FRUSTRATION
External events, beyond the parties’
control bringing the parties’
obligations to an end.
Frustration: Origins in English law
• The doctrine of Absolute Obligations
A man must be held to his bargain even if the circumstances render it impossible
for the bargain to be fulfilled.
Paradine v Jane (1674) Aleyn 26 – Outbreak of civil war did not excuse the
obligations under a lease for a plot of land.
Key principles:
Parties are free to contract, parties are aware of their obligations from the outset
and may take insurance policies to protect them from risk.
Force Majeure clauses could be introduced – these enabled the parties to excuse
liability for events which would otherwise constitute a breach of contract.
Development of a doctrine of
Frustration
• Taylor v Caldwell (1863) 3 B. & S. 826
The doctrine of absolute obligations only applied where one party had
explicitly accepted to bear risk of the occurrence of a particular event.
Where neither party had explicitly accepted the risk – courts prepared
to approach the matter in a more flexible way.
Destruction of the music hall – deemed beyond the control of either
party – Defendants not liable to the Plaintiffs.
Implied term approach – lessens the effect of the doctrine of absolute
obligations. Later courts use the principle of construction.
How can a contract be frustrated?
• Specific events will frustrate a contract.
1. Destruction of the subject matter.
2. Non-occurrence of an event upon which
performance of the contract was dependent.
3. Illegality
4. Out-break of war
5. Non-availability of the parties.
The effect of Frustration on the
Contract
Frustration relieves the parties of their obligations under
the contract.
At common law
Frustration relieved the parties of the obligations that
were required to be performed after the frustrating
event.
Obligations that arose before the frustrating event
remained un-affected.
Application of the Common Law Rule
• Appleby v Myers (1866 – 67) L.R.2 C.P. 651
• Chandler v Webster [1904] 1 K.B. 493
A very harsh principle of English Common law?
Total Failure of Consideration?
• Spolka Akcyjna v Fairbairn Lawson Combe
Barbour Ltd (The Fibrosa) [1943] A.C. 32
Law Reform (Frustrated Contracts) Act
1943
• Statute enables parties to recover:
(i)
(ii)
Sums paid or sums payable before the frustrating event.
Benefits conferred on the other party by partial performance of the
contract.
A final solution ?
What if partial performance has resulted in cost, but not conferred a benefit
on the other party?
NB
The statute is not applicable to insurance contracts, contracts for the carriage
of goods by sea, or to the perishing of goods under Section 7 of the Sale of
Goods Act 1979.