Force Majeure and Frustration of Contract

404 Pages·2014·34.855 MB·English

by  Ewan McKendrick (Ed.)

FORCE MAJEURE
AND
FRUSTRATION OF
CONTRACT
SECOND EDITION
LLOYD’S COMMERCIAL LAW LIBRARY
Interests in Goods
by Norman Palmer and
Ewan McKendrick
(1993)
The Law of Insurance Contracts
second edition
by Malcolm A. Clarke
(1994)
EC Banking Law
second edition
by Marc Dassesse, Stuart Isaacs QC
and Graham Penn
(1994)
Appeals from Arbitration Awards
by D. Rhidian Thomas
(1994)
Force Majeure and Frustration
of Contract
second edition
Edited by Ewan McKendrick
(1995)
FORCE MAJEURE
AND
FRUSTRATION OF
CONTRACT
EDITED BY
EWAN McKENDRICK
,
Fellow of St. Anne's College Oxford
Linnells Lecturer in Law in the University of Oxford
SECOND EDITION
FOREWORD BY THE HON. ANDREW ROGERS QC
informa law
from Routledge
First published 1991 by Lloyd's of London Press Ltd.
Second edition 1995
Published 20 l3
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1991, 1995
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ISBN l3: 978-1-85044-819-8 (hbk)
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FOREWORD
BY THE HON. ANDREW ROGERS Q.C.
With greater or lesser justification, it has been the age-old cry of businessmen that
the law fails to meet the legitimate needs of commerce. In the field of frustration
this is a justified complaint in the English system and in most common law systems
which still adhere to its basic principles in the field of contract. As the chapter by
Mr Parker demonstrates, the European Court of Justice is also oscillating in the
search for an acceptable doctrine. Yet, of necessity, particularly in long term con­
tracts, there will be changes in circumstances ranging from the minor to the most
fundamental. Changes which were not in the contemplation of the drafters of the
contracts and were not catered for have embroiled the courts in difficulties and, as
the law reports evidence, continue to do so.
It is only in relatively recent times that the English courts relented in their
demand that the strict words of the contract be adhered to, notwithstanding
changes in circumstance. The resulting doctrine of frustration has not worked satis­
factorily. The courts found it difficult to determine its doctrinal foundation or the
limits for its application. This is graphically illustrated by the first of Mr McKen-
drick’s contributions.
The statutory provisions which have attacked the problem in a piecemeal fashion
are neither complete nor satisfactory. As Professor Diamond points out, the Sale of
Goods Act 1979 is restrictive in its application to contracts for specific goods which
perish before the risk has passed. Yet as Professor Bridge has shown, contracts for
the sale of unascertained goods may also become impossible of performance owing
to supervening events. The Law Reform (Frustrated Contracts) Act 1943 excludes
from its coverage contracts which are addressed by section 7 of the Sale of Goods
Act.
Mr McKendrick, in his second contribution, throws into high relief the criticisms
not only of the English Act dealing with frustrated contracts, but also of the various
Commonwealth prototypes it has spawned. In the light of his analysis, it is open to
conclude that it is better to reject the legislative assistance offered by the various
statutes and exclude their operation. Thereupon the businessman and his advisers
are driven back to the general law. In today’s burgeoning international trade, that
can hardly be described as a satisfactory system to present to a foreign trader. What
may be even more unsatisfactory is that frustration under the general law brings in
its train automatic discharge. To avoid such results, the parties to the contract are
required to draft their own particular code. That in turn means a substantial
increase in transaction costs.
Notwithstanding the costs involved, in an effort to meet the difficulty many con-
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FOREWORD
tractors have undertaken fairly detailed contractual risk allocation. The use of force
majeure clauses attempts to cater for the unanticipated and unforeseeable. It is
hardly surprising in the circumstances that Donaldson J., speaking of such clauses,
pointed out that “the precise meaning of this term, if it has one, has eluded lawyers
for years” {Thomas Borthwick (Glasgow) Limited v. Faure Fairclough Limited
[1968] 1 Lloyd’s Rep. 16, at p. 28).
It is therefore a field of law of paramount importance to the commercial world,
and to the advisors who work in it, that the contributions undertake to survey. The
survey is thorough and analytical. In the result, the authors have done the commer­
cial community a signal service.
For the second edition the structure of the book has been recast and four valu­
able new essays added. The reader is taken on a scholarly survey of the field,
viewed first from general aspects, and then in its impact on various fields of com­
mercial activity, concluding with remedies and international and comparative
aspects. Mr Mclnnis points out that most force majeure clauses are drafted in two
parts. One limb will enumerate a series of individual events, the other will seek to
cover all others “howsoever arising” and then go on to indicate the consequences.
Mr Swadling examines the treatment that force majeure clauses and those incor­
rectly categorised as such (cf. The Super Servant Two [1990] 1 Lloyd’s Rep. 1) have
received at the hand of the courts. Until courts decide on a coherent philosophy
