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Frustration of Contract


Discharge by the doctrine of frustration

Non haec in foedera veni (it was not this I promised to do)

[Frustration] takes place when there supervenes an event (without) the fault of either party and for which the contract makes no sufficient provision which so significantly changes the mature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances. In such a case, the law declares both parties to be discharged from further performance: National Carriers v Panalpina (Northern) Ltd (at 174)


If further performance of a contract becomes impossible or futile by reason of a supervening event, then the contract is terminated by that event and the parties are discharged from any further performance.

Historical Development

The “Absolute Contract Rule” saw that, despite subsequent external circumstances, a contracting party is bound to carry out its obligations under any contract.

Paradine v Jane (1647) 82 ER 897

P leased property to D and sued for arrears in rent. D argued that he had been expelled from the property by a prince who had invaded England.

Court held that this was not a defence and did not excuse D from performance under the lease.

This rule was justified on the basis that it is possible for the contracting parties to provide for external or other contingencies within the contract itself – however in this case it wasn’t therefore D was still bound despite the circumventing events.

Taylor v Caldwell (1863) 122 ER 309

P entered into a contract to hire D’s music hall for a series of concerts. However, an accidental fire destroyed the hall.

Court held that the destruction of the actual subject matter excused both parties from any contractual obligations.

Elements of Frustration

Supervening event causes radical change

Event not self-induced

Event not foreseeable

Unjust to hold parties to contract

Element 1: Supervening Event causes radical change

Causes the contract to change radically or fundamentally

Change of law

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32

Contract made between Polish and British to make machinery. However, the British government makes a law that persons cannot deal with the enemy or countries occupied by the enemy.

Court held that there was frustration. Where there has been a total failure of consideration, any advance payments were recoverable in quasi contracts

Scanlan’s New Neon Ltd v Tooheys (1943) 67 CLR 169

Tooheys wanted a neon sign and entered into a contract that stated that the sign will be made then leased and lit. However, the war breaks out and legislation states that all lights are to be turned off at night. Toohey therefore refuses to pay rent for the sign.

Court held that frustration had not occurred as there was still a sign and that the contract had not promised to keep it turned on.

Destruction of subject matter of contract

Taylor v Caldwell (1863) 122 ER 309

Court held that the subject matter had been destroyed (hall) therefore there was frustration and the parties did not have to fulfil its obligations under the contract

Failure of Expected Condition or Event

Krell v Henry [1903] 2 KB 740

D hires a room for a day in order to see the coronation of Edward VII. However, due to the king’s illness, this event was cancelled.

Court held that the cancellation of the coronation had the effect of discharging both parties’ contracting obligations as it was satisfied that both parties were aware of the object of the contract

Herne Bay Steamboat Co v Hutton [1903] 2 KB 683

D hired a boat ‘for the purpose of viewing the naval review and for a day’s cruise around the fleet.’ However, the naval review was cancelled and D wanted to terminate the contract.

Court held that the cancellation of the naval review did not frustrate the contract as this was not proven to be the sole purpose of D hiring the boat.

Failure of a continuing condition or event

Horlock v Beal [1916] 1 AC 486

P’s husband entered into a 2 year contract to serve as a crew member on D’s ship. However, the war broke out and her husband was imprisoned. P sued for her share of her husband’s wages

Court held that due to the frustration of the war, this was not possible as the contract no longer was binding on the parties.

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] 149 CLR 337

P entered into a contract to build a railway. The contract stated that P would be working 24 hours. However, due to an injunction sought by the residents, P was restricted to working fewer hours.

Court held that there was frustration because due to this, the obligations of the parties were different than what had been intended.

Davis Contractors Ltd v Fareham UDC [1956] AC 696

P entered into a contract with D to build 78 houses during an 8 month period. For various reasons, the project took 22 months to complete and ran over the agreed budget. P therefore sued for the extra cost under the claim that the contract had been frustrated

Court held that there was no frustration because the events that had delayed the project could have been foreseen and contemplated.

Contracts for Personal Services

Horlock v Beal [1916] 1 AC 486

Contract of service was frustrated due to the war

Simmons v Hay (1964) 81 WN (Pt 1) NSW 358

P was employed by D for a fixed period. However, he became incapacitated and was unable to discharge his duties under the contract. P sued for unfair dismissal.

Court held that the contract had been frustrated and that it was not contemplated that P would become permanently incapacitated.

Government Intervention

Metropolitan Water Board v Dick Kerr and Co [1917] 2 KB 1

Contract was made to build a water reservoir in 6 years, with an option of extension. However, the government intervened due to the war and progress was stopped.

Court held that there was frustration because it was unsure when the war would end and recommencement of the reservoir after the war would be under different circumstances.

