The Doctrine of Frustration and Its Applicability in Nigeria

CONTRIBUTOR: OLUGBADE JOHNSON ABIOLA

INTRODUCTION
Contracts and agreements are essential components of the corporate world. However, due to the dynamic nature of business, unforeseen events can occur that make it impracticable for a party to fulfil their contractual obligations through no fault of their own.

Historically, parties were strictly bound by the terms of their contracts. If a party was unable to discharge their responsibilities according to the contract, regardless of how compelling or convincing the reason, they were often required to pay damages to the other party for defaulting. The rationale was that a person was strictly bound by their contract and, in the absence of an express limitation of liability, must face the consequences of being unable to perform their obligations. ^[1]

To mitigate the hardship faced by parties unable to adhere to contract terms due to unforeseen and uncontrollable circumstances, Nigerian courts developed the Doctrine of Frustration in Contracts.

This article aims to explain the doctrine of frustration, identify the events that constitute frustration in contracts, determine when frustration can be said to have occurred, outline the duties of a party who pleads frustration, explore possible defences, discuss the effects of frustration on contracts, and examine any limitations to the doctrine.

MEANING OF DOCTRINE OF FRUSTRATION OF CONTRACT

According to Black’s Law Dictionary^[2] the Doctrine of Frustration of contracts is defined as “the doctrine that if a party’s principal purpose is substantially frustrated by unanticipated changed circumstances, the party’s duties are discharged and the contract is considered terminated.”

The Court of Appeal in Maxifund Investment & Securities Plc V. Fbn Plc^[3] equally defined the doctrine of frustration in contracts as;

“The doctrine of frustration as a doctrine presupposes the premature determination of an agreement between parties, lawfully entered into and which is in the course of operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstance so fundamental as to be regarded by law both as striking at the root of the agreement and entirely beyond what was contemplated by the parties when they entered into the agreement.”

THE EVENTS THAT CONSTITUTE FRUSTRATION OF CONTRACT

Under the doctrine of frustration, various events can qualify as frustrating a contract. The court in the case of Hadiza & Anor v. Mohammed & Anor^[4] enumerated the following events as constituting frustration in contracts:

1. Subsequent legal change and Statutory impossibility,
2. Outbreak of War,
3. Destruction of the subject matter of the contract or literal impossibility
4. Government requisition of the subject matter of the Contract
5. Cancellation by an unexpected event.

Furthermore, the Court of Appeal, in defining the events constituting frustration in the case of Maxifund Investment & Securities PLC v. FBN PLC^[5], referenced the decision in Diamond Bank Ltd v. Ugochukwu (2008) 1 NWLR (Pt. 1067). The court held that:

“the doctrine of frustration is restricted to (a) Situations where the supervening events undermine fundamental assumptions of the contract; and (b) When Force Majeure clauses are incorporated into the contract, an event must significantly alter the nature of the contractual rights and obligations.” Examples of such situations include:

1. The subject matter of the contract being destroyed or becoming unavailable.
2. Death or incapacity of a party to the contract.
3. The contract becomes illegal to perform due to new legislation.
4. The outbreak of war frustrated the contract.
5. The failure of the commercial purpose of the contract.”

This elucidation clarifies the specific scenarios under which the doctrine of frustration can be invoked, highlighting the courts’ approach to assessing fundamental changes that impede contractual performance.

Therefore, the onus lies on the party pleading frustration to prove that one or more of the above events have occurred and the same has prevented him from performing the contract, for the Court to hold that the contract has been indeed frustrated and consequently terminated.

WHEN CAN FRUSTRATION OF CONTRACT BE SAID TO HAVE OCCURRED

The courts in Nigeria have clarified the circumstances under which a contract can be considered frustrated. In the case of KLM Royal Dutch Airlines V. Idehen,^[6] the Court of Appeal stated that

“The doctrine of frustration of contract was described in the case of Diamond Bank Ltd V. Ugochukwu (2008) LPELR-8093 (CA) where the Court said “Frustration would occur where it is established to the satisfaction of the Court that due to a subsequent change in circumstances which was clearly not in the contemplation of the parties, the contract has become impossible to perform. The doctrine of frustration has been restricted by the Courts”. The relevant aspect is the event which significantly changed the nature of the contractual rights, making it unjust to expect the parties to perform those rights.”

Also, the Court of Appeal in Weco Engineering and Construction Co. Ltd V. Dufan (Nig) Ltd & Anor^[7] stated that; “Frustration occurs where it is established to the satisfaction of the Court that due to a subsequent change in circumstance, the contract has become impossible to perform. In other words, frustration in contracts occurs wherever the law recognises that without default of parties, 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.

Furthermore, the Court in Pulseline Services Ltd V. Equitorial Trust Bank^[8] said; “the frustration of contract does not occur where: – a. The intervening circumstance is one which the law would not regard as so fundamental as to destroy the basis of the agreement; b. Terms of the agreement show that the parties contemplated the possibility of such an intervening circumstance arising, c. one of the parties had deliberately brought about the supervening event by his own choice.”

