The Doctrine of
Frustration postulates that if an event or series of events occurs without the
fault of any of the parties which hinders or prevents the performance of the
duty under the contract, such contract is discharged and is considered
terminated. Such event fundamentally changes the circumstance and strikes at
the root of the agreement, This is expressed in Latin as “Non haec in foedera veni”.
See NWAOLISAH V. NWABUFOH (2011) 14 NWLR
(PT. 1268) 600; WECO ENGINEERING AND CONSTRUCTION CO. LTD v. DUFAN (NIG) LTD
& ANOR (2019) LPELR-47211(CA), CHANDLER V. WEBSTER [1904] 1 KB 49.
Frustration postulates that if an event or series of events occurs without the
fault of any of the parties which hinders or prevents the performance of the
duty under the contract, such contract is discharged and is considered
terminated. Such event fundamentally changes the circumstance and strikes at
the root of the agreement, This is expressed in Latin as “Non haec in foedera veni”.
See NWAOLISAH V. NWABUFOH (2011) 14 NWLR
(PT. 1268) 600; WECO ENGINEERING AND CONSTRUCTION CO. LTD v. DUFAN (NIG) LTD
& ANOR (2019) LPELR-47211(CA), CHANDLER V. WEBSTER [1904] 1 KB 49.
The Supreme Court in NWAOLISAH v. NWABUFOH (2011) LPELR-2115(SC)
observed that:
observed that:
“Frustration
occurs wherever 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 radically
different from what was undertaken by the contract” The events which have
been listed by the court to constitute frustration are: (1) Subsequent legal
changes or statutory impossibility (2) Outbreak of war (3) Destruction of the
subject matter of the contract or literal impossibility (4) Government
acquisition of the subject matter of the contract (5) Cancellation by an
unexpected event like where other party to a contract for personal service,
dies or where either party is permanently incapacitated by ill-health,
imprisonment etc., from rendering the service he has undertaken. Davies
Contractors Ltd. v. Fareham DC (1956) AC 696, Akanmu v. Olugbode (2001) 13 WRN
132, NBCI v. Standard (Nig.) Eng. Co. Ltd. (2002) 8 NWLR (pt. 768) pg 104,
Obayuwana v. The Governor of Bendel State (1982) SC pg. 167, Taylor v. Caldwel
(1863) 3 B& Y S 826, J. P Dawodu v. B. Anderson & Co, Ltd (1925) 6 NLR
Pg. 105, Adu v. Makanjuola (1944) 10 WACA Pg. 168.”See also Cricklewood Property & Investment Trust
Ltd v. Leightons Investment Ltd. (1945) 1 All ER 252.
occurs wherever 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 radically
different from what was undertaken by the contract” The events which have
been listed by the court to constitute frustration are: (1) Subsequent legal
changes or statutory impossibility (2) Outbreak of war (3) Destruction of the
subject matter of the contract or literal impossibility (4) Government
acquisition of the subject matter of the contract (5) Cancellation by an
unexpected event like where other party to a contract for personal service,
dies or where either party is permanently incapacitated by ill-health,
imprisonment etc., from rendering the service he has undertaken. Davies
Contractors Ltd. v. Fareham DC (1956) AC 696, Akanmu v. Olugbode (2001) 13 WRN
132, NBCI v. Standard (Nig.) Eng. Co. Ltd. (2002) 8 NWLR (pt. 768) pg 104,
Obayuwana v. The Governor of Bendel State (1982) SC pg. 167, Taylor v. Caldwel
(1863) 3 B& Y S 826, J. P Dawodu v. B. Anderson & Co, Ltd (1925) 6 NLR
Pg. 105, Adu v. Makanjuola (1944) 10 WACA Pg. 168.”See also Cricklewood Property & Investment Trust
Ltd v. Leightons Investment Ltd. (1945) 1 All ER 252.
The Court of Appeal
in GLOBE SPINNING MILLS (NIG) PLC v.
RELIANCE TEXTILE INDUSTRIES LTD (2017) LPELR-41433(CA) held that where the
commercial purpose of the contract has failed that it amounts to frustration.
in GLOBE SPINNING MILLS (NIG) PLC v.
RELIANCE TEXTILE INDUSTRIES LTD (2017) LPELR-41433(CA) held that where the
commercial purpose of the contract has failed that it amounts to frustration.
