Summary
Summary Impossibility/Frustration of Contract
- Module
- Law Of Contract (LAWW1013)
- Institution
- The University Of Nottingham (UON)
Topic 5 of the contract law module. Used by a 1:1(1st) student.
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Frustration of Contract: Subsequent and Initial ImpossibilitySubsequent impossibility:
The doctrine of frustration occurs where performance becomes impossible/’radically different’ after
the contract is formed, due to ‘Acts of God’ (something unforeseen, unpreventable and
unattributable to the fault of either party that prevents performance of the contract). The contract is
discharged for the future, so that neither party incurs liability for further non-performance.
Discharge is automatic; in contrast with discharge for breach, there is no election. Risk lies with the
obligor, such as with a shop selling goods (SGA s 14(2) ‘satisfactory quality’), though an exemption
clause can change this, which meets the UCTA control and the reasonableness test. Risk allocation
can be changed if goods are then unsatisfactory if quality towards the buyer, excluding liability
entirely. Limitation clause could cap liability at a certain sum.
Frustration is rare due to it applying where changed circumstances are not covered for in the
contract. J Lauritzen AS v Wijsmuller BV (The Super Servant Two) (1990) saw Bingham LJ state that as
frustration’s effect is to kill the contract and discharged further liability, the ‘doctrine is not to be
lightly invoke, must be kept within very narrow limits and ought not to be extended’. Frustration is
used to kill off a contract, not modify obligations or temporarily suspend the contract (Bridge 2021)).
Historically, English law never allowed parties to escape from a contract for change of circumstances
(Paradine v Jane (1646)).
There are two exceptions that allow for the doctrine of frustration:
1. Personal performance: relevant party dies or is permanently incapacitated.
2. Supervening illegality: change of law/circumstances change which means contract
performance is illegal due to public policy e.g., a sale of goods by a United Kingdom citizen to
a citizen of country X. The United Kingdom declares war on country X. It is illegal to trade
with enemy aliens and the contract is discharged without liability.
The doctrine of frustration allows a contract to be brought to an end where both parties make an
important assumption when contracting that ends up false. The parties’ joint assumption must be
false by events occurring after the contract has been entered.
The current test for frustration:
David Contractors Ltd v Fareham UDC (1956) stated that, ‘frustration occurs whenever the law
recognises that without default of either party a contractual obligation has become incapable of
being performed because the circumstances in which performance is called for would render it a
thing radically different from that which was undertaken by the contract’. Also, frustration can only
operate where the contract terms do not dealt with what will happen when the frustrating event
occurs (Joseph Constantine SS Line Ltd v Imperial Smelting Coprn Ltd (1942)). Look for an event that
occurs after the contract is concluded. The event produces a radical change in the outstanding
contractual rights and obligations, such that, you cannot any longer reasonably say this is what the
parties contracted for, and that it is unjust in all the circumstances to hold the parties to their
bargain. It is impossible/illegal to perform, not merely unprofitable. Non haec in foedera veni: ‘it was
not this that I promised to do’.
Three elements to the current test for frustration:
1. The contract must not allocate risk of the event occurring (no express/implied term
indicating what would happen in the occurrence of an event)
, 2. Performance of the obligation would be radically different from that which was undertaken.
3. The occurrence of the vent must not be due to the default of either party.
A force majeure clause is often included in commercial contracts, including a comprehensive list of
events with a contractual regime to deal with them excluding the need for the doctrine of
frustration. This provides certainty and enables parties to allocate risk of events which wouldn’t
count as frustrating events at common law. Morgan (2020) suggests that the doctrine of frustration
should not exist, as parties should look after their own interests with a force majeure clause.
Alternatively to the doctrine of frustration, the ‘construction/implied terms approach’ states
consequences of a change of circumstances after the contract can always be determined by
construing/interpreting the terms of the contract tin the ordinary way, implying terms where is
appropriate. The Lords rejected this approach in National Carriers Ltd v Panalpina (Northern) Ltd
(1981), the Court of Appeal in Great Peace, and the High Court in Canary Wharf (BP4) v European
Medicines Agency (2019).
The Sea Angel (2007) saw Rix LJ in the Court of Appeal explain how the ‘radical difference’ test
should be applied in practice, with the factors considered are, ‘terms of the contract itself, its matrix
or context, the parties’ knowledge, expectations, assumptions and contemplations, in particular as
to risk, as at the time of contract, at any rate so far as these can be ascribed mutually and
objectively, and then the nature of the supervening event, and the parties' reasonable and
objectively ascertainable calculations as to the possibilities of future performance in the new
circumstances’. The radical difference element, ‘it tells us that the doctrine is not to be lightly
invoked; that mere incidence of expense or delay or onerousness is not sufficient; and that there has
to be as it were a break in identity between the contract as provided for and contemplated and its
performance in the new circumstances.
‘Part of that calculation is the consideration that the frustration of a contract may well mean that the
contractual allocation of risk is reversed. A time charter is a good example. Under such a charter, the
risk of delay… is absolutely on the charterer. If, however, a charter is frustrated by delay, then the
risk of delay is wholly reversed: the delay now falls on the owner. If the provisions of a contract in
their literal sense are to make way for the absolving effect of frustration, then that must, in my
judgment, be in the interests of justice and not against those interests. Since the purpose of the
doctrine is to do justice, then its application cannot be divorced from considerations of justice.’
Graves v Graves (2008) the court held both parties contracted on the basis Mrs Graves was entitled
to the housing benefit which would ay 90% of the rent, and without this assumption neither party
would have entered the contract. Held there was an implied condition that the tenancy would end if
housing benefit wasn’t payable, and this term was so obvious as to go without saying (implied on
orthodox implied term principles).
The ’radical difference’ test:
(i) Frustration of common purpose:
Krell v Henry (1903) is an example of when an event fails to occur that at least one party assumed
would occur, rendering performance of the contract pointless. Advertised lease of premises with
view of the coronation processions; D agreed lease of flat for 26 & 27 June 1902 (the two days of the
processions), the quality of the view being mentioned in negotiations; contract contained no express
mention of the processions. Court held the procession was the foundation of the contract as
regarded by both parties, and so the contract was frustrated. D’s motive for contracting was to see
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