Frustration

Nature of Frustration

The principle of frustration applies where a contract is entered to perform something which later becomes impossible or wholly meaningless. This must occur without the fault of either party. The event must be unexpected. If one party anticipated or should have anticipated the possibility of the risk/event, and did not incorporate a term to protect itself, frustration does not apply.

It is essential that the circumstances are outside the control of both parties. Self-induced frustration will not be permitted as a ground to terminate a contract.  A person who raises frustration as a basis for the termination of the contract must prove it.


Basis for Frustration; Implied Intention Approach

Different views have been taken by the courts in relation to the basis for the doctrine of frustration.  There has been a debate as to whether frustration is based on the presumed or implied intention of the parties or is a principle of law which acts independently of the parties’ express or implied intentions.

Traditionally, the courts based the doctrine on an implied term of the contract. In some of the important early cases (e.g. assuming the existence of the music hall), the court found an implied fundamental condition, that subject matter should continue to exist.

Under the implied agreement theory, it is a  matter for the court to infer the parties’ implied intentions in circumstances in which the event occurs.  Under this approach, the application of frustration may be more readily varied by the terms of the contract. It is a rule of interpretation.


Basis for Frustration Remedy Approach

In modern times, the preferred view is that frustration is an independent legal principle.  Under this widely accepted view, frustration is a remedy imposed by the court after the event. It is acknowledged to be a just solution to deal with wholly unapprehended possibilities which take away the basis of the contract.

The courts accept that it is overly artificial to imply in terms in relation to wholly unanticipated circumstances.  They accept that it is  fictional and impossible to deduce intention in relation to an unanticipated event.  They  take the view that it is more pragmatic for the court to impose a fair and reasonable solution after the event.

Frustration does not apply if the contract provides for the matter. If the contract governs the position, effect is to be given to it. If the intention is not expressed and cannot be implied under ordinary principles,

The Irish courts have not yet definitively rested the principle of frustration on either basis.


Similarity to Doctrine of Mistake

A frustrating event takes place after the contract is formed and will frustrate its performance.  Mistake, where operative, will usually mean that there is no contract and never has been one.  In contrast, frustration will discharge the contract from that time onwards, but not retrospectively.

Frustration is similar in some respects to the legal concept of mistake, by which a contract does not come into existence.  The mistake must relate to a matter which exists at the time of entry into the contract itself.

Frustration relates to events which happen after the contract has been entered. A contract may not be formed due to a common mistake about a fundamental matter. This is similar to the principle of mistake but relates to circumstances that apply at the date of the contract and not those which arise later.


Matter not Provided for

If provision is made by the contract it will generally govern the position and preclude frustration. Questions of interpretation may arise as to whether a clause dealing with force majeure or in like terms, applies in the circumstances. The presence of a force majeure clause does not preclude the possibility of frustration.

Even if the parties have made express provision for the matter,  the courts appear to be willing to allow frustration to apply where the wording which ostensibly appears to apply, is held inapplicable. The contract may apply to a particular circumstance while not contemplating the possibility that the circumstance might occur in a much more significant and fundamental way, that undermines the contract


Self Induced Frustration I

Where the relevant event derives from a deliberate act of the parties, frustration will not generally apply. Otherwise, a party could engineer the discharge of his contractual obligations without consequence.

The party who alleges self-induced frustration bears the burden of proof where there are a number of possible reasons why the event occurred.

Where a deliberate act is forced by the frustrating event and is, say, chosen to save expense or avoid inconvenience it is unlikely that the doctrine of frustration will apply. The essence of frustration is that the supervening event is outside the control of either party.


Self Induced Frustration II

The question may be more difficult where one party’s negligence or other fault has caused the frustrating event to arise. In some cases frustration may nonetheless apply, notwithstanding one party has, in one sense caused it.

In many cases, frustration has been held not to apply because it was self-induced by negligent action. For example, where a licence is essential to the performance of a contract and the onus of obtaining it is on one party, that party cannot claim frustration, where through his failure to take all reasonable steps, the licence has not been procured.

In such cases, there is an implied obligation by one party that the risk  should not happen. It is a risk which the party concerned should have covered and provided against. The  risk is given effect in accordance with the express or the implied terms of the contract.


Subject Matter No Longer Exists

Frustration commonly applies where the very matter contracted about no longer exists.  Where, for example, the parties contract on the assumption that the particular subject matter will continue to exist, such as a contract for the use of concert hall, which is destroyed prior to the relevant date, the contract is likely to be frustrated.

The Sale of Goods Act incorporates the principle of frustration. Where there is an agreement to sell specific goods and subsequently, and without the fault of either, they perish before the risk passes to the buyer, the agreement is avoided.

Some examples include the burning down of a hall in which a concert is agreed to take place, the death of a party to a personal services contract and the sinking of a chartered ship.


War and Governmental Action

Frustration may occur due to events outside the jurisdiction, such as actions in a foreign war or a change in a foreign law.  War seizures and governmental actions may cause frustration. In some circumstances, the action of an enemy country or revolutionary action in another country may be sufficient

In cases where a ship intended to chartered was seized by foreign government or revolutionaries, the intended contracts were held to be frustrated.A change in the law may frustrate a contract by making it unlawful. The contract must have been lawful at the time it was made.


