Frustration

It is difficult to ascertain when a frustrating event has occurred. In practice, there are, therefore, few cases of frustrated contracts – Justin Santiago

Frustration is an event that occurs after the formation of the contract which renders the performance of the contract impossible, illegal or something radically different from that which was in the contemplation of the parties at the time at which they entered into the contract: Davis Contractors Ltd v Fareham UDC.

The effects of frustration on a contract are severe : Under S1(2) of the Law Reform (Frustrated Contracts Act) 1943, the contract would come to any end and the claimants put in a position prior to the contract which means any money paid prior to the frustrating event will be returned, balance of payment due will cease to be payable, any expenses incurred will be set off against money received.

Because of the harsh consequences of its effect which is termination, frustration has been applied only in very limited situations and will not be invoked to assist a party who is looking for a way out of a bad bargain. The narrow application in this doctrine has its origins in a time of the absolutist approach where once a party had assumed an obligation he was bound to make it good : Paradine v Jane. 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.

In arguing frustration the claimant would have to argue there will not be full performance of the contract. It can be argued based on the case of Krell v Henry that the purpose of the contract is no longer achievable. Since this purpose cannot be achieved the contract is frustrated and brought to an end. However based on cases like Herne Bay Steam Boat v Hutton if the contract can be executed albeit at a later date the contract is still not considered frustrated. If it merely increases the cost and makes the job more onerous and does not radically or fundamentally alter the nature of performance the contract would not be frustrated : Tsakiroglou & Co Ltd v Noblee & Thorl GMBH.

Additionally supervening or unforeseen event must pass the foreseeability test i.e. a party cannot rely on an event which was, or should have been, foreseen by him but not by the other party : Walton Harvey Ltd v Walker and Homfrays. Therefor to invoke frustration the event must not have been contemplated by any one of the parties at the time of the contract.

Additionally the presence of a force majeur clause in a contract is sufficient to exclude the operation of the doctrine of frustration : Bremer Handelsgesellschaft m.b.H. v Vanden Avenne-Izegem P.V.B.A. where it was contended that there was no room for the doctrine of frustration to apply because of the elaborate force majeure clauses included in the contract.

Force majeur clauses are handy devices in offering parties the opportunity to escape from the narrowness of the doctrine of frustration by including within their force majeur clause an event which would not, at common law, be sufficient to frustrate a contract. However there is a limit to the operation of force majeure clauses. Force majeure clauses are seen as unable to cover every single event as in doing so would entail drafting them in very broad terms. Courts are reluctant to give effect to force majeure clauses that are drafted in broad terms as they are of the opinion that such clauses are only used to cover a temporary difficulty specifically outlined and not events of great magnitude or fundamental changes : Metropolitan Water Board v Dick, Kerr & Co, The Playa Larga.

Additionally Ewan McKendrick in “Force Majeure and Frustration of Contract” has recommended that the courts uphold the contract in light of renegotiations after the occurrence of an unforeseen event rather than employ the doctrine of frustration. His argument is supported by Adams and Brownsword in “Contract, Consideration and the Critical Path” where he pointed that the doctrine of frustration firmly sets its face against assisting parties to renegotiate a contract, despite there being circumstances beyond the control of the parties.

Also measures to renegotiate a contract after the occurrence of an unforeseen event are seen to be effective measures to avoid discharging the contract for frustration.