervening impossibility. The harshness of this rule paved the way for the introduction of the doctrine of frustration as an escape route from the rule of the absolute contract. The initial success was achieved by the introduction of implied term whereby the courts took the stand that continuance of a contract is conditional upon the possibility of its performance notwithstanding that the parties had contracted to be bound absolutely .Thus in Taylor v Caldwell ,the defendant leased a music hall to the plaintiff for concerts; before the lease commenced, the hall was accidentally burnt down. The plaintiff sued the defendant for damages for the breach of the contract. It was held by Blackburn.J that the defendant was not liable. The learned judge firstly stated:
There seems no doubt that where there is a positive contract to do a thing not in itselfunlawful, the contractor must perform it or pay damages for not doing it, although inconsequence of unforeseen accidents, the performance of his contract has become unexpectedly burdensome or even impossible
But he continued and stated:
The principle seems to us to be that, in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shallexcuse the performance…in the present case both parties are excused
This most cited decision of Blackburn J. had very far –reaching consequences on the strict rule of absolute liability in contract notwithstanding the impossibility of performance.
The most obvious causes which brings this doctrine into operation, and the one which provided the issue in the parent case of Taylor is the physical destruction of the subject matter of the contract before performance falls due. Another equally obvious is a subsequent change in the law which renders performance illegal .A less obvious cause, but nevertheless one that has occasioned a multitude of decisions is what is called the ‘frustration of the common venture’; owing to an event that has supervened since the making of the contract, the parties are frustrated in that the substantial object they had in view is no longer attainable; literal performance may still be possible, but nevertheless it will not fulfill the original and common design of the parties . Thus, what the courts have held in such a case is that, if some catastrophic event occurs for which neither party is responsible and if the result of that event is to destroy the very basis of the contract ,so that the venture to which the party now find themselves committed is radically different from that originally contemplated, then the contract is forthwith discharged.

1.3 Theories of Frustration
The precise legal theory upon which the doctrine of frustration is based has aroused much controversy. No fewer than five theories have been advanced at one time or another in an attempt to resolve this controversy. The following are the notable theories on frustration:
1.3.1 Implied Term Theory
At one time, the preponderance of judicial opinion favored the view that frustration of a contract depended upon the implication of a term. The generally accepted classic exposition of the general idea underlying the implied term theory is the one offered by Lord Loreburn inF A Tamplinv Anglo – Mexican Petroleum .He declared:
A court can and ought to examine the contract and the circumstances, in which it was made, not of course to vary ,but only to explain it in order to see whether or not from thenatureof it the parties must have made their bargain on the footing that a particular thing orstateof things would continue to exist .And if they must have done so ,then a term to that effectwill be implied though it be not expressed in the contract…sometimes it is put that performance has become impossible and that the party concerned did not promise toperform an impossibility. Sometimes it is put that the parties contemplated a certain state of thingswhich fell out otherwise. In most of this cases it is said that there was animplied condition in thecontract which operate to release the parties from performingit, and in all of them I think thatwas at bottom the principle, for no Court has an absolvingpower, but it can infer from the natureof the contract and surrounding circumstancesthat a condition which was not expressed was a foundation on which the parties contracted…were the altered conditions such that, hadthey thought of them, they would have takentheir chance of them, or such that as sensible men they would have said, ‘if that happens, of course ,it is all over between us.
The implied term theory, although it was popular and well received as an escape route from the rule of absolute liability in contract, has been heavily attacked in recent years by both judges and writers. Criticizing the theory, Anson declared:
The expression ‘an implied term’ is however, ambiguous .It may be used in a subjective sense, that is to say ,it may mean a term which the court reads into the contract in order to give effectto what it regards as the parties real intention at the time of contracting …To such an impliedterm a number of objections may be raised. In particular, it is difficult to see how the parties could be taken, evenimpliedly, to have provided for something which never occurred to them.
Treitel argued that ‘in its purely subjective form this theory is clearly untenable. The parties often have no common view at all as to the frustrating event’; but he warns:
In fact Lord Loreburn did not put forward a purely subjective version of the implied term theory. He said: “from the nature of the contract it cannot be supposed that the parties as reasonable men intended it to be binding on them under such altered conditions. Were the altered conditions such that, had they thought of them, they would have taken their chance of them, or such that , as sensible men, they would have said”, ifthat happens , of course ,it is all over between us ? What, in fact, was the true meaning of the contract? In this form,the implied term theory becomes more workable, but also loses its chief attraction which is that frustration is the work of the parties themselves.
Achike believes that the great weakness of this theory is that ‘it is unconvincing that the parties could have impliedly provided for a contingency, that is the frustrating event’. He warns that ‘this subjective approach is unsatisfactory’. The controversy associated with implied term theory forced Sagay to declare that ‘In short, thetheory suffers from a strong dose of artificiality’. Condemning the theory in an unmistakable language, Lord Denning said:
It was originally said that the doctrine of frustration was based on an implied term. Inshort that the parties, if they had foreseen the new situation, would have said to oneanother: ‘if that happens, of course, it is all over between us.’ But the theory of animplied term has now been discarded byeveryone, or nearly everyone, for the simplereason that it does not represent the truth. The parties would not have said: ‘it is allover between us’. They would have differed about what was to happen. Each would have sought to insert reservations or qualification of one kind or another. Take thisvery case. The parties realized that the canal might become impassable. They tried to agree on a clause to provide for the contingency,but they failed to agree .So there isno room for an implied term.
However, Viscount ,after considering various theories on the basis of frustration declared that the implied term theory was the most satisfactory basis, ‘upon which the doctrine can be put’ ; and that:
It has the advantage of bringing out the distinction that there may be no dischargeby supervening impossibility if the express terms of the contract bind the parties to the performance notwithstanding that the supervening event may occur.
In Mazin Eng LTDv Tower Aluminum Wali, JSC appeared to have adopted the ‘implied term theory’ when he stated that there was an implied term that the delivery of the corrugated aluminum sheets would be subject to ‘approval of form ‘M’ by the Central Bank’—that is the parties entered into the contract on the understanding that the central banks approval of foreign exchange was a condition precedent for the performance and operation of the contract.
1.3.2 Just Solution Theory
The relaxation of the rules in absolute contracts in the interest of fairness and justice has been offered as yet another juristic basis of the doctrine of frustration. Lord Sumner once described the doctrine of frustration as ‘ a device by which the rule as to absolute contract are reconciled with the special exception which justice demands’ . It appears that the most careful analysis of the theory has been made by Lord Wright , the following two passages illustrate his view that the doctrine of frustration has been invented by the courts in order to supplement the defects of the actual contract . In the first passage, he said:
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 past facto onthe actual circumstances of the case. The data for decision are,on the onehand, the terms and construction of the contract, read in the light of thethen existing circumstances, and on the other hand, the events which haveoccurred. It is the court which has to decide what the true position between the parties is.
The second passage is as follows:
The event is something which happens in the world of fact, and has to be found as a fact by the judge. Its effect on the contract depends on the meaning of the contract, which is matter of law. Whether there is frustration or not in any casedepends on the view taken of the event and of its relation to the express contract by ‘informed and experienced minds’
After considering this theory, Cheshire declares:
It is perhaps fair to say that this is now the more generally accepted view.To attempt to guess the arrangement that the parties would have made at the time of the contract, had they contemplated the event that has now unexpectedly happened, is to attempt the impossible.
1.3.3 Foundation of Contract Theory
This theory was stated by Lord Haldane in the Tamplin’s case as follows:
When people enter into a contract which is dependent for the possibilityof performance on the continued availability of a specific thing, and thatavailability comes to an end by reason of circumstances beyond the controlof the parities, the contract is prima-facie regarded as dissolved…Althoughthe words of the stipulation may be such that occurrence itself may yet beof a character and extent so sweeping that the foundation of what the parties are deemed to have had in contemplation has disappeared, and the contractitself has vanished with that foundation.
In Tatem v Gamboa , Goddard J. regarded this theory as ‘the surest ground on which to rest the doctrine of frustration’.
At first sight this theory has the merit of simplicity as it does not involve speculation as to the intention of the parties, and in some cases, especially where contracts depend on the continued availability of a specific thing, theexplanation looks plausible. However in other cases the metaphor ‘foundation ‘ is not helpful .How can one tell whether passage through the Suez canal is the ‘foundation ‘of a charter party ? What is the foundation of a contract in which the parties take a deliberate risk as to the continued availability or existence of a specific thing or of some state of affairs? Such doubts as to what is the foundation, can, in the last resort, only be resolved by construing the contract. If this is so, there is no fundamental difference between the‘foundation’ theory and the ‘implied’ theory in its objective sense.



