Frustration

Scope of the Doctrine

Establishing Frustration

To establish frustration, the party seeking to rely on the doctrine must show that:

1. Performance has become impossible;
2. The impossibility is not the fault of that party; and
3. The impossibility was not foreseeable.

Impossibility

Performance must be completely impossible, not merely more difficult, disadvantageous or expensive: Davis Contractors v Fareham UDC [1956] AC 696. The kinds of cases where performance is considered impossible include:

Illegality

Where the contract was initially legal to perform but subsequently becomes illegal to perform, it will be frustrated: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour [1942] UKHL 4.

Destruction of Subject

If a specific piece of property is needed to perform the contract, and that property is destroyed (or too damaged to be used), then the contract will be frustrated: Taylor v Caldwell (1863) 3 B & S 826.

Sale of Goods

If a sale of goods contract involves specific goods, it will be frustrated if they perish (Sale of Goods Act 1979, s 7). If they are unascertained, or risk has passed to the buyer, the contract remains valid: the seller will need to find substitute goods.

Death or Illness

If the contract demands performance by a specific person, and that person dies or becomes too ill to perform, the contract is frustrated: Whincup v Hughes (1871) LR 6 CP 78. If performance can be done by anyone, then the contract will not be frustrated.

Unavailability

If a specific piece of property is needed to perform the contract and that property is rendered unavailable, the contract is frustrated: The Wenjiang (no 1) [1982] 1 Lloyd’s Rep 128. An example is if the property is requisitioned by the government during the time in which performance is necessary. Another example is theft of some or all of the subject matter in contracts for the sale of specific goods: Barrow Lane and Ballard Ltd v Phillip Phillips and Company Ltd [1929] 1 KB 574.

Commercial Purpose

In rare cases, it may be objectively apparent that the contract is for a particular commercial or other purpose. In these cases, if the purpose becomes impossible the contract may be frustrated even if, strictly speaking, the contractual obligations can be performed: Krell v Henry [1903] 2 KB 740.

Fault

If the party seeking to establish frustration caused the frustrating event, they cannot rely on the doctrine: The Eugenia [1964] 2 QB 226; The Super Servant Two [1990] 1 Lloyd’s Rep 1.

Foreseeability

If the defendant ought to have foreseen the subsequent event which rendered performance impossible, frustration does not apply. This is a matter of degree – the more foreseeable the event, the less likely the contract is frustrated: The Sea Angel [2007] ‎EWCA Civ 547.

If there is a contract term specifically dealing with that event, the parties are normally taken to have foreseen the event. For this reason, the doctrine will not apply.

The foreseeability limitation does not apply where the frustrating event is the outbreak of war causing the contract to involve trading with the enemy: Ertel Bieber v Rio Tinto [1918] AC 260.

Effect of the Doctrine

Nature and Timing of the Doctrine

Frustration automatically terminates the contract the moment the frustrating event occurs (without the parties needing to do anything), but it does not render the contract void ab initio: Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497. It merely discharges the contract going forwards. Breaches that occurred before the frustrating event or obligations which previously became due remain actionable: Chandler v Webster [1904] 1 KB 493.

Sums Paid and Benefits Acquired Prior to Frustration

The Law Reform (Frustrated Contracts) Act 1943 provides that any sums paid prior to the frustrating event are recoverable: s 1(2). However, the court may reduce the amount repaid (or make a separate award) to reflect any expenses incurred during performance. An expenses award may also be made where there was a live, unfulfilled obligation to pay a sum prior to the frustrating event.

If a valuable benefit was given prior to frustration, a sum not exceeding its benefit is recoverable: s 1(3). Again, if the court thinks it just, it may reduce the amount to reflect expenses, sums payable to third-parties and the effect of the frustrating event on that benefit.

Any benefits accruing as a result of an insurance pay-out resulting from the frustrating event are disregarded: s 1(5).