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The Law on Frustration of Contracts in Kenya

By 22 Jul 2021Sep 6th, 2021No Comments

COMMERCIAL LAW

The Law on Frustration of Contracts in Kenya

The frustration of contracts is a common law mechanism by which a contract may be discharged or terminated. Frustration in contract law occurs when performance of a contract is frustrated or rendered impossible due to a supervening event not caused by the fault of any party.

Kenya has adopted principles of the doctrine of frustration from English Law as is stipulated in the Law Reform (Frustrated Contracts) Act of UK of 1943 pursuant to Section 2 of the Law of Contract Act of Kenya.

Frustration has a high threshold of proof such that mere difficulty or hardship will not suffice, it must be proved that the contract was impossible to perform and not merely hard. For example, if one contracts to deliver grains to a buyer and the silo holding the grains burns down, the seller may not rely on the doctrine of frustration as having discharged his contractual obligations. The law considers that while the contract has become harder and more expensive to perform, there is no frustration of purpose as it is still possible to obtain grain from an alternative, albeit more expensive source. Thus the contractual party seeking to rely on frustration will be deemed in breach of the contract.

Types of Frustrating Events in Kenyan Contract Law

These are some of the circumstance in which frustration will discharge a contract in business law:

  • Act of God

An act of God is a natural event that is so dire and destroys the object of the contract. For instance, death or natural disasters like earthquakes, severe epidemics. For example, an earthquake destroying transport infrastructure such that heavy cannot be delivered in good time – where time is a condition of the contract – may discharge a transporters contractual obligation to deliver goods by a certain time – for example in a landlocked country without alternative transport routes other than rail and road.

  • Death of party giving personal performance

In certain instances, a party is the one to provide personal performance and his presence cannot be dispensed with. In the event of this party’s death, the contract is discharged by frustration because it is impossible to perform due to death of the party. For example, when a singer due to perform a concert dies, their contractual obligation to the concert organiser and implicit contract with concert goers is frustrated by their death because it is impossible for a dead person to sing in the said concert.

  • Frustration due to Government’s administrative or political actions

Another instance is new legislative enactments, for instance, Kenya in 2015 enacted the Scrap Metal Act that prohibited export of scrap metal. This may have had a frustrating effect on pending contracts by shippers and exporters who had entered contracts to export said scrap metal at that time. However, reliance on frustration in such instances is often limited to times when there is a sudden change in the law.

Similarly, if parties have entered a contract for the sale of parcel of land and said land is validly expropriated or compulsorily acquired by the government for public use, the contract may be deemed frustrated to a supervening event not caused by the seller and parties will be discharged from their contractual obligations.

An example of political power frustrating a contract is where a war breaks out between two countries and citizens are subsequently forbidden from trading or doing business with citizens of the country whom they are at war with. Pending contracts may be deemed to be frustrated as they become impossible to perform.

What do you need to Prove to show the Contract was indeed Frustrated?

  1. Show the occurrence of a supervening event i.e., an event beyond the control of the parties: e.g., war, act of God such as an earthquake, an act of terror, exercise of governmental power etc. This means that self-induced frustration cannot be relied on.
  2. That the event was unforeseen.
  3. That the contract has become impossible perform and not merely difficult.
  4. That there is therefore a radical change in the purpose and circumstances of the contract.

What is the Effect of Frustration of a Contract?

  1. The contract is discharged or terminated by frustration due to that supervening event.
  2. Thus, in consequence a contractual party is relieved from performance of their contractual obligations going forward after the occurrence of the supervening event.
  3. The contractual parties may retain the value they have received under the contract up to that time e.g. if this was used to cover costs.
  4. The court may order restitution to a party to return them to the financial position they initially were in if it is deemed just under the circumstances.
  5. Neither party is entitled to damages on the sole basis of the supervening event frustrating the contract as this was caused by an event outside of the control of either party.
  6. Parties may claim damages for breach of obligations that have already been performed prior to the frustrating event, but not damages due to the frustrating event.

Is the Covid-19/Coronavirus Pandemic an Event Discharging Kenyan Contracts by Frustration?

The answer is wholly circumstantial. Covid-19 may in certain cases have had the effect of frustrating contracts at the inception of the pandemic, nevertheless, it remains to be seen whether a party can continually rely on the doctrine of frustration from Covid-19 in subsequent timespans when the pandemic shall be ongoing.

The court faced with the defence of Covid-19 as a reason for the frustration of contract during the subsequent years of coronavirus may consider that we have lived with coronavirus for a while such that people have come up with alternatives in this pandemic period i.e. adapted such that coronavirus may not be a supervening event because even though it was initially unforeseeable, parties entering into contracts after the passage of time from the outbreak are able to adjust their performance of contracts to account for  the pandemic which is now in its second year. Thus, in Kenya Union of Commercial, Food and Allied Workers v Tusker Mattresses Limited [2020] eKLR, the court stated that while Covid-19 was unforeseeable – before it became an emergent pandemic – the party relying on the doctrine of frustration needed to show how Covid-19 had made it difficult to adhere to a collective bargaining agreement and pay employees their full wages as stipulated under their individual employment contracts, additionally, the party relying on frustration wrongly conflated frustration with the force majeure mechanism which was actually not a clause included in the collective bargaining agreement. While force majeure and frustration of contracts are similar principles, they are not substitutes of each other and there are legal principles underlying each.

The provision of general information herein does not constitute an advocate-client relationship with any reader. All information, content, and material in this article are for general informational purposes only. Readers of this article should get in touch with us/a qualified advocate to obtain legal advice with respect to any particular legal matter.

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