FRUSTRATION REVISION NOTES

Contracts are often silent on the position of the parties in the event that something happens subsequent to
the formation of a contract which renders its performance literally impossible, or only possible in a very
different way from that originally contemplated. The doctrine of frustration operates to excuse from further
performance where: (1) it appears from the nature of the contract and the surrounding circumstances that
the parties have contracted on the basis that some fundamental thing or state of things will continue to exist,
or that some particular person will continue to be available, or that some future event which forms the basis
of the contract will take place; and (2) before breach, an event in relation to the matter stipulated in head (1)
above renders performance impossible or only possible in a very different way from that contemplated.
In more recent times, five propositions have been set out as the essence of the doctrine.
* the doctrine of frustration has evolved to mitigate the rigour of the common law's insistence on literal
performance of absolute promises so as to give effect to the demands of justice, to achieve a just and
reasonable result, to do what is reasonable and fair, as an expedient to escape from injustice where such
would result from enforcement of a contract in its literal terms after a significant change in circumstances.
* the effect of frustration is to kill the contract and discharge the parties from further liability under it, so
that the doctrine cannot be lightly invoked but must be kept within very narrow limits and ought not to be
extended.
* the effect of frustration is to bring the contract to an end forthwith, without more and automatically.
* the essence of frustration is that it should not be due to the act or election of the party seeking to rely
upon it, but due to some outside event or extraneous change of situation.
* that event must take place without blame or fault on the side of the party seeking to rely upon it; nor
does the mere fact that a contract has become more onerous allow such a plea. The mere fact that the
parties apparently treated a contract as remaining in force until a late stage in their dispute does not
conclusively rule out a plea of frustration.

FRUSTRATION OVERVIEW
The doctrine of frustration operates in situations where it is established that due to subsequent change in
circumstances, the contract is rendered impossible to perform, or it has become deprived of its commercial
purpose by an event not due to the act or default of either party.
Frustration is not to be confused with initial impossibility, which may render the contract void ab initio. See
Couturier v Hastie (1856) 5 HL Cas 673 (Handout on Mistake).
TESTS FOR FRUSTRATION
There are two alternative tests for frustration:
(1) The implied term theory, as in:
Taylor v Caldwell (1863) 3 B&S 826.
Lord Loreburn explained in FA Tamplin v Anglo-Mexican Petroleum [1916] 2 AC 397, that the court:
' can infer from the nature of the contract and the surrounding circumstances that a condition which
was not expressed was a foundation on which the parties contracted Were the altered conditions such
that, had they thought of them, the parties would have taken their chance of them, or such that as sensible
men they would have said "if that happens of course, it is all over between us".'
(2) The radical change in the obligation test. This was adopted by the majority of the House of Lords in:
Davis Contractors v Fareham UDC [1956] AC 696.
In National Carriers v Panalpina [1981] AC 675, Lord Wilberforce was reluctant to choose between the
theories. He took the view that they merged one into the other and that the choice depends upon "what is
most appropriate to the particular contract under consideration".
EXAMPLES OF FRUSTRATION
A) DESTRUCTION OF THE SPECIFIC OBJECT
ESSENTIAL FOR PERFORMANCE OF THE CONTRACT
The destruction of the specific object essential for performance of the contract will frustrate it. See:
Taylor v Caldwell (1863) (above).
B) PERSONAL INCAPACITY
Personal incapacity where the personality of one of the parties is significant may frustrate the contract:
Condor v The Baron Knights [1966] 1 WLR 87
Phillips v Alhambra Palace Co [1901] 1 QB 59
Graves v Cohen (1929) 46 TLR 121
FC Shepherd v Jeromm [1986] 3 All ER 589.
C) THE NON-OCCURENCE OF A SPECIFIED EVENT
The non-occurence of a specified event may frustrate the contract. Compare the leading cases:
Krell v Henry [1903] 2 KB 740
Herne Bay Steamboat Co v Hutton [1903] 2 KB 683.

D) INTERFERENCE BY THE GOVERNMENT

Interference by the government may frustrate a contract. See:
Metropolitan Water Board v Dick Kerr [1918] AC 119.
E) SUPERVENING ILLEGALITY
A contract may become frustrated if it later becomes illegal. See:
Denny, Mott & Dickinson v James Fraser [1944] AC 265
Re Shipton, Anderson and Harrison Brothers [1915] 3 KB 676.
F) DELAY
Inordinate and unexpected delay may frustrate a contract. The problem is to know how long a party must
wait before the delay can be said to be frustrating. See:
Jackson v Union Marine Insurance (1873) LR 10 CP 125.

