Frustration

Frustration occurs when due to an unforeseen circumstance, carrying out the performance of a
contract becomes impossible or radically different: non haec in foedera veni meaning it was not this
that I promised to do and it was beyond the control of the parties. If such a situation occurs, then the
contract comes to an end effective immediately and the parties are released from any obligations
that they had under the contract. However, this has not always been the case, as the “freedom of
contract” rule is used when it comes to bad bargains, if it were to be used here, then the courts will
not concern themselves with situations where the parties had an unfortunate even render their
contract impossible to perform. Which means there would just simply be a breach of contract, this
was the original approach laid down in the case of Paradine v Jane 1647 before the doctrine of
frustration came into existence.

This doctrine arose in 1863 when the case of Taylor v Caldwell came into courts. According to the
contract, the defendant was going to hold concerts in the plaintiff’s music halls. However, before
they could execute the terms of the contract, the hall burnt down making it impossible for them go
further with their contractual obligation. The court found that the contract had been frustrated and
no party was at fault.

The events in which frustration occurs was laid down in the case of Davis Contractors, by Lord
Radcliffe. According to him, frustration takes place when without fault of either one of the parties
the contract is incapable of being performed due to unforeseen circumstances.

The courts use the multi-factorial approach to determine whether or not there has been frustration.
This approach was established in the case of The Sea Angel 2007. It allows the courts to consider
many different aspects in determining whether or not frustration has occurred including the
provisions upon which the contract was made, surrounding circumstances and the expectations of
the parties. However, frustration is difficult to invoke successfully, there are very rare cases where the
courts hold the argument of frustration successful.

It has been repeatedly emphasized by the courts that frustration will only come to be when there is a
significant change between what was originally contracted and the circumstances in which it is
supposed to be performed now. This can be illustrated through the case of CTI Group Inc v
Transclear SA 2008.

There are certain situations in which frustration can occur ranging from destruction of subject matter
to illegality. According to S.7 of Sale of Goods Act 1979, frustration occurs when the goods that were
agreed to be sold are subsequently destroyed without either party’s fault, this can also apply when
eatable goods are contaminated. Exempli gratia, Asfar v Blundell 1896.

Due to any new statutory measure, if the performance becomes illegal, the contract will be
unenforceable and frustrated. A landmark case for this is Fibrosa Spolka 1943. In this case, a contract
made before the starting of a war could not be performed because trading with companies based in
the enemy country had become illegal. This caused frustration. It is noteworthy that frustration can
occur without there being a direction action by the government. In the case of Finelvet AG v Vinana
Shipping Co 1983, the war led to ships being trapped for a long amount of time making the contracts
related to the ships frustrated.
More recently, it can be seen that Covid-19 led to a lot of frustration of contracts. There were a lot
public gatherings that were banned due to reasons of health and safety leading to frustration of
contracts hall and many other things. Include the health and safety case.

Another factor that could lead to frustration is death or illness of the party that was supposed to
perform the contract. For instance, if an actor contracted to film for a movie dies or becomes too
unwell, the contract between both the parties will be frustrated. (Robinson v Davison 1871).

If the purpose for which the contact was made has become impossible to fulfil, then frustration will
occur. For instance, in the case of Krell v Henry 1903, the contract fell short of its intended purpose,
even if the contract was executed, it would not matter; this frustrates contracts and releases the
parties from any obligations. Include the other case.

However, the parties can have an escape plan for situations such as these. They can do so by adding
a clause in their contract that states that they are better prepared for such unforeseen
circumstances. To illustrate, if in the landmark case of Taylor v Caldwell, the parties had a clause in
the contract which suggested that they would hold the concert in another hall, if the chosen hall
under the contract, for any reason, could not be used. This will prevent frustration from occurring.
This is known as the force majeure clause. This is beneficial for the parties because as soon as
frustration occurs, despite the wishes of the parties, their contract comes to an end. With the force
majeure clause, the parties can prevent something like that from happening and continue their
contractual relationship.

According to Lord Radcliffe frustration also does not occur on the basis of a bad bargain or mere
inconvenience. Otherwise, it would be an easy way out of the contract for parties when the contract
was merely not a good enough bargain for them. This can be illustrated through the case of Davis
Contractors 1956. In this case, the parties after they had to spend more money than they had
expected and tried to recover it by putting forth an argument stating that the contract had been
rendered void since it was frustrated. However, their claim was rejected since the claimants just
wanted to be rescued from a bad deal.

More limits to invoking frustration include if a party induced the frustration by themselves, if so, then
it will be concluded as a breach of the contract and not frustration. This was the case in Maritime v
Ocean Trawlers 1935. They could not use a boat they chartered from the plaintiffs because they did
not use their fishing licenses wisely. The court held that the frustration was self-induced which
means it was a breach of contract. The “fault” part has been given a broad meaning by the courts, it
basically means that if the event occurred because of something done by one party, then this
doctrine will not apply.

Frustration also will not have any application when the occurrence of such an event was foreseeable
by the parties. Frustration is supposed to occur as a surprise, when neither party was aware of the
risk. If the parties knew about the risks and had foreseen the happening of a frustrating event, it
would not amount to frustration. In the case of Gold Corp v BDW 2010, it was evident not only had
both the parties foreseen the possibility but also included a force majeure clause in their contract, all
this led to the court making a ruling that the contract was not frustrated.

In common law, the general rule was that the loss stayed where it fell which meant that the money
that was spent prior to the frustrating event could not be recovered and money that was payable will
remain to be payable according to the case of Chandler v Webster 1904. The case of Fibrosa Spolka
overruled this precedent, holding that if a party spends money and receives nothing in return, then
the money is recoverable because there is no consideration. The appellants in the case wanted to
recover the payment they made while putting pen to paper. They were successful in their claim
because they had received no consideration for their payment. This new rule was not without
criticisms. This rule only worked when there was absolutely no consideration, it did not work when
the failure of consideration was partial.

New rules were established by the section 1(2) of Law Reform (Frustrated Contracts) Act 1943.
According to this, money that was paid prior to the frustrating event is reclaimable, money that was
supposed to be paid is no longer an obligation and the person that received the money is entitled to
offset their own claim against the defendants claim on the basis of the expenses he sustained prior
to the frustrating event. However, it is not clear on what basis the court calculates the money that
the payee can retain. In the case of Gamerco SA 1995, the performance had become incapable of
being executed and the contract was frustrated, Subsequently, Gamerco made a claim for
reimbursement of the money that they paid to the defendant. The court held that under the 1943
Act, Gamerco could recover all the advance payments.

In the case of Appleby v Myers 1867, the claimants wanted to recover money for the work that they
had done before the frustrating event but was unsuccessful in doing so because the court said that
since the payment was supposed to come at the completion of the project, they could not ask for it
now because the contract was frustrated. This rule was very harsh for the provider of services when
a contract becomes frustrated. However, changes were brought by the enactment of s1(3) of the
1943 Act. Under this section, the party providing services can claim a reasonable amount of sum in
regards to the benefit the other party has gained. Although, it is hard to assume what the court will
amount as a “reasonable” or fair amount. According to Lawton LJ, an appellate court is not allowed
to overturn what a trial judge says a fair amount is. All in all, this section is widely criticized as not
being properly drafted.

The doctrine of frustration is a complex and nuanced area of English Contracts Law making sure the
parties have a remedy when due to unforeseen events, the contractual performance becomes
impossible. The courts carefully assess each case to determine whether or not frustration applies.
The enactment of the Law Reform Act strengthened the legal framework around this doctrine,
ensuring equitable results for both the parties involved in the frustrated contracts.