Cricklewood Property and Investment Trust Ltd v Leightons Investment Trust Ltd [1945] AC 221

Contract for a 99yr lease which stipulated that the rent would rise as the lease continued. Government interrupted issuing a stop work order. P sued for the difference in rent during the time.

Court held that, in relation to the whole of the contract, the interruption was only a minor disruption and therefore the contract had not been frustrated.

Tsakiroglou and Co Ltd v Noblee Thorl GmbH [1962] AC 93

Contract for goods stated that D was responsible for shipping costs. Due to the closure of the Suez Canal, the cargo ship was forced to take the longer route and this increased the shipping cost. The contract did not stipulate either a particular time or which route to take.

Court held that this did not amount to frustration

Brisbane City Council v Group Pty Ltd (1979) 145 CLR 143

Group Projects wanted to develop land that needed to be rezoned. Thus they entered into a contract and the State government intervened, rezoning the area, placing a school on the land.

Court held that frustration had occurred and the contract was to be terminated.

Element 2: Not Self-Induced

A party cannot rely upon self-induced frustration to discharge a contract

Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524

D chartered a boat from P. However, a license was needed and D chose to issue licenses to the other boats he had chartered, arguing frustration.

However, the court held that this was not frustration as the frustrating event was a deliberate action on the part of D.

Joseph Constantine SS Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154

D chartered a ship from P to carry cargo. Prior to the commission of the contract, the engine room of the ship exploded. D argued frustration, but P claimed that it was self induced.

Court held that there was frustration as P was unable to prove that the event was self-induced.

Element 3: No contemplation of frustrating event

Frustration will not apply if the parties were able to foresee such an event, and will also not apply if the parties did foresee the event and inserted a term into the contract to cover the event. The standard of foreseeability if strict and the fact that a frustrating event was reasonably foreseeable is generally not sufficient.

No frustration if there is foreseeability

Davis Contractors Ltd v Fareham UDC [1956] AC 696

It was held that the events that led to the time delay and the extra costs to P were foreseeable therefore there was no frustration.

Simmons v Hay (1964) 81 WN (Pt1) NSW 358

Court held that there was frustration as it was not reasonably foreseeable that P would become incapacitated permanently.

No frustration if there is a term in contract

Claude Neon Ltd v Hardie [1970] Qd R 93

Contract was entered into to hire a neon advertising sign to be installed on D’s premises for 5 years. The contract contained a term that stated that if the premises was extinguished or transferred then the rent remaining would still be payable. Subsequently, the building was demolished and P sought payment.

Court held that since the event was contemplated and written into the contract, then the remaining payments still needed to be paid as there was no frustration.

Force majeure clauses

Element 4: Unjust to hold parties to the contract

Theories on Frustration

Implied term theory

If the parties have thought about the consequence of a supervening event, both parties would have intended to imply it into the contract.

This is the oldest theory

Can be both subjectively or objectively considered

Scanlan’s New Neon Ltd v Tooheys (1943) 67 CLR 169

Foundation of the contract (Change in obligation)

The very foundation of the contract has disappeared

Common sense

Taylor v Caldwell (1863) 122 ER 309

Just and Equitable Solution

Rise of Equity

Looks at the elements

Similar to element 4: Unjust to hold the parties to the contract

Construction of the Contract

Looking at the terms of the contract and the way in which they were constructed

If the terms are wide enough, then it will cover the frustrating event

If the event was not foreseeable and was not a term then it will be seen as frustration

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] 149 CLR 337

Effect of Finding Frustration

If frustration occurs then the contract is terminated immediately. This is done prospectively rather than retrospectively, as the obligations of the parties up until the event are legally binding.

Between commencement date and frustration date

Liability accrued in this time is enforceable after frustration

Monies paid may be recovered if there is a total failure of consideration

Payment for services rendered in this time are recoverable or quantum meruit for the services is awarded

Baltic Shipping Co v Dillon (1993) 176 CLR 344

Between date of frustration and original completion date

Contract is automatically terminated at the date of frustration

Damages are not recoverable

Services performed after frustration should be paid on a quantum meruit basis

Recovery of money paid (at common law)

If the contract expressly indicated how prepaid money is to be dealt with in the event of a frustration, then the court will follow this.

If there are no express terms dealing with the recovery of money paid, the payee must show a total failure of consideration to recover payment

There is specific legislation dealing with this problem

Upper Hunter Timbers Pty Ltd v Forestry Commission of NSW [1999] NSWSC 1125

Contract terminated due to frustrating event

Emphasis on money paid in advance. While the contract was still valid some duties were not performed, thus was able to claim non-payment.