Essay question
'The doctrine of frustration is too narrow to provide a just solution in cases of supervening hardship, yet any attempt to broaden it would undermine contractual certainty. The only solution is legislative reform.' Discuss.
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Model answer
The doctrine of frustration occupies an uneasy position in English contract law, caught between two imperatives: the need to relieve parties from obligations that have become radically different from what they undertook, and the need to preserve certainty, finality, and the sanctity of bargains. This essay argues that frustration is indeed narrow by design, and that this narrowness is generally justified by commercial policy, but that the refusal to recognise any doctrine of hardship or impracticability produces occasional injustice. Whether legislative reform is the 'only solution' depends on how one values predictability relative to fairness, and on the practical capacity of courts or legislatures to devise workable rules.
The narrowness of frustration
Frustration discharges a contract only when a supervening event renders performance 'radically different' from what was undertaken: Davis Contractors Ltd v Fareham UDC [1956] AC 696 per Lord Radcliffe. This is a high threshold. Mere difficulty, expense, delay, or loss of profitability does not suffice: Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 (closure of Suez Canal, doubling voyage length and cost, did not frustrate contract); Davis Contractors itself (delay and increased cost due to labour shortages not frustration). The doctrine does not excuse a party from a contract that has become a bad bargain.
The narrowness is deliberate. Commercial parties negotiate contracts on the basis of assumed risks and price those risks into their terms. To allow easy escape when circumstances change would undermine market stability and the reliability of contractual planning. As Treitel observes, the doctrine is a 'device of last resort' (Treitel, The Law of Contract, 14th edn, para 19-002). The courts expect sophisticated parties to use express force majeure clauses, hardship clauses, or material adverse change clauses to allocate the risk of supervening events.
The doctrine's limits are enforced rigorously. Self-induced frustration is not recognised: Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524; The Super Servant Two [1990] 1 Lloyd's Rep 1. Foreseeability of the event militates against frustration: Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd [1977] 1 WLR 164 (risk of listing foreseeable). Long-term leases are almost never frustrated, given their proprietary nature: National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675. And where the contract expressly allocates risk, the court will not impose frustration: The Sea Angel [2007] EWCA Civ 547.
The case for a hardship doctrine
Critics argue that English law's refusal to recognise hardship or impracticability leaves parties exposed to genuinely unforeseeable catastrophic change. Civilian systems such as France (Article 1195 Code civil, imprévision) and Germany (§313 BGB, Störung der Geschäftsgrundlage) permit adjustment or termination when circumstances change fundamentally, even if performance remains possible. The UNIDROIT Principles (Article 6.2.2) and PECL (Article 6:111) likewise recognise hardship, allowing renegotiation or judicial adaptation.
The argument for hardship is grounded in fairness. Where an unforeseeable event (such as the COVID-19 pandemic, hyperinflation, or closure of critical supply routes) makes performance ruinously expensive or pointless, holding the disadvantaged party to the contract may be unjust. The party did not assume the risk of such an extreme event, and enforcing the contract produces a windfall for the other side. A hardship doctrine would permit courts to adjust the contract or allow termination on fair terms, sharing the loss rather than placing it entirely on one party.
Moreover, the distinction between impossibility and extreme difficulty is arbitrary. If a contract is frustrated when a hall burns down (Taylor v Caldwell), why not when war or embargo makes obtaining materials impossibly expensive, rendering performance economically absurd? The current law forces courts into fictions (calling something 'impossible' when it is merely ruinously expensive) or denies relief in hard cases.
The case against hardship: certainty and institutional competence
The orthodox response is that hardship doctrines sacrifice certainty for ad hoc fairness. As Lord Radcliffe observed in Davis Contractors, 'the law must abstract the picture of the rights and obligations of the parties at the moment of frustration' (at 729). A hardship doctrine would require courts to assess how onerous performance has become, rewrite terms to restore balance, and police renegotiation—tasks for which they are ill-suited and which would generate endless litigation.
Commercial contracts, especially in international trade, depend on predictability. Parties need to know whether they are bound. A hardship doctrine introduces uncertainty: at what point does difficulty become hardship? How should losses be apportioned? The result would be protracted disputes, higher transaction costs, and reluctance to contract at all. This would harm overall efficiency.
Furthermore, the risk allocation argument is powerful. Sophisticated commercial parties can and do address supervening events expressly. The prevalence of force majeure clauses, escalation clauses, and price adjustment mechanisms shows that markets can allocate risk without judicial intervention. If a party fails to include such a clause, that is a choice (perhaps to accept the risk in exchange for a lower price), and the law should respect it.
The Law Commission examined frustration in 2009 and concluded that the doctrine, though narrow, strikes an acceptable balance and that any legislative hardship doctrine would be difficult to draft and likely counterproductive. This reflects a preference for party autonomy and market ordering over paternalism.
The role of the Law Reform (Frustrated Contracts) Act 1943
The 1943 Act mitigates some of the harshness of frustration by providing a restitutionary regime: sums paid are recoverable, expenses may be retained, and valuable benefits must be paid for. This reduces the injustice that would otherwise result from discharge. However, the Act does not address the threshold problem—whether frustration should be found in the first place. If the contract is not frustrated, the Act offers no relief, and the disadvantaged party bears the entire loss.
Some scholars argue that the Act's focus on restitution shows that fairness concerns can be addressed without broadening frustration itself. Yet restitution operates only after discharge; it does nothing for a party facing extreme hardship but unable to satisfy the high threshold for frustration.
Is legislative reform the 'only solution'?
Legislative reform is one option, but not the only one. Four approaches are possible:
- Maintain the status quo. This preserves certainty and respects freedom of contract. Parties can protect themselves by express clauses. Hard cases are rare and tolerable in the interest of systemic predictability.
- Judicial expansion. Courts could interpret 'radically different' more generously, particularly in cases of extreme, unforeseeable hardship. The multi-factorial approach in The Sea Angel permits some flexibility. However, this risks unpredictability and undermines the doctrine's limiting function.
- Legislative hardship doctrine. Parliament could enact a provision (along UNIDROIT or PECL lines) permitting adjustment or termination for hardship. This would require careful drafting: thresholds, definitions, remedies, and exclusions would all need specification. The risk is vagueness, excessive litigation, and chilling effects on contracting.
- Soft law and standard clauses. Industry bodies and institutions (ICC, LMA) could promote standard hardship and force majeure clauses, effectively privatising the solution. This respects party autonomy while providing model terms for less sophisticated parties.
The fourth option is underexplored and may be the most promising. The problem is not the absence of legal doctrine but the failure of parties to address foreseeable categories of risk. Encouraging better drafting through model clauses, guidance, and incorporation by reference could reduce disputes without sacrificing certainty.
Conclusion
Frustration is undoubtedly narrow, and this narrowness occasionally produces outcomes that appear harsh. Yet the narrowness is defensible on grounds of certainty, risk allocation, and respect for freedom of contract. A hardship doctrine would introduce flexibility but at the cost of predictability and increased litigation. Legislative reform is possible but not inevitable; alternatives include better contractual drafting, judicial flexibility within the existing framework, and reliance on the 1943 Act's restitutionary machinery. Whether reform is desirable depends ultimately on how one weights the competing values of fairness, certainty, and party autonomy. English law's current settlement, for all its flaws, reflects a coherent—if contestable—set of priorities, privileging security of transactions over ex post adjustment. Reform may one day be warranted, but it is not the 'only solution'; a plurality of incremental approaches, including private ordering and careful judicial application of the existing test, may serve equally well.