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FRUSTRATION REVISION NOTES
Contracts are often silent on the position of the parties in the event that something happens subsequent to
the formation of a contract which renders its performance literally impossible, or only possible in a very
different way from that originally contemplated
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In more recent times, five propositions have been set out as the essence of the doctrine
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* the effect of frustration is to kill the contract and discharge the parties from further liability under it, so
that the doctrine cannot be lightly invoked but must be kept within very narrow limits and ought not to be
extended
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* the essence of frustration is that it should not be due to the act or election of the party seeking to rely
upon it, but due to some outside event or extraneous change of situation
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The mere fact that the
parties apparently treated a contract as remaining in force until a late stage in their dispute does not
conclusively rule out a plea of frustration
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Frustration is not to be confused with initial impossibility, which may render the contract void ab initio
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TESTS FOR FRUSTRATION
There are two alternative tests for frustration:
(1) The implied term theory, as in:
Taylor v Caldwell (1863) 3 B&S 826
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'
(2) The radical change in the obligation test
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In National Carriers v Panalpina [1981] AC 675, Lord Wilberforce was reluctant to choose between the
theories
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EXAMPLES OF FRUSTRATION
A) DESTRUCTION OF THE SPECIFIC OBJECT
ESSENTIAL FOR PERFORMANCE OF THE CONTRACT
The destruction of the specific object essential for performance of the contract will frustrate it
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B) PERSONAL INCAPACITY
Personal incapacity where the personality of one of the parties is significant may frustrate the contract:
Condor v The Baron Knights [1966] 1 WLR 87
Phillips v Alhambra Palace Co [1901] 1 QB 59
Graves v Cohen (1929) 46 TLR 121
FC Shepherd v Jeromm [1986] 3 All ER 589
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Compare the leading cases:
Krell v Henry [1903] 2 KB 740
Herne Bay Steamboat Co v Hutton [1903] 2 KB 683
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See:
Metropolitan Water Board v Dick Kerr [1918] AC 119
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See:
Denny, Mott & Dickinson v James Fraser [1944] AC 265
Re Shipton, Anderson and Harrison Brothers [1915] 3 KB 676
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The problem is to know how long a party must
wait before the delay can be said to be frustrating
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LIMITATIONS OF THE DOCTRINE
· 'The doctrine of frustration must be applied within very narrow limits', per Viscount Simmonds in
Tsakiroglou [1961] (below)
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A) EXPRESS PROVISION FOR FRUSTRATION
The doctrine of frustration cannot override express contractual provision for the frustrating event
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See:
Davis Contractors v Fareham UDC [1956] AC 696
Tsakiroglou v Noblee Thorl [1961] 2 All ER 179
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D) FORESEEABILITY OF THE FRUSTRATING EVENT
A party cannot rely on an event which was, or should have been, foreseen by him but not by the other
party
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EFFECTS OF FRUSTRATION
The Law Reform (Frustrated Contracts) Act 1943 was passed to provide for a just apportionment of losses
where a contract is discharged by frustration
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· If, however, the party to whom such sums are paid/payable incurred expenses before discharge in
performance of the contract, the court may award him such expenses up to the limit of the money
paid/payable before the frustrating event
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(B) VALUABLE BENEFIT
Section 1(3) provides:
· If one party has, by reason of anything done by the other party in performance of the contract,
obtained a valuable benefit (other than money) before the frustrating event, he may be ordered to pay a sum
in respect of it, if the court considers it just, having regard to all the circumstances of the case
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See:
BP Exploration v Hunt [1982] 1 All ER 925
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Section 2(4) provides that the Act does not apply where wholly performed contractual obligations can be
severed from those affected by the frustrating event
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FRUSTRATION CASE NOTES

Taylor v Caldwell (1863) 3 B&S 826
For facts, see below
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"
Davis Contractors v Fareham UDC [1956] AC 696
For facts, see below
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Construe the contractual terms in the light of the contract and surrounding circumstances at the time of
its creation
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Examine the new circumstances and decide what would happen if the existing terms are applied to it
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Compare the two contractual obligations and see if there is a radical or fundamental change
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Before the date of
the first concert, the hall was destroyed by fire
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The court held that the claim for breach of contract must fail since it had become
impossible to fulfil
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See above for the quote of Blackburn J
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After an illness, Condor's doctor advised that it was only safe to employ him on four
nights a week, although Condor himself was willing to work every night
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The court held that Condor's contract
of employment had been frustrated in a commercial sense
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Phillips v Alhambra Palace Co [1901] 1 QB 59
One partner in a firm of music hall proprietors died after a troupe of performers had been engaged
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Graves v Cohen (1929) 46 TLR 121
The court held that the death of a racehorse owner frustrated the contract with his employee, a jockey,
because the contract created a relationship of mutual confidence
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Krell v Henry [1903] 2 KB 740
Henry hired a room from Krell for two days, to be used as a position from which to view the coronation
procession of Edward VII, but the contract itself made no reference to that intended use
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It was held that Henry was excused from paying the rent for the
room
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Herne Bay Steamboat Co v Hutton [1903] 2 KB 683
Herne Bay agreed to hire a steamboat to Hutton for a period of two days for the purpose of taking
passengers to Spithead to cruise round the fleet and see the naval review on the occasion of Edward VII's
coronation
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It was held that the contract was not frustrated
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The other object of the contract was to cruise
round the fleet, and this remained capable of fulfilment
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After two years, Kerr were required
by a wartime statute to cease work on the contract and to sell their plant
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Denny, Mott & Dickinson v James Fraser [1944] AC 265
