Week 20 Contract: Frustration

What is the doctrine of frustration in contract law?

It discharges a contract automatically when an unforeseen event occurs that makes performance impossible, illegal, or radically different from what was agreed. Obligations before the event remain binding.

What happens to outstanding obligations after frustration occurs?

They are extinguished, but any obligations that accrued before the frustrating event remain binding.

What was the original position in common law regarding breach of contract?

Liability was strict—non-performance, regardless of the reason, was a breach (Paradine v Jane, 1647).

Which case first challenged the rigid position of Paradine v Jane?

Taylor v Caldwell (1863), where a music hall essential to a contract was destroyed by fire, excusing performance.

What did Bingham LJ say about the purpose of the doctrine of frustration?

It's to mitigate rigid common law by giving effect to justice and fairness in changed circumstances (Super Servant Two).

Which case expanded the doctrine to include "impossibility of purpose"?

Jackson v Union Marine Insurance Co Ltd (1874–75).

What is the test for frustration from Davis Contractors v Fareham?

Whether a contract obligation has become radically different from what was agreed due to no fault of either party.

How do courts approach frustration claims?

Through a multi-factorial test: contract terms, context, assumptions, nature of event, and new performance viability.

What are the three overlapping grounds for frustration?

Legal impossibility, physical impossibility, and impossibility of purpose.

What makes legal impossibility a frustrating event?

A change in law making performance illegal or removing control from a party—only if it radically changes obligations.

What types of events constitute physical impossibility?

Death/incapacity, destruction of subject matter, failure of supplies, and significant delay or hardship.

What is required for frustration based on "impossibility of purpose"?

A shared, foundational purpose for the contract must be undermined (e.g. Krell v Henry coronation case).

What happened in Krell v Henry?

A room was hired to view a coronation parade, which was cancelled. The contract was frustrated due to a shared purpose being defeated.

Why was the contract in Herne Bay Steam Boat Co v Hutton not frustrated?

Because only one of the purposes of the contract was thwarted, and the other remained viable.

When can a lease be frustrated?

Rarely—only if the lease is short-term, the purpose is specific and known, and the event defeats that purpose (e.g. National Carriers v Panalpina).

What is self-induced frustration?

When a party causes the frustrating event through fault, breach, or choice, barring them from claiming frustration.

What are three forms of self-induced frustration?

(1) Breach of conduct (e.g. The Eugenia), (2) anticipatory breach (e.g. FC Shepherd v Jerrom), and (3) power to elect (e.g. Maritime National Fish)

What is the role of foreseeability in applying frustration?

If the event was foreseeable or within the risk allocation of the contract, frustration typically doesn't apply.

Can economic hardship alone frustrate a contract?

No—performance must become fundamentally or commercially different, not just more onerous (Tsakiroglou v Noblee Thorl).

What is the purpose of a force majeure/hardship/intervener clause in a contract?

To stipulate what should happen in certain eventualities, avoiding court decisions.

What circumstances can parties specify in an express clause?

Events like riots, war, acts of God, destruction of machinery, etc.

What consequences can be specified in an express clause?

Delay/suspension, cancellation rights, renegotiation duties, etc

What is the court’s role in interpreting express provisions?

To determine if the clause fully and completely covers the supervening event (restrictive approach).

Give a case example illustrating court interpretation of delay clauses.

Sir Lindsay Parkinson & Co Ltd v Commissioners of Works [1949]

What happens if the contract is silent about risk allocation?

Courts may infer implied allocation based on the nature and context of the contract.

What are courts determining when a risk is foreseen but not provided for?

Whether the doctrine of frustration applies or whether the contract remains binding.

What is the general rule about foreseeability and frustration?

A foreseeable event will not frustrate a contract.

Which case shows frustration didn’t apply because the event was foreseeable to one party?

Walton Harvey Ltd v Walker & Homfrays Ltd [1931]

What if the event was foreseeable but no express clause was included?

Courts may treat the risk as assumed by the party (e.g. Davis Contractors case – no frustration).

Which case hints frustration may still apply for a foreseen but unprovided event?

The Eugenia (1964)

Quote from Rix LJ on foreseeability and frustration?

“The less that an event… is foreseeable, the more likely it may lead to frustration.” – The Sea Angel [2007]

What is the main effect of frustration on a contract?

Automatic discharge for future obligations.

Are past obligations still binding after frustration?

Yes, obligations due before the event remain binding.

Can frustration be claimed by the party who caused the event?

No, but their counterparty may rely on it (FC Shepherd v Jerrom).

Case showing frustration discharges contract even when one party wants to continue?

Hirji Mulji v Cheong Yue (1926)

Under common law, what happened to money paid before frustration?

It was unrecoverable; any unpaid sums still had to be paid (Chandler v Webster).

What exception allowed recovery of money?

Total failure of consideration (Fibrosa v Fairbairn).

Why was the common law approach unsatisfactory post-Fibrosa?

Partial performance barred recovery; no expense offset; unfair results like in Appleby v Myers.

What problem does the LR(FC)A 1943 address?

Harshness of common law outcomes in frustration cases.

What’s the principle behind the Act?

Prevent unjust enrichment (BP Exploration Co v Hunt).

Which contracts are excluded from the Act?

Sea carriage, charterparties (except time/demise), insurance, and sale of goods.

What does s.1(2)LR(FC)A allow the payer to recover?

Money paid before frustration; sums not yet paid cease to be payable.

Can the payee retain expenses?

Yes, but only up to the limit of the sums paid or payable pre-frustration.

Case example on ‘just expenses’ calculation?

Gamerco v ICM/Fair Warning (1995) – GNR concert cancelled.

What does s.1(3) LR(FC)A allow for?

Recovery of a ‘just sum’ for valuable non-monetary benefit conferred before frustration.

What must courts consider when determining a ‘just sum’?

All circumstances, including expenses and the impact of frustration.

What two steps did Goff J identify in BP Exploration Co v Hunt (No 2)?

1. Identify and value the benefit to the recipient.
2. Determine the just sum based on all circumstances.

What is the upper limit of a 'just sum'?

The value of the benefit to the party receiving it.