Discharge by Frustration

• The strict rule in relation to Frustration of contract is that a party is bound to perform their obligations under the contract, regardless of what happened or any intervening event making it difficult or impossible to perform - Paradine v Jane.
• However, the strict rule has been seen as unfair. Therefore three ways have been developed to establish when a contract can be frustrated. The general rule for discharge by frustration is that where a party is prevented from performing the contract because of an intervening unforeseen event, they are not liable for breach of contract.
• Frustration can occur where performance of the contract becomes impossible. This could be due to the subject matter being destroyed - Taylor v Caldwell - where the subject matter is unavailable - Jackson v Union Marine - or where the person performing the contract is unavailable - Robinson v Davidson - which can also occur due to medical advice - Condor v Baron Knights.
• Frustration can happen when performance of the contract becomes illegal as in Re. Shipton Anderson where war broke out, or as in Denny, Mott & Dickinson v James Fraser (1944) where legislation was changed after agreeing the contract.
• Additionally, Frustration can happen when performance of the contract becomes fundamentally different to what was originally anticipated due to a Radical Change in Circumstances. This is illustrated in Krell v Henry where a hotel room was hired specifically for the king's coronation but it was postponed as he fell ill as compared to Herne v Hutton where a boat was hired to watch the king inspect the fleet as part of the coronation. The Courts held that Frustration can occur when the main purpose of the contract being entered into can no longer be performed.
• There are some circumstances where the courts will decide Frustration will not apply. The will be no discharge by frustration when frustration is self- induced as in Maritime National Fishing Co v Ocean Trawlers where the 'frustrating' event was within the company's control and they were seen to have brought the event upon themselves.
• Also, there is no discharge by frustration when a contract has become less profitable, Davis Contractors v Fareham Council, or commercially difficult, The Suez Canal Case (1962).
• There is no discharge by frustration when the event is a foreseeable risk or one mentioned in the contract Amalgamated Investment v John Walker as confirmed in Armchair Answercall v People In Mind. This is especially evident when the party is an expert/specialist in the area.
• Further, Frustration cannot be relied upon where there is a Force Majeure clause within the contract which deals with what should be done when a contract is Frustrated. As an Express Term, this would be binding on the parties.
• In terms of remedies, under Common Law, the frustrating event automatically terminates the contract at the time of the event and releases the parties from further performance after the frustrating event.
• Under Statute, the Law Reform (Frustrated Contracts) Act 1943 states, under s.1(2) that money already paid (such as a deposit) can be reclaimed minus fair expenses, money already due/owed before the contract was frustrated does not have to be paid and it is at the court's discretion whether compensation will be awarded for work done or expenses incurred before the frustrating event; Gamerco Guns n' Roses case. Under s.1(3) where one party has obtained a valuable benefit before the frustrating event, the other party may recover from him such sums as the court considers just.