Armchair Answercall Ltd v People in Mind Ltd

Frustration requires a supervening event that significantly changes the nature of outstanding contractual obligations, without default by the party relying on the doctrine and without adequate contractual provision for the event. A failure to achieve a negotiated commercial objective is not necessarily an outside event. Where negotiations are inherently uncertain and the contract allocates that risk, the resulting failure may be a foreseeable possibility rather than frustration.

The agreement must be construed as a whole. Obligations to provide advice, support and availability may continue even after a particular commercial strategy has failed. A contract is not frustrated merely because the principal makes no further request for services. Subsequent conduct cannot create frustration, but may indicate whether the alleged event was genuinely treated as discharging the contract.

Armchair Answercall Limited engaged People in Mind Limited, a company associated with Stephen Beasley, to provide advice and support in connection with the restructuring of Kendlebell’s telephone-answering franchise business and the transition to a centralised operating model.

The franchisees rejected the proposed changes and subsequently terminated or released their franchise agreements. Armchair contended that their collective departure frustrated the Contractor Agreement and sought to avoid further payment. The Mayor’s and City of London County Court held that the agreement had not been frustrated and gave judgment for People in Mind. The appeal concerned the scope of the services, whether the franchisees’ rejection was a frustrating event, and the significance of the parties’ subsequent conduct.

Appeal dismissed unanimously. Lord Justice Christopher Clarke delivered the judgment, with Lord Justices Ryder and Moore-Bick agreeing. The decision of His Honour Judge Collender QC was upheld.

1. Applicable principles. The court applied the frustration approach stated in National Carriers Limited v Panalpina (Northern) Limited [1981] AC 675, confirming the test in Davis Contractors Limited v Fareham Urban DC [1936] 696. The event must significantly change the nature, rather than merely the expense or onerousness, of the outstanding obligations. The principles concerning outside events, fault and risk assumption in J.Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1 and the foreseeability guidance applied in Edwinton Commercial Corp v Tsavliris (Worldwide Salvage & Towage) Ltd [2007] EWCA Civ 547 were also material.
2. Construction of the agreement. The definition of Transition was wide. It covered implementation of the revised method in relation to existing and new customers, existing and future franchisees, and existing and new business. The Contractor Agreement therefore extended beyond securing the existing franchisees’ acceptance of the new method. The rejection of that method did not exhaust the possible services. People in Mind could still assist with attracting business, systems, acquisitions, recruitment and other operational matters.
3. No frustrating event. The inability to persuade all franchisees was a real possibility. The new method removed operational control and control of incoming money, negotiations were delicate, and the franchisees could not be compelled to agree. The alleged event was also at least partly caused by Armchair’s own conduct. It was therefore not an external event outside the contractual allocation of risk.
4. Alternative reasoning and subsequent conduct. Even on Armchair’s narrower construction, People in Mind remained obliged to hold itself available under the agreement. The absence of a request for services did not frustrate the contract. Armchair’s delay in alleging frustration, continued negotiations, continued use of Mr Beasley’s assistance and payments were consistent with the conclusion that no frustrating event had occurred. The appeal was dismissed and judgment for People in Mind affirmed.

1. Court of Appeal (Civil Division) dismissed the appeal and upheld the judgment below: [2016] EWCA Civ 1039.
2. Mayor’s and City of London County Court, His Honour Judge Collender QC, held on 30 October 2014 that the Contractor Agreement had not been frustrated and entered judgment for People in Mind.