LIMITATIONS OF THE DOCTRINE

'The doctrine of frustration must be applied within very narrow limits', per Viscount Simmonds in
Tsakiroglou [1961] (below).
Lord Roskill said that the doctrine of frustration was 'not lightly to be invoked to relieve contracting
parties of the normal consequences of imprudent commercial bargains', in Pioneer Shipping v BTP Tioxide
[1982] AC 724.
A) EXPRESS PROVISION FOR FRUSTRATION
The doctrine of frustration cannot override express contractual provision for the frustrating event.

B) MERE INCREASE IN EXPENSE OR LOSS OF PROFIT

The mere increase in expense or loss of profit is not a ground for frustration. See:
Davis Contractors v Fareham UDC [1956] AC 696
Tsakiroglou v Noblee Thorl [1961] 2 All ER 179.

C) FRUSTRATION MUST NOT BE SELF-INDUCED

See:
Maritime National Fish v Ocean Trawlers [1935] AC 524.

D) FORESEEABILITY OF THE FRUSTRATING EVENT

A party cannot rely on an event which was, or should have been, foreseen by him but not by the other party.
See:
Walton Harvey Ltd v Walker & Homfrays Ltd [1931] 1 Ch 274.
EFFECTS OF FRUSTRATION
The Law Reform (Frustrated Contracts) Act 1943 was passed to provide for a just apportionment of losses
where a contract is discharged by frustration. (For the previous inflexible common law rules see ILEx
Textbook, 13.5.4)
(A) RECOVERY OF MONEY PAID
Section 1(2) provides three rules:
Money paid before the frustrating event is recoverable, and
Money payable before the frustrating event ceases to be payable, whether or not there has been a
total failure of consideration.
If, however, the party to whom such sums are paid/payable incurred expenses before discharge in
performance of the contract, the court may award him such expenses up to the limit of the money
paid/payable before the frustrating event.
For an example, see:
Gamerco v ICM/Fair Warning (Agency) Ltd [1995] 1 WLR 1226.

(B) VALUABLE BENEFIT

Section 1(3) provides:
If one party has, by reason of anything done by the other party in performance of the contract,
obtained a valuable benefit (other than money) before the frustrating event, he may be ordered to pay a sum
in respect of it, if the court considers it just, having regard to all the circumstances of the case.
A case has discussed, inter alia, the meaning of the words 'valuable benefit'. See:
BP Exploration v Hunt [1982] 1 All ER 925.
(C) SCOPE OF THE 1943 ACT
Section 2(3) permits contracting out.
Section 2(4) provides that the Act does not apply where wholly performed contractual obligations can be
severed from those affected by the frustrating event.
Section 2(5) provides that the Act does not apply to:
Contracts containing a provision to meet the case of frustration;
Charterparties (except time charterparties or charterparties by demise);
Contracts for the carriage of goods by sea;
Contracts of insurance;
Contracts for the sale of specific goods, which perish before the risk has passed to the buyer.

FRUSTRATION CASE NOTES

Taylor v Caldwell (1863) 3 B&S 826

For facts, see below. Blackburn J stated: "The principle seems to us to be that, in contracts in which the
performance depends on the continued existence of a given person or thing, a condition is implied that the
impossibility of performance arising from the perishing of the person or thing shall excuse the
performance."
Davis Contractors v Fareham UDC [1956] AC 696
For facts, see below. Lords Reid and Radcliffe stated that the 'radical change in the obligation' test required
the court to:
1. Construe the contractual terms in the light of the contract and surrounding circumstances at the time of
its creation.
2. Examine the new circumstances and decide what would happen if the existing terms are applied to it.
3. Compare the two contractual obligations and see if there is a radical or fundamental change.
Taylor v Caldwell (1863) 3 B&S 826
Caldwell agreed to let a music hall to Taylor so that four concerts could be held there. Before the date of the
first concert, the hall was destroyed by fire. Taylor claimed damages for Caldwell's failure to make the
premises available. The court held that the claim for breach of contract must fail since it had become
impossible to fulfil. The contractual obligation was dependent upon the continued existence of a particular
object. See above for the quote of Blackburn J.
Condor v The Baron Knights [1966] 1 WLR 87
A drummer engaged to play in a pop group was contractually bound to work on seven nights a week when
work was available. After an illness, Condor's doctor advised that it was only safe to employ him on four
nights a week, although Condor himself was willing to work every night. It was necessary to engage
another drummer who could safely work on seven nights each week. The court held that Condor's contract
of employment had been frustrated in a commercial sense. It was impracticable to engage a stand-in for the
three nights a week when Condor could not work, since this involved double rehearsals of the group's
music and comedy routines.
Phillips v Alhambra Palace Co [1901] 1 QB 59
One partner in a firm of music hall proprietors died after a troupe of performers had been engaged. The
contract with the performers was held not to be frustrated because the contract was not of a personal nature,
and could be enforced against the surviving partners.
Graves v Cohen (1929) 46 TLR 121
The court held that the death of a racehorse owner frustrated the contract with his employee, a jockey,
because the contract created a relationship of mutual confidence.
FC Shepherd v Jeromm [1986] 3 All ER 589
The Court of Appeal held that a sentence of imprisonment imposed on an employee was capable of
frustrating the employee's contract of employment if the sentence was such that it rendered the performance
of the contract radically different from that which the parties contemplated when they entered into the
contract.

