Frustration

A concept which allows both parties to be released from performance of their contractual obligations.

In Davis Contractors v Fareham Urban DC (1956) Lord Radcliffe said "... frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. 'It was not this that I promised to do' ....

"... it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for." 

In National Carriers Ltd v Panalpina (Northern) Ltd (1980) the House of Lords restated the test for frustration and according to Lord Simon “Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.”

The courts have decided that for the doctrine of frustration to apply the events complained of must relate to the whole purpose or object of the contract.  The courts have also indicated that the concept operates within strict confines.The Law Reform (Frustrated Contracts) Act 1943  endeavours to provide some consistency when dealing with the doctrine of frustration.

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