Frustration (OCR A-Level Law): Revision Notes
Frustration
What is frustration?
Frustration is a legal doctrine that applies when an unforeseen event occurs after a contract is formed, making it impossible or radically different to perform. This event must arise through no fault of either party.
The doctrine developed to address situations where circumstances change so dramatically during the life of a contract that it would be unjust to hold the parties to their original bargain. When a contract is frustrated, it automatically comes to an end.
The key to frustration is that the event must be truly unforeseen and beyond the control of both parties. It provides an automatic discharge from contractual obligations when performance becomes fundamentally impossible or different from what was originally contemplated.
Grounds for claiming frustration
There are three main situations where frustration can arise. Each involves an event that fundamentally undermines the contract's purpose or ability to be performed.
1. Performance becomes illegal
A contract is frustrated if a change in law makes performance illegal. Both parties may still be willing and able to perform, but the law prevents them from doing so.
This can occur through:
- A change in domestic law
- A change in the law of another relevant country
- The outbreak of war making trade with an enemy nation illegal
Key case: Metropolitan Water Board v Dick Kerr (1915)
Facts:
- A contract to construct a reservoir was frustrated when wartime regulations required work to stop and materials to be sold
- Performance became illegal due to government orders during World War I
Outcome:
- The contract was frustrated despite both parties wanting to continue
- The law made performance impossible, even though both parties were willing
Another important case: Fibrosa Spolka v Fairbairn (1943) demonstrated how illegality through war can frustrate contracts, particularly in international trade situations.
2. Performance becomes impossible
A contract is frustrated if an essential element required for performance is no longer available. There are four main ways this can occur:
a) Subject matter is destroyed
If something fundamental to the contract is destroyed, performance becomes impossible.
Key case: Taylor v Caldwell (1863)
Facts:
- A music hall was hired for concerts, but it burned down before the event
- The contract was frustrated because the venue no longer existed
Legal principle:
- Neither party was at fault for the fire
- This established the doctrine of frustration in English law
- Where the subject matter essential to performance is destroyed, the contract is automatically frustrated
b) Subject matter is unavailable
Even if not destroyed, the essential subject matter may become unavailable.
Key case: Morgan v Manser (1943)
Facts:
- A band manager's contract was frustrated when the musician was called up for military service
- The musician was unavailable for the duration expected under the contract
Legal principle:
- Temporary unavailability can frustrate a contract if it covers a substantial period of the contract term
c) Death of a party
Where personal performance is required, the death of a party frustrates the contract. This typically applies to contracts involving personal services or unique skills.
Death only frustrates contracts where the personal performance of the deceased was essential. Standard commercial contracts that can be performed by anyone will generally pass to the deceased's estate and are not frustrated by death.
d) Risk of incomplete performance
If there is a significant risk that the contract cannot be performed completely due to unforeseen circumstances, frustration may apply.
3. Performance becomes fundamentally different
A contract is frustrated if the commercial purpose or central objective is destroyed by an unforeseen event, even if literal performance remains technically possible.
This ground famously arose from cases involving King Edward VII's coronation in 1902, which was postponed due to the King's illness.
Key case: Krell v Henry (1903)
Facts:
- A room was hired specifically to view the coronation procession
- When the coronation was postponed, the contract was frustrated
Legal principle:
- The sole purpose of the contract (viewing the procession) was destroyed
- Watching the procession was the foundation of the contract
- Even though the room was still available, the entire commercial purpose had been eliminated
Contrasting case: Herne Bay Steamboat Co. v Hutton (1903)
Facts:
- A boat was hired to view the naval fleet and take passengers for a cruise
- When the naval review was cancelled, the contract was not frustrated
Legal principle:
- The commercial purpose (pleasure cruise) could still be achieved
- Viewing the fleet was only one purpose among others
- The contract still had value and could be substantially performed
The crucial distinction: Frustration only applies when the entire commercial purpose is destroyed, not merely when one aspect of the contract becomes unavailable.
