Discharge by Frustration

Introduction to frustration

Where a contract is frustrated, this means it has been discharged due to unforeseeable circumstances.

Things such as war, fire, illness may have prevented either party from completing their side of the contract.

Force majeure clauses are a term that says what will happen if an unforeseen circumstance occurs.

Typically, C sues D for breach of contract. Then, D counter-argues that there was no breach, but rather the contract was frustrated by an unforeseeable event.

D must prove one of the following:

• Performance was impossible

• Performance would have been illegal

• Circumstances had radically changed

Contract was frustrated because performance had become impossible

• Taylor v Caldwell

  • D hired out his concert hall to C. The hall burned down before the concert. C then sued D.

  • Contract deemed frustrated since it was impossible to have the concert, so C could no claim damages.

• Robinson v Davison

  • A pianist fell ill so he was unable to perform - the contract was deemed frustrated

Contract is frustrated because it has become illegal to perform

• Denny Mott v Dickson

  • Contract to purchase timber, with option to buy timber yard.

  • Contract frustrated due to wartime control over sale of wood.

Contract is frustrated due to a radical change in circumstances

This radical change in circumstances means that the whole purpose of the contract has gone.

• Krell v Henry

  • C hired out her room and balcony on the mall to D so that they could watch the coronation procession of Edward VII. The coronation was cancelled due to the King’s appendicitis. D refused to pay for the room.

  • Contract frustrated since the booking depended on the event happening.

But not frustrated in

• Herne Bay Steamboat Co v Hutton

  • D hired a boat from C to watch the King reviewing the fleet on his coronation day as cruise round. The King fell ill and D refused to pay.

  • Contract not frustrated since only part of the purpose was gone (to see the King). D had to pay.

Other situations where the contract will not be deemed frustrated

If the frustrating event was self-induced

• Superservant 2 Case

  • D agreed to transport C’s drilling rig using either Superservant One or Superservant Two and this can be replace the unit by other means. SS2 sank before the performance of the contract and D could not supply SS1 since it was on another contract.

  • Deemed frustrated since if both are offered, the other option must be available as well.

The frustrating event made the contract less profitable (but not impossible)

• Tsakiroglou v Noblee Thorl

  • Ds agreed to ship peanuts from Sudan to Hamburg. It was not in the contract, but they agreed to go through the Suez Canal but the Suez Crisis occured. This meant that they had to go a longer way which was less profitable.

  • Contract was not frustrated since the contract was still possible

The risk of the event happening was mentioned in the contract was foreseeable

• Amalgamated Investment & Property Co v John Walker

  • Contract to sell building to investment company for redevelopment. The Department of Environment made the building a listed building, meaning it could not be redeveloped. Its value dropped significantly.

  • Being listed is a foreseeable risk with old buildings, so he contract was not frustrated.

Remedies for a frustrated contract

Set out by Law Reform (Frustrated Contracts) Act 1943

S1(2) Money already paid to the other party can be recovered

• Money due to be paid, does not need to be paid

• Money paid or due to be paid before the frustrating event can be deducted by the court to cover any work already done

• No compensation if money was due after the frustrating event

S1(3) A sum can also be claimed if any work already done has unjustly enriched the other party