Revise Frustration for Cambridge 9084 (3.3.3)

Frustration is a common law doctrine that provides for the discharge of a contract where a supervening event, occurring after the contract was formed but before its completion, renders performance impossible, illegal, or radically different from what was contemplated by the parties. Crucially, this event must not be the fault of either party. This doctrine evolved from the harsh, absolute liability rule seen in Paradine v Jane (1647), where parties were bound to perform regardless of intervening events. The modern doctrine finds its roots in Taylor v Caldwell (1863), which established that if the subject matter of the contract is destroyed without fault, both parties are released from their future obligations. Frustration operates automatically to terminate the contract from the point of the frustrating event.

The courts have recognised several categories of frustrating events. The first is impossibility of performance, such as the destruction of the specific subject matter, as seen in the music hall fire in Taylor v Caldwell. This also includes the unavailability of a person essential for a contract of personal service, for example, due to illness, as in Condor v The Barron Knights (1966).

A second category is where performance becomes illegal due to a change in the law after the contract is formed. For instance, in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943), a contract to supply machinery to a Polish company was frustrated when Germany invaded Poland, making the trade illegal as it constituted trading with the enemy.

Finally, frustration of purpose occurs when the commercial point of the contract is destroyed. In the famous 'coronation case' of Krell v Henry (1903), a contract to hire a room overlooking the coronation procession route was frustrated when the procession was cancelled. The court held that viewing the procession was the 'foundation of the contract' for both parties. This is contrasted with Herne Bay Steamboat Co v Hutton (1903), where a contract to hire a boat to view a naval review and for a day's cruise was not frustrated when the review was cancelled. The cruise was still possible, so the contract's entire commercial purpose had not been destroyed.

The courts are reluctant to allow parties to escape their contractual obligations and therefore apply the doctrine of frustration within strict limits. Firstly, it cannot be 'self-induced'. If the alleged frustrating event is the result of one party's own conduct or choice, they cannot rely on the doctrine, as shown in Maritime National Fish Ltd v Ocean Trawlers Ltd (1935). Secondly, if the event was foreseeable by the parties at the time of contracting, it is assumed they accepted the risk. Thirdly, a contract becoming merely more difficult or expensive to perform is not sufficient for frustration (Davis Contractors Ltd v Fareham UDC [1956]). Finally, if the contract contains an express provision for the event, such as a 'force majeure' clause, that clause will govern the situation, not the doctrine of frustration.

The common law position on the consequences of frustration was harsh. The rule in Chandler v Webster (1904) was that 'the loss lies where it falls', meaning advance payments could not be recovered. While the House of Lords mitigated this in Fibrosa (1943) by allowing recovery where there was a 'total failure of consideration', the position remained unsatisfactory. The Law Reform (Frustrated Contracts) Act 1943 was passed to provide a more just and equitable framework. Its main provisions allow for the recovery of money paid, permit a party to retain or recover money for expenses incurred, and allow for compensation where a valuable, non-monetary benefit has been conferred on the other party before the frustrating event. The Act aims to prevent the unjust enrichment of either party.