Compare:
- Krell v Henry: Sole purpose destroyed = Frustrated
- Herne Bay Steamboat: One purpose among several = Not frustrated
Limits of the doctrine of frustration
The courts impose important restrictions on frustration claims. These limits protect parties from the unfair or opportunistic use of the doctrine. Frustration will not apply in the following circumstances:
Self-induced frustration
Where one party deliberately causes or brings about the frustrating event, they cannot rely on the doctrine. In such cases, the party will be in breach of contract and liable for damages.
The event must occur through circumstances beyond the control of both parties. A party cannot create their own frustration to escape contractual obligations.
If you cause the frustrating event yourself, you are in breach - not entitled to claim frustration.
Event is expressly provided for in the contract
If the parties have anticipated a particular event and included provisions dealing with it in their contract, frustration does not apply. The contract terms take precedence.
For example, if a contract includes a force majeure clause covering certain events, the parties must rely on that clause rather than the doctrine of frustration. The express contractual provisions govern what happens when that event occurs.
Foreseeable events
Where the event was foreseeable (or should have been foreseen) at the time of contracting, frustration cannot be claimed. The parties are expected to have contemplated and provided for such risks.
This includes:
- Events that were actually foreseen by the parties
- Risks that a reasonable person in their position would have anticipated
If you could have seen it coming, you cannot claim frustration. The parties should have addressed foreseeable risks in their contract terms.
Financial consequences of frustration
At common law, the rules on money and benefits when a contract was frustrated were often harsh and unfair. The Law Reform (Frustrated Contracts) Act 1943 was enacted to address these injustices.
The Act provides a statutory framework for dealing with financial matters when frustration occurs:
Money already paid
Any money paid by one party before the frustrating event occurs can be recovered. The payer can reclaim these advance payments.
Money payable
Any money that was due to be paid before the frustrating event is no longer owed. The obligation to make such payments is discharged.
Expenses incurred
Where either party has incurred expenses in performing the contract before frustration, the court may order payment for these expenses. This is discretionary and depends on what is just in the circumstances.
The court will consider factors such as:
- The amount of expenses incurred
- Whether any benefit was obtained
- The overall fairness to both parties
The discretionary nature of expense recovery means courts balance fairness between both parties. One party's expenses must be weighed against the other party's losses and the overall circumstances of the frustration.
Valuable benefit obtained
If one party has obtained a valuable benefit before the contract was frustrated, the court may order them to pay for this benefit. Again, this is discretionary.
The court will assess:
- The value of the benefit received
- The circumstances in which it was received
- What is fair and just
These provisions aim to achieve fairness between the parties by preventing unjust enrichment while recognising expenses incurred in good faith. The 1943 Act replaced the harsh common law rule that "the loss lies where it falls."
Exam guidance
When answering questions on frustration:
For problem questions:
- Define frustration clearly
- Identify the unforeseen event
- Determine which ground applies (illegal, impossible, or fundamentally different)
- Check whether any limits apply (self-induced, expressly provided for, foreseeable)
- Apply relevant case law with facts and legal principles
- Consider financial consequences under the 1943 Act
For essay questions:
- Evaluate whether the doctrine strikes a fair balance between the parties
- Consider whether the limits are too restrictive or appropriately applied
- Analyse the effectiveness of the 1943 Act in remedying common law harshness
- Compare frustration with other forms of discharge (performance, breach, agreement)
Remember!
Key Points to Remember:
-
Frustration arises when an unforeseen event makes performance impossible, illegal, or fundamentally different through no fault of either party
-
Three grounds:
- Performance becomes illegal
- Performance becomes impossible (subject matter destroyed/unavailable, death, risk of incompleteness)
- Performance becomes fundamentally different
-
Key distinction: Krell v Henry (sole purpose destroyed = frustrated) vs Herne Bay Steamboat (one purpose among others = not frustrated)
-
Three limits:
- Self-induced events
- Events expressly provided for in the contract
- Foreseeable events
All prevent frustration claims
-
Law Reform (Frustrated Contracts) Act 1943 governs financial consequences:
- Money paid is recoverable
- Money payable ceases to be owed
- Courts may order payment for expenses or valuable benefits received