Description of the legal term Frustration of Contract:
Frustration of a contract occurs in English law when an unforeseen event either renders contractual obligations impossible, or radically changes the party’s principal purpose for entering into the contract. The doctrine has developed as a means to mitigate the strictness of the common law principle of pacta sunt servanda, which means agreements must be kept. However, where performance of the contract becomes impossible without fault of either party, the contract may be deemed frustrated.
The legal consequence of a frustrated contract is that it is automatically discharged at the point of frustration. This means that the parties are no longer bound to perform their future obligations. However, obligations that were performed before the frustration occurred remain valid and any money paid can, in certain circumstances, be recovered. Additionally, the Law Reform (Frustrated Contracts) Act 1943 provides for the recovery of money paid or valuable benefit conferred prior to the frustration.
It is important to note that not every inconvenience or hardship will amount to frustration. The change in circumstances must be so fundamental as to be regarded by the law as striking at the root of the agreement. The event must be unexpected and beyond what the parties contemplated when making the deal, so the threshold is quite high. The event must also not be due to the fault of either party, and it should not be covered by the contract itself, for example in a force majeure clause.
Furthermore, frustration does not apply where the event merely makes the contract more expensive or difficult to perform. There is also no frustration if the event could have been foreseen or mitigated. The maxim that ‘foreseeability precludes frustration’ is often applied. Courts are also cautious that the frustration is not simply the result of a change in economic conditions or the economic fortunes of the parties.
Legal context in which the term Frustration of Contract may be used:
Take the classic case of Taylor v Caldwell (1863) as an illustrative example. In this case, the parties contracted for the use of a music hall for a series of concert events. Prior to the commencement of the concerts, the hall was destroyed by fire. Neither party was responsible for the fire, and since the object of the contract had literally gone up in smoke, performance was impossible. The courts deemed that the contract was frustrated as the unforeseen event led to the physical impossibility of fulfillment. It was neither party’s fault, and it had not been foreseen or provided for in the contract.
Another contextual scenario involves the outbreak of war. In Metropolitan Water Board v Dick Kerr & Co Ltd (1918), the contract for the construction of a reservoir was frustrated when the government requisitioned the plant and services of the contractor for war purposes. The circumstances were completely unforeseen and transformative, changing the fundamental nature of the contractual obligations, and thus, the contract was held to be frustrated.
The doctrine of frustration plays a critical role within the British legal system, as it reflects the need for fairness and justice in contractual relationships when unforeseen events occur. It is a principled and necessary exception to the enforcement of contracts, ensuring that parties do not face onerous obligations in circumstances drastically and unpredictably altered from what was originally agreed. Nevertheless, the courts apply the doctrine sparingly, careful not to undermine the certainty of contracts which is a cornerstone of commercial law.