Where a contract has
been frustrated, the question of breach will not arise, as none of the parties
can be held responsible for what has happened. The contract is generally
discharged.
been frustrated, the question of breach will not arise, as none of the parties
can be held responsible for what has happened. The contract is generally
discharged.
The question whether the doctrine of
frustration applies to leases came up in ARAKA
v. MONIER CONSTRUCTION COMPANY (NIGERIA) LTD (1978) LPELR-531(SC), the
facts of the case are as follows:
frustration applies to leases came up in ARAKA
v. MONIER CONSTRUCTION COMPANY (NIGERIA) LTD (1978) LPELR-531(SC), the
facts of the case are as follows:
The Appellant as Plaintiff claimed from
the Respondents as Defendants, the sum of N4,400 being rents due to the
Appellant for the period, 1st December 1967 to 30th November 1969, in respect
of the Appellant’s house situated at 5 Wenike Tienabeso Street, formerly 5
Umuahia Street, Port Harcourt. At the trial of the action the Appellant gave
evidence and called one witness. The Respondents did not adduce any evidence,
but rested their case on the evidence of the Appellant and the correspondent
between them and the appellant, which were admitted in evidence through the
Appellant. In a reserved judgement, the learned trial Judge found that there
was a lacuna in the case of the Plaintiff in that there was no evidence of the
terms of the tenancy agreement for the period 1st December 1964 to 30th
November 1966 and there was no such evidence for the period in question either.
He further found that the occupant of the house, who was an expatriate,
vacated the house in June 1967 which was six months before the next rent was
due and that he did so because all expatriates had been asked by the Biafran
rebels to leave that part of the country on account of the Nigerian civil war.
Consequently, the learned trial Judge dismissed the Plaintiff’s claim. Being
aggrieved at the Judgment, the plaintiff as appellant, appealed to the Supreme
Court.
the Respondents as Defendants, the sum of N4,400 being rents due to the
Appellant for the period, 1st December 1967 to 30th November 1969, in respect
of the Appellant’s house situated at 5 Wenike Tienabeso Street, formerly 5
Umuahia Street, Port Harcourt. At the trial of the action the Appellant gave
evidence and called one witness. The Respondents did not adduce any evidence,
but rested their case on the evidence of the Appellant and the correspondent
between them and the appellant, which were admitted in evidence through the
Appellant. In a reserved judgement, the learned trial Judge found that there
was a lacuna in the case of the Plaintiff in that there was no evidence of the
terms of the tenancy agreement for the period 1st December 1964 to 30th
November 1966 and there was no such evidence for the period in question either.
He further found that the occupant of the house, who was an expatriate,
vacated the house in June 1967 which was six months before the next rent was
due and that he did so because all expatriates had been asked by the Biafran
rebels to leave that part of the country on account of the Nigerian civil war.
Consequently, the learned trial Judge dismissed the Plaintiff’s claim. Being
aggrieved at the Judgment, the plaintiff as appellant, appealed to the Supreme
Court.
The Supreme Court held thus:
“We are inclined
to accept the views of Viscount Simon and Lord Wright as being the correct
statement of the law that the doctrine of frustration may in certain
circumstances apply to a lease. We think that it may tantamount to injustice to
deny a tenant the benefit of frustration in cases where, owing to circumstance
of an intervening event or change of circumstances so fundamental as to be
regarded by the law as striking at the root of the agreement, it has become
impossible for the tenant to enjoy the fruits of his lease and at the same time
to expect him on account of the abstract estate concept to honour his
obligations under the lease. Such denial may also suffer injustice to a
landlord who finds himself in the same situation as the landlord in DENMAN v.
BRISE (Supra).
to accept the views of Viscount Simon and Lord Wright as being the correct
statement of the law that the doctrine of frustration may in certain
circumstances apply to a lease. We think that it may tantamount to injustice to
deny a tenant the benefit of frustration in cases where, owing to circumstance
of an intervening event or change of circumstances so fundamental as to be
regarded by the law as striking at the root of the agreement, it has become
impossible for the tenant to enjoy the fruits of his lease and at the same time
to expect him on account of the abstract estate concept to honour his
obligations under the lease. Such denial may also suffer injustice to a
landlord who finds himself in the same situation as the landlord in DENMAN v.
BRISE (Supra).