Krell v Henry [1903] 2 KB 740

Henry hired a room from Krell for two days, to be used as a position from which to view the coronation
procession of Edward VII, but the contract itself made no reference to that intended use. The King's illness
caused a postponement of the procession. It was held that Henry was excused from paying the rent for the
room. The holding of the procession on the dates planned was regarded by both parties as basic to
enforcement of the contract.
Herne Bay Steamboat Co v Hutton [1903] 2 KB 683
Herne Bay agreed to hire a steamboat to Hutton for a period of two days for the purpose of taking
passengers to Spithead to cruise round the fleet and see the naval review on the occasion of Edward VII's
coronation. The review was cancelled, but the boat could have been used to cruise round the assembled
fleet. It was held that the contract was not frustrated. The holding of the naval review was not the only
event upon which the intended use of the boat was dependent. The other object of the contract was to cruise
round the fleet, and this remained capable of fulfilment.
Metropolitan Water Board v Dick Kerr [1918] AC 119
Kerr agreed to build a reservoir for the Water Board within six years. After two years, Kerr were required
by a wartime statute to cease work on the contract and to sell their plant. The contract was held to be
frustrated because the interruption was of such a nature as to make the contract, if resumed, a different
contract.
Denny, Mott & Dickinson v James Fraser [1944] AC 265
A contract for the sale and purchase of timber contained an option to purchase a timber yard. By a wartime
control order, trading under the agreement became illegal. One party wanted to exercise the option. It was
held that the order had frustrated the contract so the option could not be exercised.
Re Shipton, Anderson and Harrison Brothers [1915] 3 KB 676
A contract was concluded for the sale of wheat lying in a warehouse. The Government requisitioned the
wheat, in pursuance of wartime emergency regulations for the control of food supplies, before it had been
delivered, and also before ownership in the goods had passed to the buyer under the terms of the contract. It
was held that the seller was excused from further performance of the contract as it was now impossible to
deliver the goods due to the Government's lawful requisition.
Jackson v Union Marine Insurance (1873) LR 10 CP 125
A ship was chartered in November 1871 to proceed with all possible despatch, danger and accidents of
navigation excepted, from Liverpool to Newport where it was to load a cargo of iron rails for carriage to
San Francisco. She sailed on 2 January, but the next day ran aground in Caernarvon Bay. She was refloated
by 18 February and taken to Liverpool, where she underwent extensive repairs, which lasted till August. On
15 February, the charterers repudiated the contract.
The court held that such time was so long as to put an end in a commercial sense to the commercial
speculation entered upon by the shipowner and the charterers. The express exceptions were not intended to
cover an accident causing such extensive damage. The contract was to be considered frustrated.