A contract for the sale and purchase of timber contained an option to purchase a timber yard
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One party wanted to exercise the option
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Re Shipton, Anderson and Harrison Brothers [1915] 3 KB 676
A contract was concluded for the sale of wheat lying in a warehouse
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It
was held that the seller was excused from further performance of the contract as it was now impossible to
deliver the goods due to the Government's lawful requisition
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She sailed on 2 January, but the next day ran aground in Caernarvon Bay
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On
15 February, the charterers repudiated the contract
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The express exceptions were not intended to
cover an accident causing such extensive damage
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LIMITATIONS OF THE DOCTRINE
Davis Contractors v Fareham UDC [1956] AC 696
The plaintiff agreed to build 78 houses in eight months at a fixed price
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The builders said that the
weather and labour shortages, which were unforeseen, had frustrated the contract, and that they were
entitled to recover £17,000 by way of a quantum meruit
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Tsakiroglou v Noblee Thorl [1961] 2 All ER 179
T agreed to sell Sudanese groundnuts to NT, the nuts to be shipped from Port Sudan to Hamburg,
November/December 1956
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T failed to deliver, arguing that shipment round the Cape of Africa was
commercially and fundamentally different
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T were,
therefore, liable for breach - the change in circumstances was not fundamental
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Both parties realised
that it was an offence to use such a trawl without a government licence
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It was held that the charterparty had not been frustrated
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Maritime freely elected not to licence Ocean's vessel, consequently their inability to use
it was a direct result of their own deliberate act
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Within this period the hotel was compulsorily acquired, and demolished, by a local authority
acting under statutory powers
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The contract was not frustrated
because the defendant's knew, and the plaintiffs did not, of the risk of compulsory acquisition
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EFFECTS OF FRUSTRATION
Gamerco v ICM/Fair Warning (Agency) Ltd [1995] 1 WLR 1226
The plaintiffs, pop concert promoters, agreed to promote a concert to be held by the defendant group at a
stadium in Spain
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No alternative site was at that time available and
the concert was cancelled
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The plaintiffs sought to recover the advance
payment under s1(2) Law reform (Frustrated Contracts) Act 1943, and the defendants counterclaimed for
breach of contract by the plaintiffs in failing to secure the permit for the concert
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The contract was frustrated essentially because the stadium was found to be unsafe, a
circumstance beyond the control of the plaintiffs
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Under s1 of
the 1943 Act, the plaintiffs were entitled to recover advance payments made to the defendants
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BP v HUNT
In December 1957 the Libyan government granted the defendant a concession to explore for, and extract,
oil in a specified area in the Libyan desert
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The contract, known in the oil industry as a farm-in agreement, was contained in two
documents, namely a 'letter agreement' and an operating agreement, whereby the defendant agreed to assign
to the plaintiff a half share in the oil concession in consideration for which the plaintiff undertook to
explore, develop and operate the whole of the concession entirely from its own resources and at its own
expense and to make down payments in cash and oil to the defendant as 'farm-in' contributions
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Clause 6 of the
letter agreement provided that the defendant would not be personally liable to repay the sums advanced to
his account in accordance with s 9(e) of the operating agreement and that the plaintiff was to look for
reimbursement solely from the defendant's share of the oil
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The plaintiff spent considerable
sums of money in exploration and development of the concession which proved extremely successful in
that recoverable oil in commercially worthwhile quantities was found and from July 1967 production
increased considerably
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Both parties received inadequate compensation
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The defendant contended that the 1943 Act did not
apply because the contract was not governed by English law and had not been frustrated; alternatively he
cross-claimed for an award under the 1943 Act
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The
judge rejected the defendant's claim under the 1943 Act
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By a cross-appeal, the plaintiff also challenged the
basis on which the judge made his assessment of the amount awarded
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The defendant appealed to the House of Lords, contending (i) that the terms of the contract, in particular cl
6 of the letter agreement and s 9(e) of the operating agreement, were intended to apply whether or not the
contract was frustrated and therefore under s 2(3) of the 1943 Act the operation of the Act was excluded by
the terms of the contract, (ii) that it would be unjust in the circumstances to make an award under the 1943
Act, (iii) that if the judge was right to make an award under the 1943 Act he was wrong to order in addition
the payment of interest on the sums awarded, because sums recoverable under the 1943 Act were not 'any
debt or damages' within s 3(1) of the Law Reform (Miscellaneous Provisions) Act 1934, and (iv) if interest
was to be awarded it ought not to have been ordered to be paid from 14 June 1974 but from the date the
amounts of the principal sums were assessed by the judge at the hearing, because before that date there was
no debt that could attract interest
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Furthermore he conceded that, if the judge had been right to order him to pay the plaintiff any principal
sums at all, the sums ordered to be paid were not excessive
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Furthermore, there were no other circumstances in the case which
would make it unjust, within s 1(2) or (3) of the 1943 Act, to make such an award
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(2) The words 'any debt or damages' in s 3(1) of the 1934 Act, in the context in which they occurred, were
very wide and covered any sum of money which was recoverable by one party from another either at
common law or in equity or under a statute such as the 1943 Act
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(3) There was no general rule that, whenever the amount of any debt or damages payable by one party to an
action to the other party could not be ascertained until judgment was given, the court could not, in the
exercise of its discretion, award interest from a date earlier than the date of judgment, since to apply such a
rule would be inconsistent with the express terms of s 3(1) of the 1934 Act, and in many cases, for example
in the case of a claim on a quantum meruit, would lead to serious injustice against a successful plaintiff
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