Frustration: Davis Contractors

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CHAPTER 15

FRUSTRATION

CONTENTS
Introduction Frustrating events Limitations on the doctrine Effects of frustration: common law Effects of frustration: Law Reform (Frustrated Contracts) Act 1943 15.6 Relief in cases of hardship under the international contract law instruments 15.7 Additional reading 15.1 15.2 15.3 15.4 15.5 905 914 927 937 941 961 964

15.1 INTRODUCTION
In this chapter we will be considering the doctrine of frustration. This concerns the situation where, following formation of a contract, an event occurs that renders further performance impossible, illegal or radically different from that which was originally envisaged. If such an event occurs, the parties will be partially or wholly relieved from further obligations and may be able to recover money and goods transferred under the contract. There are clear links between the doctrine of frustration and the doctrine of common mistake. They both involve ‘impossibility’: common mistake concerning ‘initial impossibility’ (impossibility that arises prior to the formation of the contract) and frustration concerning ‘subsequent impossibility’ (impossibility that arises after formation of the contract). A significant difference between the two doctrines is that while common mistake renders the contract void ab initio (from the beginning), frustration merely discharges the parties from their future obligations.

TEXT, CASES AND MATERIALS ON CONTRACT LAW In this respect, there are many similarities between the doctrine of frustration and the topics of performance and breach, to be dealt with in Chapter 16. This chapter is divided into six sections. First, we will consider the nature of the doctrine, examining the underlying basis of frustration. Second, we will look at the categories of event that have been recognised by the courts as amounting to frustration of the contract. Third, the limitations on the doctrine will be examined. Fourth, we will consider the effects of the doctrine at common law and fifth we will examine the impact of the Law Reform (Frustrated Contracts) Act 1943. Finally, we will examine the provisions of the UNIDROIT Principles and The Principles of European Contract Law, and see how these international instruments make provision for the adjustment of the contract in cases of hardship.

15.1.1 THE NATURE OF THE DOCTRINE Initially, English law adopted a very strict approach, insisting on the literal performance of contracts. In Paradine v Jane (1647) Aleyn 26, a tenant of a farm was dispossessed for two years following an invasion by Prince Rupert of Germany. The tenant claimed that he was not liable to pay rent for the two-year period. The court held in favour of the landlord: ‘Now the rent is a duty created by the parties upon the reservation, and had there been a covenant to pay it, there had been no question but the lessee must have made it good, notwithstanding the interruption by enemies, for the law would not protect him beyond his own agreement . . .’. The justification for refusing to discharge the parties from their obligations was that the parties could, if they wished, have included a specific term in the contract to deal with the eventuality. Such clauses (known as force majeure or ‘hardship’ clauses) are commonplace in commercial contracts and it is arguable that the Paradine v Jane approach is the most economically efficient since the parties are in the best position to determine the allocation of risk. Professor McKendrick (’The regulation of long term contracts in English Law’, Chapter 12 in Beatson, J and Friedmann, D (eds), Good Faith and Fault in Contract Law, 1995, pp 326–7, Oxford: Clarendon Press) has commented: ‘[T]he diversity and sophistication of the various force majeure clauses which are currently in use underlines the complexity of the issues dealt with by these clauses and they are best resolved by the parties, not the courts. A force majeure clause can be expected to define the events which are to trigger...
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