Contract Law: Frustration

A contract is frustrated when, after it is formed, an unforeseen event beyond the parties' control makes performance impossible, illegal, or radically different from what was undertaken. Frustration brings the contract to an automatic end and discharges both parties from future obligations. The doctrine is kept within narrow limits so it does not become an escape route from a bad bargain.

1. The Origin and the Test

The doctrine began with the destruction of the subject matter.

Taylor v Caldwell [1863]

3 B & S 826

Ratio Decidendi:Where a music hall hired for concerts burned down before the dates, the contract was discharged. A contract is subject to an implied condition that performance remains possible; destruction of the subject matter frustrates it.

Davis Contractors Ltd v Fareham UDC [1956]

AC 696

Ratio Decidendi:Frustration occurs only where performance has become radically different from what was undertaken. Mere additional expense, delay or hardship is not enough; the change must go to the root of the contract.

2. The Categories

Frustration covers supervening impossibility (destruction of the subject matter, or the unavailability of a person or thing essential to performance), supervening illegality (a change in the law making performance unlawful), and frustration of the common purpose.

Krell v Henry [1903]

2 KB 740

Ratio Decidendi:A room hired specifically to view the coronation procession was frustrated when the procession was cancelled, because the shared foundation of the contract had disappeared, even though the room could still physically be occupied.

Frustration of purpose is narrow. In Herne Bay Steam Boat Co v Hutton, a boat hired to view a naval review and to cruise the fleet was not frustrated when the review was cancelled, because the wider purpose remained achievable.

3. The Limits

Frustration does not apply where the event was foreseen or provided for (for example by a force majeure clause), where performance is merely more onerous, or where the frustrating event was self-induced. A party who brings about the event by their own choice cannot rely on it (Maritime National Fish v Ocean Trawlers).

4. The Effects

At common law, loss lay where it fell, which produced harsh results. The position is now governed by statute.

Law Reform (Frustrated Contracts) Act 1943

Under s.1(2), money paid before frustration is recoverable and money payable ceases to be due, though the court may allow a payee to retain or recover expenses incurred. Under s.1(3), a party who has conferred a valuable benefit on the other before frustration may recover a just sum for it.

5. Worked Example

Scenario

A hall is hired for a conference and a deposit paid. A week before, the government bans gatherings of that size for public-health reasons.

Frustration: the ban makes performance illegal, a classic frustrating event, and it was not the parties' fault. Effect: the contract is discharged; under s.1(2) of the 1943 Act the deposit is recoverable, subject to the court allowing the hall any expenses already incurred in preparing for the event.

Examiner Insights

Rule out the easy escapes

Before applying frustration, check it is not excluded: was the event foreseen, provided for by a clause, self-induced, or merely making performance more expensive (Davis Contractors)? Only then turn to the 1943 Act for the financial consequences.

Conclusion

Frustration is a narrow doctrine for genuinely supervening, radical change. Identify the category, rule out the limits, and resolve the financial fallout under the 1943 Act. Treat it as a precise tool, not a general fairness override.

Contract Law: Frustration

1. The Origin and the Test

2. The Categories

3. The Limits

4. The Effects

5. Worked Example

Examiner Insights

Conclusion

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