As a general rule, if the performance of a contract becomes difficult or impossible the non-performing party is liable for damages. The doctrine of frustration is an exception to this rule. It allows the contract to be automatically discharged when a frustrating event occurs so that the parties are no longer bound to perform their obligations.
What is the modern test for frustration of contract?
The Courts have moved towards a broader approach when deciding whether a breach of contract has occurred. Generally speaking, a frustrating event is one which:
- happens following the formation of the contract
- is so significant that it strikes at the heart of the contract and could not have been contemplated by the parties when they entered the agreement
- neither party is responsible for
- makes the performance of the contract impossible, illegal, or drastically different from what was contemplated by the parties at the time the contract was signed
Examples of incidents that have been ruled frustration events include:
- the subject matter of the contract being destroyed by fire or some other disaster
- a change of law that makes the performance of the contract illegal
- a particular event is cancelled. For example, the Court accepted that the 1902 postponement of King Edward VII's coronation because the King developing peritonitis was a frustrating event!
Frustration will not be available where:
- an existing force majeure clause covers the event
- the alleged frustration should have been foreseen
- the event was the fault of one of the parties.
- the contract can be performed via another method
Wrapping up
Relying on the doctrine of frustration should not be seen as a straightforward way to get out of your contractual obligations. It is important to speak to a Commercial Law Solicitor if you want to depend on the doctrine or the other party to the agreement believes a frustration event has occurred.
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