1.3.4 Construction Theory
There is now general agreement that the appropriate test to apply to determine whether a contract has been frustrated is that of a‘radical changes in obligation’ . In Davis Contractorsv Fareham U D C ,Lord Radcliffe said:
Frustration occurs whenever the law recognizes that without default of eitherparty a contractual obligation has become incapable of being performed becausethe circumstances in which performance is called for would render it a thingradically different from that which was undertaken by the contract.Non haecIn foedera veni.It is was not this that I promised to do.
The same test was set out at somewhat greater length by Lord Simon in National Carriers LTD v Panalpina (Northern) asfollows:
Frustration of a contract takes place when there supervenes an event(withoutdefault of either party and for which the contract makes no sufficient provision)which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from which the parties couldreasonably have contemplated at the time of its execution that it would be unjust to holdthem to the literal sense of its stipulations in the new circumstances ;in such a case the lawdeclares both parties to be discharged from further performance.
This test has sometime been called the‘construction theory’,because it requires the court first to construe the terms of contract in the light of its nature and the relevant surrounding circumstances when it was made . Treitel, after considering the above theories declares that ‘all the theories so for stated depend, in the last resort, on the construction of the contract’
It must be noted that in practice, the above theoretical discussion seem not to have any practical importance .The theories are so much related that one may confused one for the other. In fact,with respect, it seems Achike mistake ‘construction theory’ for ‘just solution theory’.He equally asserts that these theories ‘many a time it is difficult to distinguish between them’ .Mr.Treitel is of the view that the implied term theory is really indistinguishable from the construction theory . Viscount Simon has properly warned that so long as each theories produces the same result as the other, as normally it does, it matters little which theory is avowed. Sagay argues that implied term theory presumes the existence of the radical change in obligation or the destruction of the foundation of the contract theory .Hence, according to him, ‘the courts will come to the same decision,no matter what theory is applied.’

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