…the very purpose for
which the lease had been taken was frustrated by the action of
the Biafran rebels and that since that date the tenants have not
enjoyed the benefits of the lease.
which the lease had been taken was frustrated by the action of
the Biafran rebels and that since that date the tenants have not
enjoyed the benefits of the lease.
Furthermore,
the tenants were compelled by the civil war to suspend their business in
Port Harcourt and vacated the area and that before the end of the war
the lease property had been taken over by the Abandoned Property Authority
and consequently, neither the landlord nor the tenant had a right
of access to the house after the secession of hostility in January
1970.
the tenants were compelled by the civil war to suspend their business in
Port Harcourt and vacated the area and that before the end of the war
the lease property had been taken over by the Abandoned Property Authority
and consequently, neither the landlord nor the tenant had a right
of access to the house after the secession of hostility in January
1970.
Under
the circumstances we think it would be unjust and oppressive to cause the
tenant to pay the rent for the period in question. That being
the case, we think the learned Judge was right in regarding the
contract as having been determined by frustration and holding that the
Appellant was not entitled to recover any rent thereafter.
the circumstances we think it would be unjust and oppressive to cause the
tenant to pay the rent for the period in question. That being
the case, we think the learned Judge was right in regarding the
contract as having been determined by frustration and holding that the
Appellant was not entitled to recover any rent thereafter.
Accordingly,
the appeal is dismissed and the cost of the appeal in favour of the
Respondents is assessed at N310.”
the appeal is dismissed and the cost of the appeal in favour of the
Respondents is assessed at N310.”
In A-G CROSS RIVER STATE v. A-G FEDERATION & ANOR (2012) LPELR-9335
(SC) the Supreme Court held that the doctrine of frustration is
applicable to all categories of contract.
(SC) the Supreme Court held that the doctrine of frustration is
applicable to all categories of contract.
COVID-19
In view of this raging pandemic
disease; Coronavirus (COVID-19), there will be so many actions in court over
breach of contracts. Some employers are already issuing notices for non-payment
of their employees during this period they have asked them to stay at home,
some loans can no longer be serviced, some persons that rented event centres
can’t use them again and don’t have the assurance of getting their money, some
that gave banks standing orders can’t fund the accounts to carry out these
instructions, some booked airline but can’t travel, etc.
disease; Coronavirus (COVID-19), there will be so many actions in court over
breach of contracts. Some employers are already issuing notices for non-payment
of their employees during this period they have asked them to stay at home,
some loans can no longer be serviced, some persons that rented event centres
can’t use them again and don’t have the assurance of getting their money, some
that gave banks standing orders can’t fund the accounts to carry out these
instructions, some booked airline but can’t travel, etc.
The writers wish to pause at this
juncture to ascertain whether the outbreak of Coronavirus is a frustrating
event?
juncture to ascertain whether the outbreak of Coronavirus is a frustrating
event?
Our answer to the above poser will be
dependent on the peculiar facts of each case under consideration. While
COVID-19 will amount to a frustrating event to discharge some contracts, it
will not be enough to discharge some contracts as a frustrating event.
dependent on the peculiar facts of each case under consideration. While
COVID-19 will amount to a frustrating event to discharge some contracts, it
will not be enough to discharge some contracts as a frustrating event.
Flowing from the
foregoing, a contract is not frustrated
merely because its execution becomes more difficult or more expensive than
either party originally anticipated and has to be carried out in a manner not
envisaged at the time of its negotiation. See DAVIES CONTRACTORS LTD V. FAREHAM N.D.C (1956) AC 696, TSAKINEGLON
& CO. V. NOBLEE THORH G.M.B.H (1962) A.C. 93.
foregoing, a contract is not frustrated
merely because its execution becomes more difficult or more expensive than
either party originally anticipated and has to be carried out in a manner not
envisaged at the time of its negotiation. See DAVIES CONTRACTORS LTD V. FAREHAM N.D.C (1956) AC 696, TSAKINEGLON
& CO. V. NOBLEE THORH G.M.B.H (1962) A.C. 93.
