Frustration

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Chapter 17.4 Frustration
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A contract is frustrated where for reasons beyond
the parties control, the contract becomes
impossible to perform.
The impossibility must arise after the contract
has been made.
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The test for frustration The circumstances must
be such that performance would be radically
different from that which was envisaged by the
parties when making the contract. (Non haec in
foedera veni it was not this that I promised to
do.)
Davis Contractors v. Fareham UDC 1956 2 All ER
145
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Where the entire benefit of the contract for one
party is lost
A contract to hire a room from which to view a
procession is frustrated where the procession is
cancelled.
Krell v. Henry 1903 2 KB 740
If, despite the cancellation of principal reason
for the contract, a substantial part of the
contract can still be performed, the contract
will not be held to be frustrated.
Herne Bay Steam Boat Co. v. Hutton 1903 2 KB
683.
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In commercial contracts the fact that events
result in substantially increased costs for one
party will not frustrate the contract.
Tsakiorglou Co Ltd. v. Noblee Thorl GmbH 1962
AC 93
Sale of peanuts c.i.f. London from the Sudan.
Sellers price based on a voyage via the Suez
Canal The Canal was closed and the peanuts would
have to have been shipped via the Cape of God
Hope. Despite the huge increase in freight costs
the contract was not frustrated. The contract
could still be performed.
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The Legal Consequences of Frustration
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At common law
Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe
Barbour Ltd 1942 2 All ER 122
Where the frustration results in a total failure
of consideration, a party may recover any money
paid or other expenditure in furtherance of the
contract all other losses lie where they fall.
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Under the Frustrated Contracts Act 1944
Section 3 provides that where a contract has
become frustrated moneys due cease to be
payable and money already paid shall be
recoverable - except where expenditure has been
incurred prior to the contract being frustrated,
the Court may allow a party to retain or recover
the whole or any part of the sums so paid.
Similarly where one party has obtained some
other valuable benefit the Court is empowered to
make orders to fairly adjust matters between the
parties.
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Section 4 - the application of the Act The
contract may make provision for the frustrating
event. The Court may, in a proper case, sever any
part of the contract that is frustrated and allow
the remainder of the contract to go forward. The
Act does not apply to any contract for the
carriage of goods by sea of insurance or for
the sale etc. of specific goods which is
frustrated by the destruction of the goods before
risk has passed to the buyer. (Section 9 Sale of
Goods Act.)