Frustration and summary judgment

The High Court has recently considered whether a defence of frustration can be struck out or summary judgment given.

In Natixis & Anr v Famfa Oil Ltd, the High Court held that a defence of frustration passed the realistic arguability test and could not be struck out, nor could summary judgment be given in favour of the claimants in relation to it.

Background

The defendant was interested in purchasing Petrogas shares. The defendant entered into finance agreements with the claimants to access the necessary borrowing and submitted a binding offer to acquire the shares. The Nigerian Government then indicated (by correspondence) that it would attempt to obtain rights to four fifths of the defendant’s interest in part of an oil field known as OML 127. The defendant decided not to proceed further with its bid for the Petrogas shares, and the claimants claimed for fees owed to them under the finance agreements.

Frustration was one of the limbs of the defence to the claim; the defendant argued that without its interest in, and income derived from, OML 127 (i.e. if the Nigerian Government took back four fifths of the defendant’s interest) it would have been impossible for the defendant to obtain and service borrowing in respect of the share purchase.

Having considered the approach to frustration as set out in the recent case of Canary Wharf (BP4) T1 & Ors v European Medicines Agency, the Court concluded:

• It was necessary to determine the parties’ knowledge, expectations, assumptions and contemplations ‘in particular as to risk‘ at the time the contract was made;
• That it was not established with the certainty required for applications for summary judgment/strike out that the risks created by the correspondence from the Nigerian Government were placed with the defendant by the terms of the contract;
• It was realistically arguable that the correspondence from the Nigerian Government was a frustrating event;
• It was close to unarguable that the frustration was self-induced given the frustrating event was alleged to be the receipt of correspondence that could not have been prevented by the defendant.

Comment

The doctrine of frustration is currently in the spotlight given difficulties complying with contractual obligations in the context of the COVID-19 pandemic. This decision highlights that the complexity of examining whether or not frustration has occurred is likely to thwart applications for summary judgment/strike out of frustration defences given that courts should not conduct a ‘mini trial’ in coming to decisions on such applications.

For further guidance on the doctrine of frustration see our contract law guide and webinar recording.