Secondly, if the obligation under a
contract was due before the frustrating event, the subsequent occurrence of the
frustrating event does not discharge that contract. Thus, all legal rights
already accrued or money already paid, which has become payable before the
frustrating events occurred remains intact, while
obligations falling due for performance after the event are discharged. See
NOSPECTO OIL & GAS LTD v. KENNEY
& ORS (2014) LPELR-23628(CA)
contract was due before the frustrating event, the subsequent occurrence of the
frustrating event does not discharge that contract. Thus, all legal rights
already accrued or money already paid, which has become payable before the
frustrating events occurred remains intact, while
obligations falling due for performance after the event are discharged. See
NOSPECTO OIL & GAS LTD v. KENNEY
& ORS (2014) LPELR-23628(CA)
In addition to the above two instances,
it is pertinent to note that the doctrine of frustration also does not occur
where:
it is pertinent to note that the doctrine of frustration also does not occur
where:
(i) The intervening circumstance is one which the law would
not regard as so fundamental as to destroy the basis of the agreement.
not regard as so fundamental as to destroy the basis of the agreement.
(ii) The terms of the
agreement show that the parties contemplated the possibility of such an
intervening circumstance arising.
agreement show that the parties contemplated the possibility of such an
intervening circumstance arising.
(iii) One of the parties had deliberately brought about the
supervening event by his own choice. See GOLD
LINK INSURANCE CO. LTD v. PTF (2008) LPELR-4211(CA).
supervening event by his own choice. See GOLD
LINK INSURANCE CO. LTD v. PTF (2008) LPELR-4211(CA).
A scenario will be apt to explain when COVID-19 will amount
to frustration and when it will not.
to frustration and when it will not.
Mr Ugo who stays in Canada entered into an agreement with Mr
Segun for the supply of 100 cartons of Wine on 1/3/2020, which 60% is payable
on 5/3/2020. The Nigerian Government however closed its border on 7/3/2020
because of COVID-19 outbreak when Mr Segun has not paid the 60%. Meanwhile, Mr
Ugo has expended money in buying the wine and other logistics. Mr Ugo who is
aggrieved has brought an action to enforce the 60% that was due and payable
before 7/3/2020.
Segun for the supply of 100 cartons of Wine on 1/3/2020, which 60% is payable
on 5/3/2020. The Nigerian Government however closed its border on 7/3/2020
because of COVID-19 outbreak when Mr Segun has not paid the 60%. Meanwhile, Mr
Ugo has expended money in buying the wine and other logistics. Mr Ugo who is
aggrieved has brought an action to enforce the 60% that was due and payable
before 7/3/2020.
In this event, Mr Ugo can successfully claim for the 60%
because it was due and payable before the closure of the border. However,
assuming the 60% was payable on 9/3/2020, the contract will be deemed
frustrated and Mr Segun will be discharged from the obligation.
because it was due and payable before the closure of the border. However,
assuming the 60% was payable on 9/3/2020, the contract will be deemed
frustrated and Mr Segun will be discharged from the obligation.
Flowing from the foregoing, it is clear that if the parties
contemplated the possibility of such an intervening circumstance that the
doctrine of frustration will not apply. Hence, such contemplation will usually
come under the “Force Majeure clause” inserted in such commercial agreement in
which the parties determine whether the contract is to be suspended during the
period or to be discharged or for refund of any consideration that has passed,
etc. In such circumstance the court will give sanctity to the agreement of the
parties by applying whatever they have provided for in such Force Majeure
Clause. This is on the principle of freedom of contract.
contemplated the possibility of such an intervening circumstance that the
doctrine of frustration will not apply. Hence, such contemplation will usually
come under the “Force Majeure clause” inserted in such commercial agreement in
which the parties determine whether the contract is to be suspended during the
period or to be discharged or for refund of any consideration that has passed,
etc. In such circumstance the court will give sanctity to the agreement of the
parties by applying whatever they have provided for in such Force Majeure
Clause. This is on the principle of freedom of contract.
FORCE
MAJEURE (VIZ MAJOR)
MAJEURE (VIZ MAJOR)
Force
majeure, according to Black’s Law Dictionary 8th Ed, is an event or effect that
can neither be anticipated nor controlled. It includes both natural and human
acts. The human acts may be of political in nature including riots, strikes or
war. This was affirmed by EJEMBI EKO, J.C.A in C.G.G. (NIG) LTD v. AUGUSTINE & ORS (2010) LPELR-8592(CA).
majeure, according to Black’s Law Dictionary 8th Ed, is an event or effect that
can neither be anticipated nor controlled. It includes both natural and human
acts. The human acts may be of political in nature including riots, strikes or
war. This was affirmed by EJEMBI EKO, J.C.A in C.G.G. (NIG) LTD v. AUGUSTINE & ORS (2010) LPELR-8592(CA).
