Analyzing the Doctrine of Frustration

This essay will analyse the doctrine of frustration and its application in respect to unforeseeable event. The frustration doctrine is limited to instances where a wholly unforeseeable event makes the contract valueless to a party. This doctrine cannot be used in instances where a contingency is reasonably foreseeable and the concerned contract irrespectively fails to provide the protection in the event of the occurrence of the contingency.

The doctrine allows parties to escape obligations of a contract if the obligation cannot be performed due to the occurrence of an unforeseeable event. The doctrine has been developed under strict rule and it is to be narrowly applied in rare circumstance. This is supported by the observation made by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council (1953) that full weight should be given to the requirement that the parties in the contract ought to have made their respective bargain on the particular footing. He states that the doctrine cannot be lightly used to dissolve the contract.

While determining whether there is frustration of a contract or not, the focus is not on the cause of hardship or delay, but on its effect on the performance of the contract. The court needs to determine whether the event falls outside the parties’ reasonable contemplation at the time of entering into the contract. Occurrence of unforeseeable event is one of the factors that may cause an increased difficulty of performance of the contractual obligations. It is not enough to cause frustration if the difficulty falls merely within the commercial risks undertaken by the parties. This is supported by the observation made by the court in Davis Contractors Ltd. The court held that frustration occurs where performance would require something radically different from what was agreed. It is not sufficient that the performance of the obligation has become difficult or extremely difficult. In this case, D agreed to build seventy eight (78) houses for B. D took almost 3 times longer and cost more than it was planned due to severe shortage of labour and difficulty in getting building supplier. D completed the work, but argued that the performance of the work was frustrated and so the contract was confined to the agreed price and A could claim the extra cost incurred on quantum meruiy. The argument was rejected. In this case, Lord Radcliffe presented two conditions that could prevent the application of the doctrine of frustration. Firstly, cause of the delay should not be new state of things that the parties could not have reasonably foreseen. Secondly, although timely completion is important to both sides, the possibility of delay should not be treated as having the same significance for each. In this case, the contractor cannot misuse the doctrine of frustration to escape his unfortunate predicament.

The judgment of Davis Contractors and principles stated by Radcliffe hold great significance in determining frustration of contract in case of unforeseen event. An event cannot be treated as frustrating merely because the performance of contract has becomes onerous or expensive. Mere increased hardship, inconvenience or material loss does not qualify to be radically different necessary to frustrate the contract. In order to determine whether an event has frustrated the contract, the court will not distinguish impossibility of performance from being mere onerousness. The question for the court to determine is whether the performancehas become sufficiently onerous so as to justify dismissing the performance as impossible. The radical change or different test as formulated by Lord Radcliffe was upheld in National Carriers Ltd v Panalpina (Northern) Ltd (1981) where the court held that frustration occurs in case an event significantly changes the nature of the outstanding rights and obligation different from what was contemplated at the time of executing the contract that it would be unjust to hold the parties to them in the new circumstance. The parties are at not fault and they are discharge in case the contract is frustrated in these circumstances. In the case Krell v Henry (1903) Krell put up an advertisement in the window of his flat from which the coronation process could be viewed. Henry saw the advertisement and arranged with Krell’s agent to hire the flat for June 26 and 27 to see the coronation processions. The processionsdid not take place. The court held that the contract was frustrated. However, in the case of Herne Bay Steamboat v Hutton (1903), D hired The Cynthia to bring friends to see the naval review and regatta at Spithead. The review wascancelled on the morning The Cynthia was due to sail. The court held that there was no frustrationas the fleet could still be viewed.

The doctrine of frustration occurs only when the contract does not expressly or impliedly allocate the risk of the event in question. In the Fibrosa case (1943), it was held that the doctrine of frustration will not apply in case the contract clearly provides what happens if a particular, supervening event occurs. Thus, as discussed above, if parties contemplated the risks and allocated risks in case certain events occur, this doctrine cannot be applied. In the case of Edwinton Commercial Corp v Tsavliris Russ Ltd (2007), a vessel was unreasonably detained by port authorities for over four monthswith three days remaining on a 20-day time charter. The court held that the charter party was not frustrated. The charterers remained liable for payment of hire until the ship was re-delivered. Such kind of detention is a general risk and a foreseeable one in that particular risk industry, even though in this case was unforeseen and unprecedented. Therefore, this doctrine is seldom applied as parties almost always provide provisions around unexpected events. What Lord Radcliffe stated about lack of contemplation of unforeseeable events in respect to using doctrine of frustration, it could be argued that it goes against the doctrine of implied terms. Law formulates principle around implied terms that the parties could legally invoke in case the contract does not expressly provide for those terms.

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