H418/04 - Frustration

A radical change after formation

Frustration occurs where an event after contract formation, without the relevant default of either party, makes the obligation impossible, unlawful or radically different from what was undertaken. The contract is discharged automatically when the frustrating event occurs; neither party needs to elect to accept a breach. Future obligations end. This is different from discovering that there was never a valid contract in the first place.

The court examines the contract, the event and the effect on the promised performance. Davis Contractors v Fareham UDC (1956) gives the central test of a radical change. A building job took much longer and cost more because labour and materials were scarce. That was hardship in doing the promised construction, rather than an obligation fundamentally different in character; frustration was refused.

The doctrine is narrow because contracts allocate risks. If every poor bargain could be cancelled, the other party could not rely on the price or completion promise. Yet insisting on an obligation whose essential basis has disappeared can demand something the parties did not undertake. This tension explains why a court requires more than inconvenience.

A genuine frustrating event is not normally a breach giving damages for the failure to perform the discharged future promise. Fault matters: a venue owner who wrongfully destroys the booked venue cannot ordinarily use that event to escape liability. Earlier accrued rights and the financial adjustment rules below require separate attention; “discharged” does not mean the entire history is erased.

Impossibility, illegality and lost purpose

An event must change the promised performance itself or its shared essential basis. These common grounds help identify that change.

Destruction and personal inability

In Taylor v Caldwell (1863), the music hall required for concerts burned down without fault before the events. The parties contracted on the basis that this particular hall would continue to exist. Destruction excused future performance. A seller's loss of one warehouse does not necessarily frustrate a promise to deliver ordinary goods obtainable elsewhere: check whether the bargain requires a particular thing.

Death or sufficiently serious illness can frustrate a contract depending on a particular person's personal performance. A commission for a named artist to paint a portrait differs from a contract with a large company which can send another employee. A brief illness or interruption is assessed against the duration and purpose of the contract; it is not automatically frustration.

Supervening illegality

A later legal prohibition can make agreed performance unlawful. For example, a new law prohibiting the specific event before its agreed date could discharge the event contract if the parties have not allocated that risk. A permit refusal caused by the applicant's own failure to comply is a different problem. Read the prohibition's actual scope: a ban on one method is not necessarily a ban on every available lawful method.

Destruction of a shared purpose

In Krell v Henry (1903), rooms were hired with the coronation procession as the understood foundation of the bargain. The procession did not take place as planned. Physical occupation remained possible, but the shared essential purpose had disappeared, so frustration applied. Mere disappointment of one party's private motive is insufficient. Booking a general hotel room secretly hoping to see a celebrity does not turn that hope into the shared foundation of the room contract.

Duration can be decisive. National Carriers v Panalpina (1981) recognised that even a lease could in principle be frustrated, but loss of access for about 20 months did not frustrate the particular ten-year lease. A temporary interruption must be compared with the entire promised benefit. Do not infer frustration merely from an event being dramatic or outside the parties' control.