A combined reading of the judicial authorities cited above brings to the fore the fact that the Doctrine of frustration will be said to have occurred when:

1. There is an occurrence of an event which was never contemplated and which is radically different from what was undertaken in the contract and which makes it impracticable for him to perform the contract.
2. The terms of the agreement show that the parties did not contemplate the possibility of such an intervening circumstance arising.
3. One of the parties had not deliberately brought about the supervening event by his own choice.

DUTY OF A PARTY WHO PLEADS FRUSTRATION OF CONTRACT

It is a general principle of law that whoever asserts must prove^[9] and this presupposes that a person who is pleading frustration in a contract must be able to prove in Court how the contract has become frustrated. He must show that he is willing and capable of performing his obligation under the contract but was prevented from doing so by circumstances beyond his contemplation and control.^[10]

It is nevertheless the duty of the Court, not the party to state whether and when a frustration of contract has occurred as decided in the case of Bimba Agro Livestock Co. Ltd V. Landmark University.^[11]

As can be deduced from the authorities cited above, it is incumbent on a party claiming frustration to prove to the Court that;

1. He was willing and capable of performing the contract
2. there is an occurrence of an unforeseen event that could never have been reasonably contemplated in the contract
3. that the happening of the event makes it impossible for him to perform the contract

Having established the above, the onus lies on the Court to hold that the contract has been frustrated and therefore terminated.

POSSIBLE DEFENCES TO THE DOCTRINE OF FRUSTRATION

Where a party pleads frustration of contract, the other party could raise the following defences amongst others;

1. That the frustration was self-induced; the implication being that the party pleading frustration has brought it upon the contract and since a party cannot benefit from his own wrong^[12], the doctrine of frustration will not avail such a party.

Therefore, the Court is more likely to hold that a breach of contract has occurred as against frustration of contract as decided in the case of Jacob V. Afaha^[13] where the Court of Appeal stated that; “The doctrine of frustration is applicable in all categories of contract. However, the rule is that self-induced frustration like in this case is no frustration but a breach of contract.

1. That the intervening frustrating event occurred before the Contract was entered into and for that reason, the party cannot be pleading frustration of the contract. The case of Dauda V. Lagos Building Investment Co. Ltd & Ors^[14] lends credence to the fact that the intervening frustrating event must occur after the contract has been entered into and not before it.

EFFECT OF FRUSTRATION ON A CONTRACT

Generally, where a party is unable to perform a contract, he legally entered into without any valid reason such as frustration; he will be in breach of that contract and the Court will more often than not ask him to pay damages to the other party.

Where, however, the party has successfully proven to the Court that an event which was never contemplated in the contract occurred such that it made the performance of the contract practically impossible, the Court may hold that the contract has been terminated by frustration.

The effect of this termination by frustration is that the party who has successfully raised and proven frustration in the contract will be discharged from performing the contract and as well discharged from payment of damages as held in the case of Abdullahi & Anor V. Lead Automobile Co. Ltd ^[15]

LIMITATIONS TO THE DOCTRINE OF FRUSTRATION IN CONTRACT

Until recently, there was a controversy as to whether or not the doctrine of frustration applies to contracts of sale of land, the rationale being that a person buying land immediately enjoys an estate in the land which is entirely independent of the contract and consequently, frustration could not affect it as seen in the case of Cricklewood Property Investment Trust Ltd V. Leighton Investment Trust Ltd^[16]

However, recent judicial authorities have laid to rest this argument. Therefore, it is now settled that the doctrine of frustration applies to all contracts including leases as decided by the Supreme Court in Araka V. Monier Construction Company (Nigeria) Ltd^[17]

CONCLUSION

From the foregoing, it is evident that the mere occurrence of an event does not and will not make the doctrine of frustration avail a party. It must be shown further that the said event occurred after the contract has been made, that the parties never contemplated the occurrence of the said event in the contract and that the happening of the event makes the performance of the contract impossible.

Having established the aforesaid, the Court can then terminate the contract for frustration and the obligations and rights of parties in the contract stand extinguished.

1. I.E Sagay “Nigerian Law of Contract” 3^rd Edition, pg. 665 ↑
2. Black’s Law Dictionary 9^th Edition page 740 ↑
3. (2023) LPELR 61476 (CA) ↑
4. (2015) LPELR-40383 (CA) ↑
5. (2023) LPELR-61476 (CA) ↑
6. (2017) LPELR-43575 (CA) ↑
7. (2019) LPELR-47211(CA) ↑
8. (2010) LPELR-4886(CA) ↑
9. S.13(1) Evidence Act 2011 ↑
10. GOLD LINK INSURANCE CO. LTD V. PTF (2008) LPELR-4211 (CA) ↑
11. (2020) 15 NWLR Pt. 1748, Pg. 465 ↑
12. Jacob v.Afaha (2012) LPELR-7854 (CA) ↑
13. (2012) LPELR-7854 (CA) ↑
14. (2010) LPELR-4024 (CA) ↑
15. (2020) LPELR-51940 (CA) ↑
16. (1945) A.C 221 at p.223 ↑
17. (1978) LPELR-531(SC) ↑
18. (2017) LPELR-43575 (CA) ↑