Keith Mack
Frustration in contract law refers to a situation where an unforeseen event occurs after a contract is formed, making it impossible to fulfil or radically changing the nature of the performance from what was originally intended. This concept ensures that both parties can get a reasonable result when something unexpected happens that is beyond their control. For example, natural disasters, legal changes, or the death of a key individual can frustrate a contract. When a contract is frustrated, it is typically discharged, releasing both parties from their obligations. However, frustration is challenging to prove and is considered a rare remedy in contract law.
| Characteristics | Values |
|---|---|
| Definition | Frustration in contract law refers to a situation where an unforeseen event occurs after the formation of a contract, rendering its performance impossible, illegal, or fundamentally different from what the parties originally intended. |
| Supervening event | The event that leads to frustration must occur after the formation of the contract and must be beyond the control of the parties at the time the contract was made. |
| Beyond control | The supervening event must be beyond the control of the parties at the time the contract was made. |
| Radically different | The event must fundamentally alter the nature of the contractual obligations, making it substantially different from what was initially agreed upon or rendering the contract's performance impossible or illegal. |
| Types of triggering events | Making performance completely impossible, unlawful, or changing it significantly. |
| Examples of triggering events | Natural disasters or technological disasters, new government regulations coming into force, serious economic fluctuations, failures of supply chains, force majeure events, counterparty non-performance, impracticability or impossibility, regulatory restrictions, death or incapacity, and legal changes. |
| Consequences | The contract is discharged, releasing both parties from their future obligations. There is no entitlement to damages, but there may be an allocation of losses and restitution of any already received benefits. Monies paid can be recovered in full or in part. |
| Rarity | Frustration is a rare remedy in contract law. |
| Not a cure-all solution | Frustration isn't a cure-all solution, and not all contractual disputes can be resolved through this doctrine. |
| Legal advice | It is recommended to seek legal advice to assess the situation and determine the most appropriate course of action. |
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Natural disasters
However, it is important to note that frustration of contract due to natural disasters does not apply in cases where the core agreement is still possible, even if there are difficulties in performing the contract. For example, delays or supply chain disruptions that can be managed with extensions or renegotiation do not constitute frustration.
The determination of whether a contract is frustrated due to a natural disaster depends on the specific circumstances of each case, with courts considering factors such as foreseeability, fault, and the impact of the event. To manage contractual risks, parties should carefully draft contracts to allocate risk and provide for termination or suspension, as well as maintain open and effective communication with each other.
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Changes in the law
An example of this is the case of Fibrosa Spolka v Fairbairn in 1939. Fairbairn, a British company, agreed to supply textile machinery to Fibrosa Spolka, a Polish company. Germany invaded Poland, and Great Britain subsequently declared war and enacted a new law making it illegal to trade with Poland, which was now considered enemy territory. The contract was held to be frustrated due to this change in law.
Another example is the case of Taylor v Caldwell, where Taylor hired Caldwell's music hall to hold concerts, but the hall burned down before the events. The court ruled the contract frustrated as the subject matter was destroyed, making it impossible to fulfil the contractual obligations.
It is important to note that frustration of a contract due to changes in the law or other circumstances is not easy to prove. This is because contracts are designed to protect all involved parties, and terminating them should not be simple. To demonstrate frustration, a supervening event must have occurred, significantly altering the nature of the contractual obligations.
In summary, changes in the law can lead to the frustration of a contract when they render the performance of that contract illegal, impossible, or significantly altered from the original agreement.
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Death or incapacity
For example, in the case of Robinson v Davison, a piano player became ill before a concert he was contracted to perform in; the contract was held to be frustrated. Similarly, in Condor v The Baron Knights, a drummer's illness frustrated his contract with a band.
In the case of Notcutt v Universal Equipment Co, the inability of an employee to perform contractual duties due to a heart attack was deemed to frustrate his contract of employment. Such a principle terminates an employment contract immediately; the employee is not entitled to the same protection under employment protection legislation.
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Supervening events
A frustrated contract is a contract that has become impossible to perform due to a supervening event that changes the circumstances of the contract's performance. This supervening event must occur after the formation of the contract and must be beyond the control of the parties involved. It should be noted that frustration only applies in exceptional circumstances and is not a substitute for breach of contract claims.
A supervening event is an unforeseen incident that occurs after a contract has been formed, making the performance of the contract impossible, illegal, or fundamentally different from what the parties originally intended. This can include events such as natural disasters, changes in law, or the destruction of the subject matter of the contract. For example, in the case of Taylor v Caldwell, a music hall hired for concerts burned down a week before the event, frustrating the contract as the subject matter of the contract was destroyed.
To prove frustration, it must be demonstrated that the supervening event has significantly changed the contractual obligations, rendering them impossible or substantially different from the original intentions of the parties. This was seen in the case of Metropolitan Water Board v Dick, Kerr & Co, where a government order to cease work on a reservoir construction project indefinitely frustrated the contract as it rendered the performance impossible.
The doctrine of frustration provides a means for parties to be discharged from their contractual obligations in these extraordinary circumstances. When a contract is frustrated, it is considered terminated, and all parties are released from their future obligations. However, it is important to note that frustration is not a cure-all solution, and not all contractual disputes can be resolved through this doctrine.
To ensure protection, comprehensive contract drafting is essential, covering potential risks and unforeseen events. Additionally, including Force Majeure clauses can help allocate the risk of specific events and their consequences. While frustration and Force Majeure both deal with unexpected circumstances, they differ in that Force Majeure is a contractual provision agreed upon in advance, whereas frustration is a common-law doctrine.
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Frustration vs breach of contract
Frustration of contract and breach of contract are distinct legal concepts with key differences. The former arises due to unforeseen circumstances that make the performance of the contract impossible, unlawful, or significantly different, resulting in automatic termination. On the other hand, a breach of contract occurs when one party fails to fulfil its obligations under a signed agreement, but this does not automatically terminate the contract.
Frustration of contract refers to a situation where an unforeseen event occurs after the contract is formed, rendering its performance impossible, illegal, or fundamentally different from what the parties originally intended. This concept exists to ensure that if something unexpected happens, both parties can still get a reasonable result. An example of this is the case of Taylor v Caldwell, where Taylor hired a music hall to hold concerts, but the hall burned down before the event. Taylor tried to sue for breach of contract, but the court ruled the contract frustrated because the subject matter was destroyed.
Breach of contract, on the other hand, involves the inability or failure to fulfil contractual obligations by one party, triggered by events that are not unforeseen. For instance, late delivery of required components by a subcontractor, resulting in delays in a construction project. In such a case, the affected party may seek remedies such as compensation or termination if the contract includes provisions for non-performance.
It is important to note that frustration only applies in exceptional circumstances and is not a substitute for breach of contract claims. It is also challenging to prove, as contracts are designed to protect all involved parties, and discharging them is not meant to be simple. An example of this is seen in the case of Tsakiroglou & Co Ltd v. Noblee Thorl, where the Suez Canal closure made shipping peanuts to Hamburg much more expensive, but this did not frustrate the contract as it was not deemed an unforeseen event.
In summary, frustration of contract and breach of contract differ in their triggering events and subsequent consequences. While frustration leads to automatic termination, breach of contract does not, and while frustration is challenging to prove and applies only in exceptional cases, breach of contract can be claimed when one party fails to meet its obligations due to foreseeable events.
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