LIMITATIONS OF THE DOCTRINE

Davis Contractors v Fareham UDC [1956] AC 696
The plaintiff agreed to build 78 houses in eight months at a fixed price. Due to bad weather, and labour
shortages, the work took 22 months and cost 17,000 more than anticipated. The builders said that the
weather and labour shortages, which were unforeseen, had frustrated the contract, and that they were
entitled to recover 17,000 by way of a quantum meruit. The House of Lords held that the fact that
unforeseen events made a contract more onerous than was anticipated did not frustrate it.
Tsakiroglou v Noblee Thorl [1961] 2 All ER 179
T agreed to sell Sudanese groundnuts to NT, the nuts to be shipped from Port Sudan to Hamburg,
November/December 1956. As a result of the 'Suez crisis', the Suez Canal was closed from 2 November
1956 until April 1957. T failed to deliver, arguing that shipment round the Cape of Africa was
commercially and fundamentally different. The court held that the contract was not frustrated. T were,
therefore, liable for breach - the change in circumstances was not fundamental.
Maritime National Fish v Ocean Trawlers [1935] AC 524
Maritime chartered from Ocean a vessel which could only operate with an otter trawl. Both parties realised
that it was an offence to use such a trawl without a government licence. Maritime was granted three such
licences, but chose to use them in respect of three other vessels, with the result that Ocean's vessels could
not be used. It was held that the charterparty had not been frustrated. Consequently Maritime was liable to
pay the charter fee. Maritime freely elected not to licence Ocean's vessel, consequently their inability to use
it was a direct result of their own deliberate act.
Walton Harvey Ltd v Walker & Homfrays Ltd [1931] 1 Ch 274
The defendant's granted the plaintiffs the right to display an advertising sign on the defendant's hotel for
seven years. Within this period the hotel was compulsorily acquired, and demolished, by a local authority
acting under statutory powers. The defendants were held liable in damages. The contract was not frustrated
because the defendant's knew, and the plaintiffs did not, of the risk of compulsory acquisition. They could
have provided against that risk, but they did not.
EFFECTS OF FRUSTRATION
Gamerco v ICM/Fair Warning (Agency) Ltd [1995] 1 WLR 1226
The plaintiffs, pop concert promoters, agreed to promote a concert to be held by the defendant group at a
stadium in Spain. However, the stadium was found by engineers to be unsafe and the authorities banned its
use and revoked the plaintiffs' permit to hold the concert. No alternative site was at that time available and
the concert was cancelled. Both parties had incurred expenses in preparation for the concert; in particular
the plaintiffs had paid the defendants $412,500 on account. The plaintiffs sought to recover the advance
payment under s1(2) Law reform (Frustrated Contracts) Act 1943, and the defendants counterclaimed for
breach of contract by the plaintiffs in failing to secure the permit for the concert.
It was an implied term of the contract that the plaintiffs would use all reasonable endeavours to obtain a
permit, yet once the permit was granted they could not be required to guarantee that it would not be
withdrawn. The contract was frustrated essentially because the stadium was found to be unsafe, a
circumstance beyond the control of the plaintiffs. The revocation of the permit, subsequent to its being
obtained by the plaintiffs, was not the frustrating event; the ban on the use of the stadium was. Under s1 of
the 1943 Act, the plaintiffs were entitled to recover advance payments made to the defendants. The court
did have a discretion to allow the defendants to offset their losses against this, but in all the circumstances
of the present case the court felt that no deduction should be made in favour of the defendants and their
counterclaim should be dismissed.