towards frustration and force majeure, they will be bedevilled by the difficulty of
determining whether to construe such provisions strictly and in the same way as
exclusion clauses. Surely there is merit in the argument that a force majeure clause
is simply a risk allocation provision that should be construed in the same fashion as
any other ordinary contractual clause.
Following upon the examinations of general principle, authors examine the prin­
cipal areas, other than sale of goods, where frustration has its major impact. By
reference to shipping cases, Mr Howard Q.C. points out that the courts have never
subjected to any rigorous analysis the question whether a wholly objective test
should be applied in determining whether frustration has brought the contract to an
end. Professor Palmer deals with the disabling effects of industrial action in bring­
ing principles of frustration into play and calls for risk allocation by means of force
majeure clauses. Professor Palmer argues that industrial disruption is of particular
significance to frustration. An interesting feature of his discussion is the illustration
of judges being drawn into an assessment of the conduct of parties in an industrial
dispute. The evident difficulty felt by judges does not seem to be replicated in their
consideration of commercial situations which may be just as threatening to the par­
ticular litigants or the community at large.
One of the most interesting features of the book is in Part VI, which includes a
discussion of the role of frustration in the Vienna Sales Convention, under the
Uniform Commercial Code and in EU law. It is the expectation of Professor Hud­
son that, most likely, parties will exclude the relevant provision, Article 79 of the
Vienna Convention, in day-to-day practice.
What this volume demonstrates beyond argument is that the law on the topic
shrieks for attention. Whilst practitioners, academics and judges generally bemoan
the state of the law, nothing appears to be happening. One of the great virtues of a
publication such as this is that it may serve as the impetus for action. Indeed, it is
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FOREWORD
not too much to say that it serves the purpose of a discussion paper by a Law
Reform Commission around which ideas for reform can be built. In the meantime,
it will save untold hours of sweat to judges and practitioners confronted with a
problem in the field.
ANDREW ROGERS
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PREFACE
Force majeure and frustration are subjects of considerable commercial interest, yet
they have been rather neglected by English textbook writers. This book, which has
its origins in a conference organised by Professor Norman Palmer in Colchester in
November 1988, is an attempt to remedy this deficiency. Our aim is not, however,
to write an exhaustive treatise on force majeure and frustration; rather, we have
attempted to evaluate critically the general principles relating to force majeure and
frustration and to examine some of the difficulties which arise when seeking to
apply these principles in particular contexts. In terms of critical evaluation no one
consistent line is adopted throughout the book; each author has been left free to
express his or her own views as to the current state of the law and the desirability or
otherwise of reform. We do not seek to provide a simple all-encompassing solution
to the problems identified in this book; rather, our aim has been to stimulate debate
on these important issues.
While the stated aims of this edition remain the same as those of the first edition,
I am pleased to be able to welcome four new authors to the team for this edition:
Barry Nicholas, Alan Berg, Simon Curtis and Sukhnam Digwa-Singh. The addition
of four new chapters (as well as revisions to existing chapters) has necessitated
some re-structuring of the book. It is now divided into six parts. The first part is
essentially introductory. We have chosen to focus on force majeure (in both a com­
mon law and a civilian context) because force majeure tends to be rather less fami­
liar to the English legal mind than the doctrine of frustration. In this part we also
attempt to assess the relationship between frustration and force majeure in English
law. The second part has as its focus the drafting of force majeure clauses, both in
terms of general guidelines which ought to be borne in mind by the contract drafts­
man and in terms of a more detailed, practical analysis of the real difficulties which
can arise when seeking to draft such clauses. The third part begins to put the
general principles of force majeure and frustration to work: here in the context of
shipping law. The fourth part continues to look at the practical applications of force
majeure and frustration, this time in the context of industrial action and building
contracts. The fifth part shifts attention towards the remedial aspects of frustration,
both in terms of a critical analysis of the Law Reform (Frustrated Contracts) Act
1943 and the intriguing suggestion by Andrew Rogers that some frustration cases
might usefully be re-analysed in terms of estoppel. The final part deals with inter­
national and comparative aspects of frustration and force majeure. It ranges over a
wide area, including the Vienna Convention, the Uniform Commercial Code, EU
law and international sales contracts.
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