TOPIC

DISCHARGE BY FRUSTRATION

INTRODUCTION
A contract may be discharged as follows:
1. Discharge of contract by frustration;
2. Discharge by agreements;
3. Discharge by Performance; or
4. 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:

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 Queens 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.

/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

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 courts 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).

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.

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 circumstances
which 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.

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 companys 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 BNMs 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
COMMON LAW)

OF

SUPERVENING

IMPOSSIBILITY

(UNDER

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 Queens 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 Kings 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

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 defendants 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.

(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 landlords failure to provide that view frustrated the contract even
though it was not the landlords 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 Kings 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 VIIs 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 641
Contract of employment heart attack
A contract of employment determinable by notice on either side can be frustrated by long term
illness.
Robinson v Davidson (1871)

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.

10

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 vendors 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.

11

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 partys 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 others obligation arises. Thus, in the case of conditional
contract for the sale of land, the contract is binding, but the other partys 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.

12

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 partys 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 vendors 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.

[196] MLJ 47

13

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 vendors solicitors as stakeholders within
10 weeks from the purchasers 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 purchasers 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 moneys 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.

14

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 sellers 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

Sometimes it is known as the Suezcanal case.

15

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 developers 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

16

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 defendants 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 PROOF
The 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 Fibrosas 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.

17

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 Fibrosas 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)

(4)

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

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.

18

(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
applies can properly be severed from the remainder of the contract,
being
wholly performed before the time of discharge, or so performed except
payment in respect of that part of the contract
of sums which are or can
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
shall treat section 15 as only applicable to the remainder of that contract.
(5)

15
a part
for the
be
and

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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