BP v HUNT
In December 1957 the Libyan government granted the defendant a concession to explore for, and extract,
oil in a specified area in the Libyan desert. In June 1960 the defendant, who did not have the knowledge,
equipment or resources to develop the concession himself, entered into a contract with the plaintiff, a major
oil company. The contract, known in the oil industry as a farm-in agreement, was contained in two
documents, namely a 'letter agreement' and an operating agreement, whereby the defendant agreed to assign
to the plaintiff a half share in the oil concession in consideration for which the plaintiff undertook to
explore, develop and operate the whole of the concession entirely from its own resources and at its own
expense and to make down payments in cash and oil to the defendant as 'farm-in' contributions. Under the
agreement, if and when oil was discovered in commercial quantities the operating expenses were thereafter
to be shared and (by s 9(e) of the operating agreement) the plaintiff was to be entitled to take and receive as
reimbursement for the defendant's share of the development expenses and its farm-in contributions threeeighths of the defendant's half share of the oil produced until the plaintiff had received a quantity equal to
125% in value of its farm-in contributions and half its initial investment in the oil field. Clause 6 of the
letter agreement provided that the defendant would not be personally liable to repay the sums advanced to
his account in accordance with s 9(e) of the operating agreement and that the plaintiff was to look for
reimbursement solely from the defendant's share of the oil. The main risk of failure in the combined
venture was therefore to be borne by the plaintiff and not the defendant. The plaintiff spent considerable
sums of money in exploration and development of the concession which proved extremely successful in
that recoverable oil in commercially worthwhile quantities was found and from July 1967 production
increased considerably. However, on 7 December 1971, following a revolution in Libya, the Libyan
government expropriated the plaintiff's half share in the concession and on 11 June 1973 it also
expropriated the defendant's half share. Both parties received inadequate compensation. The plaintiff
brought an action against the defendant alleging that the agreement had been frustrated on 7 December
1971 as a result of the expropriation by the Libyan government of the plaintiff's half share in the concession
and claiming, inter alia, such sums as the court considered just under s 1(3) of the Law Reform (Frustrated
Contracts) Act 1943 in respect of the benefit obtained by the defendant by reason of the plaintiff's
performance of the contract prior to its frustration. The defendant contended that the 1943 Act did not apply
because the contract was not governed by English law and had not been frustrated; alternatively he crossclaimed for an award under the 1943 Act.
Following interlocutory proceedings in which it was held that the contract was governed by English law,
the trial judge found that the contract had been frustrated and awarded the plaintiff two principal sums
($US15,575,823 and 8,922,060) under s 1(3) of the 1943 Act and interest thereon from 14 June 1974, the
date when the plaintiff made it clear to the defendant that it was going to bring a claim against him. The
judge rejected the defendant's claim under the 1943 Act.
The defendant appealed to the Court of Appeal, contending that cl 6 of the letter agreement absolved him
from liability to pay the plaintiff anything and that if he was liable the judge had assessed his liability on
the wrong basis and had ordered him to pay too much. By a cross-appeal, the plaintiff also challenged the
basis on which the judge made his assessment of the amount awarded. The Court of Appeal dismissed the
appeal and the cross-appeal holding that the plaintiff was entitled to be reimbursed under s 1(2) and (3) of
the 1943 Act.
The defendant appealed to the House of Lords, contending (i) that the terms of the contract, in particular cl
6 of the letter agreement and s 9(e) of the operating agreement, were intended to apply whether or not the
contract was frustrated and therefore under s 2(3) of the 1943 Act the operation of the Act was excluded by
the terms of the contract, (ii) that it would be unjust in the circumstances to make an award under the 1943
Act, (iii) that if the judge was right to make an award under the 1943 Act he was wrong to order in addition
the payment of interest on the sums awarded, because sums recoverable under the 1943 Act were not 'any
debt or damages' within s 3(1) of the Law Reform (Miscellaneous Provisions) Act 1934, and (iv) if interest
was to be awarded it ought not to have been ordered to be paid from 14 June 1974 but from the date the
amounts of the principal sums were assessed by the judge at the hearing, because before that date there was
no debt that could attract interest. In the House of Lords, the defendant conceded that the contract had been
frustrated on 7 December 1971 and, since it was governed by English law, that the rights and liabilities of
the parties to it depended on the application of the 1943 Act to the particular circumstances of the case.

Furthermore he conceded that, if the judge had been right to order him to pay the plaintiff any principal
sums at all, the sums ordered to be paid were not excessive.
Held: The appeal would be dismissed for the following reasons:
(1) There was nothing in the express terms of the contract, in particular in cl 6 of the letter agreement or s
9(e) of the operating agreement, or in the surrounding circumstances, to indicate that the parties when they
made the contract contemplated the frustration of it by political risks or that, having such risks in
contemplation, they included in the contract any provision which expressly or by necessary implication
took effect in the event of such risks materialising so as to make s 2(3) of the 1943 Act apply and thus make
it inconsistent with the provisions of the contract for the defendant to be ordered to make any payment
under that Act to the plaintiffs. Furthermore, there were no other circumstances in the case which would
make it unjust, within s 1(2) or (3) of the 1943 Act, to make such an award. It followed therefore that the
judge was entitled to make an award under the 1943 Act.
(2) The words 'any debt or damages' in s 3(1) of the 1934 Act, in the context in which they occurred, were
very wide and covered any sum of money which was recoverable by one party from another either at
common law or in equity or under a statute such as the 1943 Act. Accordingly the judge had power to order
the payment of interest on the principal sums awarded by him.
(3) There was no general rule that, whenever the amount of any debt or damages payable by one party to an
action to the other party could not be ascertained until judgment was given, the court could not, in the
exercise of its discretion, award interest from a date earlier than the date of judgment, since to apply such a
rule would be inconsistent with the express terms of s 3(1) of the 1934 Act, and in many cases, for example
in the case of a claim on a quantum meruit, would lead to serious injustice against a successful plaintiff.
Accordingly, since the judge had express power under s 3(1) to award interest from any date between the
date when the cause of action arose, ie 7 December 1971, when the contract was frustrated, and the date of
judgment, ie 30 June 1978, his decision to award interest from the date when the defendant first became
fully aware of the plaintiff's intention to bring a claim against him was an entirely proper exercise of his
discretion and, having exercised his discretion in that way, an appellate court could not interfere with it.