Frustration of Contract — when an unforeseeable event ends the deal

A contract is frustrated when, without fault of either party, an event occurs that makes performance impossible, illegal, or radically different from what was originally undertaken. The doctrine is narrow: courts will not relieve a party from a bad bargain or rising costs.

The modern test. From Davis Contractors v Fareham UDC [1956] AC 696: frustration occurs “whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken”. Lord Radcliffe’s formulation remains the leading statement.

Categories of frustration.

• Impossibility (subject-matter destruction): Taylor v Caldwell (1863) 3 B & S 826— music hall hired for concerts burned down before the first concert.
• Personal incapacity: Condor v The Barron Knights [1966] 1 WLR 87— band drummer too ill to perform 7 nights a week.
• Frustration of purpose: Krell v Henry [1903] 2 KB 740— flat hired specifically to view the coronation procession; coronation postponed; contract frustrated. Contrast Herne Bay Steam Boat Co v Hutton [1903] 2 KB 683 — boat hired for naval review and tour of fleet; review cancelled but tour still possible; not frustrated.
• Supervening illegality: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 — war broke out making contract performance illegal.
• Government intervention / war: Metropolitan Water Board v Dick, Kerr & Co [1918] AC 119 — reservoir construction halted by Ministry of Munitions.

Limits.

• Self-induced frustration: Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 — party’s own choice cannot found frustration.
• Foreseeable event: if the parties contemplated the event and chose not to provide for it, frustration usually fails.
• Force majeure clauses: an express clause displaces the common-law doctrine in respect of the events it covers.
• More expensive ≠ frustrated: Davis Contractorsitself — labour shortages and cost overruns weren’t enough.

Effects: Law Reform (Frustrated Contracts) Act 1943. Where the Act applies (most contracts other than insurance and carriage of goods by sea):

• Money paid before frustration is recoverable (s 1(2)).
• Money payable but not yet paid ceases to be payable (s 1(2)).
• A party who has incurred expenses can retain or recover an amount the court considers just (s 1(2) proviso).
• A party who has obtained a valuable benefit must pay a just sum for it (s 1(3)) — see BP Exploration Co (Libya) v Hunt (No 2) [1979] 1 WLR 783.

Exam approach. Identify the supervening event. Apply the radical-change test from Davis Contractors. Rule out foreseeability and self-inducement. Consider whether a force majeure clause has allocated the risk. Then work through the 1943 Act consequences.