Frustration

• Old law - Strict rule

  • A party was bound to perform their contractual obligations even if an intervening event made it impossible - Paradine v Jane
• Current law

  • Less harsh - frustration occurs if there is an unforeseeable intervening event which means the contract can no longer be performed
  • If the contract is frustrated, neither party has to fulfil their contractual duty and neither party can sue for breach
  • Many contracts contain a 'force majeure clause' which excludes liability for non-performance if there is an extraordinary event
• Types of frustrated contracts:

  • Impossible to complete - This can happen if the subject matter is destroyed (Taylor v Caldwell), the subject matter is unavailable (Jackson v Union Marine Insurance) or if the person is unavailable (Condor v The Baron Knights)
  • Illegal to complete - Changes in the law which make the contract illegal to perform (Denny, Mott and Dickson Ltd)
  • Radical change in circumstance - If the main purpose of the contract is based on a particular event and the event cannot take place (Krell v Henry)
• When frustration cannot apply

  • Self induced - If the event is in control of the party (Maritime National Fish v Ocean Trawlers)
  • Less profitable - A contract will not be frustrated if the event is just less profitable or more difficult to complete (Davis Contractors v Fareham)
  • Foreseeable risk/mentioned in the contract - If the risk is foreseeable, the contract will not be frustrated (Amalgamated Investment v John Walker)
• Remedies

  • Common law - Contract is automatically terminated if frustrated, anything already done or already paid is lost
  • Statute law - Law Reform (Frustrated Contracts) Act 1943; s.1(2) states that money already paid is recoverable and any money that should be paid does not have to, s.1(3) states that compensation can be ordered for any valuable benefit one party may acquire