DISCHARGE OF CONTRACT FRUSTRATION

INTRODUCTION
Contract is frustrated when rendered legally or physically impossible of performance
because of change of circumstances
Change of circumstances after contract is made & parties could not prevent the
change

I. S57(2) Contracts Act 1950

Test: Satyabrata Ghose v Mugneeram Bangur (SC of India)
Does not mean physical or literal impossibility.
Covers situation where performance of act may not be literally impossible but may be
impracticable and useless from the point of view of the object and purpose which the
parties had in view.
Act would be impossible if an untoward event or change of circumstances totally
upsets the foundation upon which the parties rested their bargain.

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Test: Davis Contractors Ltd v Fareham (HL)
A frustrating situation must be one which renders performance of the contract
radically different from that which was in the agreement

Ramli b Zakaria & Ors v Govt of Malaysia

Applied test in Davis Contractors
Appellants pursued teachers’ training course. Offer stated that on completion, they
would be taken in as teachers on a UTS scale. UTS scale subsequently replaced
FC: no frustration. There was a change of circumstances but this did not amount to a
fundamental or radical change in the obligation originally undertaken. Performance
is not radically different from that originally undertaken.
Chinaya a/ Ganggaya v Sentul Raya S/B
Pl = purchaser of condo unit
Sued defendant (property developer) for late delivery of vacant possession and
claimed damages.
Def invoked frustration – delay due to dire financial position brought about by the
1997-1998 economic crisis which was beyond their control
Held: not impossible to complete condo because condo was eventually completed.
No frustration. Not sufficient for defendant to merely refer to the national economic
crisis. There had to be a radical change in circumstances.

Berney v Tronoh Mines Ltd

Outbreak of WW2. Contract of employment became frustrated

Murugesan v Krishnasamy & Anor

Defendants were occupants of several pieces of TOL land. Applied for EMR titles for
the lands. While application was pending, defendants agreed to sell land to plaintiff.
Application was rejected.
Held: Contract for sale of land became frustrated

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Goh Yew Chew & Anor v Soh Kian Tee
there must be a change of circumstances after contract is made

Appellants agreed to construct 2 buildings on respondent’s land. Respondent paid

earnest money. Subsequently, it was discovered that the neighour’s house had
encroached into the land and, therefore, not possible to construct buildings
according to plans. Is this a frustrating event?
Held: No. For frustration, there must be a change of circumstances after the formation
of the contract which renders it physically or impossible to fulfill

Singapore Woodcraft Manufacturing Co v Mok Ah Sai

Tenancy agreement was frustrated when the Collector of Land Revenue served a
notice of possession pursuant to an order of compulsory acquisition.

Hare v Murphy

Employee was imprisoned for 12 months in 1971. Involved in a fight not related to
work. After imprisonment, employee wanted to return to work. Employer disallowed.
Held: Contract of employment was frustrated when he was sent to prison.

Shigenori Ono v Thong Foo Ching

Plaintiff had agreed to buy land from 3rd defendant. Property was subject to an
existing tenancy. Tenant took out an injunction against 3rd defendant to prevent him
from transferring land to plaintiff. Injunction had prevented 3rd defendant from
continuing with his obligations.
Held: Frustration

Standard Chartered Bank v KL Landmark

Bank lent RM20 million to borrower. Def charged their land to bank as security.
Borrower defaulted. Bank applied to foreclose the land.
Later, bank made agreement with def under which def would pay RM2million to bank
and give a bank guarantee providing to repay the balance RM18 million
Def paid RM 2 million. But subsequently, bank and def were served with an injunction
by Monsia Investment Pte Ltd to stop them from acting under this agreement.

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Held: The agreement suspending the right of the bank to foreclose def’s land had
been frustrated.

II. Frustration –Effect

• Contract becomes void
• Parties discharged from further performance
• If parties have made provisions to allocate the risks, effect will be given to the
provisions: s16(3) CLA
• If no provisions made by parties→ s66 CA, s15 CLA

Effect of s66
• S66 - contract becomes void
• restitutionary
• S66, Illustration (d).

Effect of s15(2) & (3) CLA

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, subsection (2) to (6) shall, subject to section 16,
have effect in relation thereto.

S15(2) CLA
All sums paid or payable to any party in pursuance of the contract before the time
when the parties were so discharged … shall, in the case of sums so paid, be
recoverable from him as money received by him for the use of the party by which, 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.

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S15(3) CLA
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) The effect, in relation to the said benefit, of the circumstances giving rise to the
frustration of the contract.
Court’s discretion in s15(2) and (3)