Wednesday, 3 December 2014

Contractual disputes may arise from unforeseen circumstances. For example, if you have made a contract with a second hand car dealer to sell your current car and the car was totally destroyed in a car accident due to no fault of yours, what do you do? Are you expected to pay for damages?

Usually for such scenarios, the straightforward thing is to claim insurance. However, if you do not have any insurance on your vehicle, you may wish to plead frustration to discharge your contract.

When does frustration of contract occur?

Frustration of contract occurs when a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render a thing radically different from that which was undertaken by the contract[1]. The circumstances should not arise from the fault of either party.

What constitutes frustration of contract?

There are four main scenarios in which you could plead frustration of contract:

        i.            It is illegal to continue performing the contract
      ii.            The contract becomes impossible to perform
    iii.            It is overly onerous to continue performing the contract
     iv.            The purpose of the contract is nullified due to external circumstances

The most common scenario pleaded for frustration of contract is (ii) where the parties plead to the court that their contract is frustrated due to impossible performance. For example, a contract could be frustrated due to the death or incapacity of one party to a contract provided if the contract is a personal contract.

If you are unsure if you should be claiming frustration of contract for your case, it would be better to seek out a commercial lawyer for his or her advice.

Do I need to continue paying for the contract which has been frustrated?

It depends on your case. The legislation that governs the effects of frustration in Singapore is the Frustrated Contracts Act (Cap. 115) which sets out the guidelines after contracts have been frustrated. A commercial lawyer would be best suited to advise you on your contractual obligations after frustration is pleaded.

[1] Andrew Phang Boon Leong and Goh Yihan, Contract Law in Singapore (Wolters Kluwer Law and Business, 2012)