However, according to Wikipedia, Force majeure is a common
clause in contracts that essentially frees both parties from liability or
obligation when an extraordinary event or circumstance beyond the control of
the parties, such as a war, strike, riot, crime, plague, or an event described
by the legal term act of God (hurricane, flood, earthquake, volcanic eruption,
etc.), prevents one or both parties from fulfilling their obligations under the
contract. In practice, most force majeure clauses do not excuse a party’s
non-performance entirely, but only suspend it for the duration of the force
majeure.
clause in contracts that essentially frees both parties from liability or
obligation when an extraordinary event or circumstance beyond the control of
the parties, such as a war, strike, riot, crime, plague, or an event described
by the legal term act of God (hurricane, flood, earthquake, volcanic eruption,
etc.), prevents one or both parties from fulfilling their obligations under the
contract. In practice, most force majeure clauses do not excuse a party’s
non-performance entirely, but only suspend it for the duration of the force
majeure.
It will be pertinent to note from the above that while the
Black’s law dictionary equates Force majeure to the Doctrine of frustration,
Wikipedia sees it as a clause in contract. In any event, it is our view that
Frustration is the umbrella name that covers both Force majeure and other
frustrating events. Hence, where the supervening event was contemplated as
noted above, the doctrine of frustration will not apply and recourse will be
had to the Force majeure clause.
Black’s law dictionary equates Force majeure to the Doctrine of frustration,
Wikipedia sees it as a clause in contract. In any event, it is our view that
Frustration is the umbrella name that covers both Force majeure and other
frustrating events. Hence, where the supervening event was contemplated as
noted above, the doctrine of frustration will not apply and recourse will be
had to the Force majeure clause.
There
are two possible instances, which may suggest that a force majeure clause
covers a pandemic such as COVID-19:
are two possible instances, which may suggest that a force majeure clause
covers a pandemic such as COVID-19:
(a)
if the contractual definition of a force majeure event expressly includes a
pandemic. The inclusion of pandemic to the list of force majeure events will
provide clarity as to whether Covid-19 outbreak would trigger a force majeure
clause in a contract; or
if the contractual definition of a force majeure event expressly includes a
pandemic. The inclusion of pandemic to the list of force majeure events will
provide clarity as to whether Covid-19 outbreak would trigger a force majeure
clause in a contract; or
(b) if the force majeure clause covers
extraordinary events or circumstances beyond the reasonable control of the
parties. Such general, catch-all wording may be invoked if it is determined
that the factual circumstances caused by the pandemic are beyond reasonable
control of the affected party.
extraordinary events or circumstances beyond the reasonable control of the
parties. Such general, catch-all wording may be invoked if it is determined
that the factual circumstances caused by the pandemic are beyond reasonable
control of the affected party.
The question that arises is: who has
the duty to prove that COVID-19 really constituted a force majeure capable of
frustrating the contract?
the duty to prove that COVID-19 really constituted a force majeure capable of
frustrating the contract?
Courts place the burden on the party
asserting force majeure defense to demonstrate the existence of force majeure.
Such clauses are interpreted strictly by the courts.
asserting force majeure defense to demonstrate the existence of force majeure.
Such clauses are interpreted strictly by the courts.
It is not expected that contracting
parties should fold their arms and wait till the end of the pandemic before
they do something to salvage their contracts. It is therefore the opinion of
the writers that contracting parties should:
parties should fold their arms and wait till the end of the pandemic before
they do something to salvage their contracts. It is therefore the opinion of
the writers that contracting parties should:
1.
Identify contracts that are likely to be affected by COVID-19.
Identify contracts that are likely to be affected by COVID-19.
2.
Adhere to contractual notice requirement to notify the other party
of the impracticability of completing the contract.
Adhere to contractual notice requirement to notify the other party
of the impracticability of completing the contract.
3.
Take steps to mitigate their losses if the contract that is in
existence now does not have Force majeure clause. The law imposes upon both
parties an obligation to mitigate their losses.
Take steps to mitigate their losses if the contract that is in
existence now does not have Force majeure clause. The law imposes upon both
parties an obligation to mitigate their losses.
In conclusion, we advise that a
contracting party may need to engage a lawyer for proper advice on the next
step to take.
contracting party may need to engage a lawyer for proper advice on the next
step to take.
ABOUT THE AUTHORS:
