Discharge of Contract on the Grounds of Frustration - Coursework Example

?Discharge of Contract on the Grounds of Frustration A force majeure clause plays a role of relieving either one or both parties that had signed contracts from fulfilling the contract obligations that had been agreed upon when the activities are destroyed by elements that are beyond control of either parties. In some instances, the force majeure may merely suspend the parties’ obligations. Some events that may lead to the development of a force majeure include rainstorms, fire, civil unrest or even attacks by terrorist groups. A force majeure is important in that it helps contractual parties to avoid fulfilling massive liabilities that may in fact be impossible to perform in cases where the parties remain obliged legally as in the case of Jardinia Limited versus Southern Belles Limited. Jardinia Limited has signed two contracts with Southern Belles which entails the installation and fitting of an industrial size system for the poly-tunnels and green house. Payment for installation will be due on completion of the work. The other contract states that 100 units are to be provided for resale to the general public at a cost of ?250 each to Southern Belles Ltd. A ?5,000 deposit had already been paid. However, a day before completion of the work, a storm destroyed all the installations completely. Southern Belles Limited is therefore claiming that both contracts are discharged on the grounds of frustration with no money to be paid on the fitting contract and the deposit refunded. Force Majeure Clause If either Jardinia Limited or Southern Belles Limited is prevented or stopped from carrying out its duties as it had been agreed upon in the contract (other than their duties to make their payments) by a force majeure event then: The affected party will be relieved from performing its duties as long as the force majeure event continues to pose as an inhibiting factor further affecting in completion of the project. The affected party shall give notification to the other party in time after the Force Majeure Event is believed to end. Notification shall be in writing and it should inform the other party of the occurrence of the event, the day and date when the force majeure event commenced, disturbances that have been brought about by the Force Majeure Event, how it has affected its ability to carry out its obligations as it had been agreed upon in the contract and the measures that have been developed by the party to prevent such a Force Majeure Event from occurring and destroying property. The affected party has to establish mitigation measures to eliminate effects of the Force Majeure Event that may prevent it from fulfilling its obligations as stated in the contract. After cessation of the Force Majeure Event, the affected party should provide a written notification to the other party informing it of the cessation of the Force Majeure Event. The party should then continue with performance of its duties as the two parties had agreed on. Southern Belles Limited will give the agreed amount of money to Jardinia Limited for installation of an industrial size system for a green house and poly-tunnels as soon as sales are attained. Southern Belles Limited will use all reasonable efforts to ensure it attains production capabilities. A Force Majeure Event is therefore described as any event that occurs without any knowledge of a party and it is beyond an individual’s reasonable control. The event is unavoidable and does not withstand the reasonable care of a party. A Force Majeure Event at Jardinia Limited will not constitute a Force Majeure Event, unless most of its operations are entirely affected. Force Majeure Clause denotes that the storm triggered the operation of this clause as the contractor could not avoid occurrence of the storm and could still not provide against it. The storm qualifies as a Force Majeure Event since it totally destroyed work that had been done and has as well prevented it from going on as planned. The storm has had severe impacts on the contract as additional costs, time as well as inputs will be required to complete the work. Southern Belles Limited claims that the contract should be discharged on the grounds of frustration with no money payable on the fitting contract and the deposit being refundable on the stock. Frustration is evident in this case since the contract became impossible to fulfill after the greenhouse and poly-tunnels were destroyed by the storm a day before installation was to be completed. It therefore became impossible to complete the project as it had been agreed on. Doctrine of frustration will help to eliminate the complexities that may arise in cases where contracts cannot be fulfilled due to unavoidable circumstances (Wallis, 2008 p. 6). Jardinia Limited had agreed to install the green house and poly-tunnels for Southern Belles Limited and was almost through with the process when the construction was destroyed by the storm yet no party had defaulted. Jardinia Limited should not be liable as the contract is seen to have been frustrated by the storm and not by events that were self- induced. In the case of Jardinia Limited versus Southern Belles Limited, it is seen that the installation company undertook to carry out installation processes after Southern Belles Limited had agreed to pay a certain amount when the process was complete. Jardinia Limited took a risk as the costs may have ended up being more or less than what the parties had initially agreed on. Delays were then experienced through no one’s fault and they occurred to be in the contemplation of the signed contract. There may therefore be a need for more time to be provided for Jardinia Limited so as to start over and complete the work. In this situation, Southern Belles Limited may also need to take up the risk of delay as it needed to resell the stock. The local garden center, however, is not faced with the risk of rising costs due to destruction as it does not handle the installation process. Frustration is seen to depend on addition of certain terms to a contract by implication (Wallis, 2008 p. 5). In the case of Jardinia Limited versus Southern Belles Limited, the nature of the contract intended to be binding on Jardinia Limited under the altered conditions as they would only be paid after installation was completed. If the parties had thought of conditions that may result in alterations in the contract, they would have then taken up their chances on them and come up with alternatives in favor of both parties. Under the doctrine of frustration in the UK Contract Law, there are two main theories that may be applied in the basis of the jury of this doctrine. The first theory may be applied in the case where radical changes have occurred to the activities of the contractual obligations. The second theory is arises from a recent case of F.A. Tamplin S.S. v Anglo Mexican Petroleum (Wallis, 2008 p. 5). This case gives a good example of a case where contracts in question were construed as topics that implied the parties in contract should be relieved from their duties in case performances become impossible, when no party to that contract had defiled or caused any fault. In the contract that is in question, impossibility has risen since the subject matter of the contract has been totally destroyed and it has become unavoidable due to the occurrence of the storm. In this case, Southern Belles Limited contracted Jardinia Limited to install an industrial size system for a green house and poly-tunnels. As a result of no fault of either party, the green house was destroyed by the storm prior to its completion. The courts should therefore hold that the contract is discharged on the basis of frustration. An effect that the doctrine of frustration has legally is not to render a contract void. It rather plays the role of discharging a contract as to the future when the Force Majeure Event has ceased and the parties can fulfill their obligations comfortably (Wallis, 2008 p. 1). Therefore, according to the common law, the obligations and rights of parties that had signed contracts that existed before the event occurred remained in place. This means that money paid by one party to the other party before the project was destroyed could not be refunded and the money that was to be paid before the frustration will still have to be paid. The Law Reform (Frustrated Contracts) Act 1943 aims to provide for fair apportionment of losses to both parties that are affected by occurrence of a destructive event. In conclusion, frustration in UK Contract Law is considered as a coherent and useful doctrine that can be applied in cases where a contract which had been signed by two parties can no longer be performed due to incidences that are beyond the control of either party. An effective mechanism must therefore be in place that may be used by the Courts to set the contract aside for a period of reasonable time. In the case of a Force Majeure Event, destruction may occur and this may lead to losses but it would be unfair to allow one party to bear all the losses. When parties sign a contract, they should be ready and willing to accept a certain degree of risk that may be brought about by circumstantial misfortune. The doctrine of frustration will therefore ensure that one party is not favored by gaining an advantage over the other party. It therefore provides a legal mechanism through which an affected party is offered financial help that will help to cover the losses incurred. Works Cited Wallis, C. (2008). Discharge of Contract – Performance, Breach, Frustration. Retrieved from http://www.chriswallis.com/uni/cnlaw231l08.pdf Read More