Basis of Contract Removed I

In the famous “Coronation” cases, where the coronation of Edward VII was cancelled, most of the contracts in the leading cases, for the hiring of rooms to view it, were held to be frustrated.

The purpose and point of the hiring of the rooms was to view the coronation, which when cancelled, removed the basis for the contract. The contracts could literally have been performed, but the underlying purpose of viewing the Coronation was their whole basis.

Where the contact related to a more collateral matter, such as where the ship was hired for the period of a Naval Review which was cancelled, the contract was not frustrated. The charterer could still enjoy the right to cruise near the fleet.


Basis of Contract Removed II

Where the benefit of an agreement is affected by unforeseen circumstances, so that it would be, if performed, something fundamentally different to that which was envisaged, the contract may be avoided by frustration. It is not enough that the value or quality of what was available was diminished by unexpected circumstances.

The fact that a contract becomes substantially more expensive to perform due to e.g. a labour dispute or availability of materials would not, in itself, be sufficient to discharge.

A contract may be frustrated where there is a change in domestic or foreign law. Frustration may occur by the abolition of a domestic or foreign office or position.

Issues of legality and frustration may overlap. Illegality may apply to a contract which was unlawful from its inception. Where the law subsequently changes, an issue of frustration may arise.


Sale of Goods

The Sale of Goods Act specifically provides for both frustration and mistake.  Where there is a contract for the sale of specific goods and they have been destroyed at the time of contract without the knowledge of either party, the contract is void.

Where there is an agreement to sell specific goods and they are subsequently, without the fault of either party, destroyed or perish before the risk passes to the buyer, the agreement is avoided.


Employment Contracts and Frustration

Employment contracts may be frustrated. The issue may be of significance, as there will not be a dismissal in these circumstances.  The contract will have terminated by operation of law. This is no statutory protection in the case of redundancy and unfair dismissal.

An argument may be made by an employer in an unfair dismissal case so that the statutory requirement for a dismissal (which requires that the contract has been terminated by the employer) is not present. The courts and WRC have rarely allowed these claims to succeed.

The courts are reluctant to find frustration of an employment contract where this is critical to the issue or where it negates what might otherwise constitute an unfair dismissal. The courts are likely to interpret employment legislation so that its protection is not circumvented.

It appears that the imposition of a prison sentence may frustrate an employment contract.


Prolonged Illness I

The issue of frustration under an employment contract arises in a pointed way in the context of a prolonged illness of the employee. Where an employee falls seriously ill and can no longer perform the employment contract, it may be frustrated at some point This will depend on the length of the employment relative to the illness or disabling events. The circumstances must be such that no reasonable employer could be expected to wait any longer.

Where a disabling illness has occurred and is expected to last for a considerable time, the contract of employment may be frustrated. This may occur where after a reasonable time it becomes apparent that the employee’s absence will be extremely prolonged.

In such cases, in accordance with general principles, the employer may not have to wait for a prolonged period to consider whether the injury resolves itself.  The court may not allow the employer the same latitude as he would have in terminating a commercial contract, on the ground of an apparent frustrating event or circumstances.

The frustration of the contract may be subject to implied obligations of cooperation and good faith on the part of the employer, which may preclude frustration.  This may occur in particular where the effect of the operation of frustration would be to deny the employee the benefit of insurance and other cover for the risk concerned.


Prolonged Illness II

Where the employee has an illness, with little prospect of recovery, the employment contract may be frustrated at some point. In some cases, the nature of the illness or disability is such that it has a profound and immediately obvious impact on the employment and the ability of the employee to do or undertake the work concerned.

The courts take account of the entirety of the circumstances, including

  • the length of the employment,
  • the length of expected employment,
  • the nature of the position,
  • the length of the illness or disablement,
  • the need for the employee,
  • the need for a replacement,
  • the risk of the employer acquiring obligations under legislation which would not otherwise apply,
  • whether wages continue to be paid,
  • whether it is reasonable in the circumstances for the employer to have waited longer,
  • the absence or presence of consultation

Leases

Leases are contracts and may be subject to frustration. Formerly, the doctrine frustration did not apply to leases.  The House of Lords has held that frustration may apply, in exceptional circumstances to leases.  Frustration may be claimed when a premises has been destroyed by fire or equivalent risk.

There is statutory right in the Irish legislation to terminate and surrender a lease where the principal premises have been destroyed, in particular by fire, where there is no express obligation to repair. This right is almost invariably excluded.

Frustration is more likely in the case of a short-term lease than a long-term lease.  Where buildings are destroyed within a short time of the expiration of a lease term, or in a short-term lease, frustration may be allowed subject to what the lease/letting agreement might otherwise provide.


Death

The death of a party does not necessarily void contractual obligations. The Civil Liability Act causes most contracts to continue.

In the case of a contract for personal services, the death of the party who is to provide the services will usually frustrate the contract.

However, if the contract is not for personal performance, then the obligation to perform is likely to remain with the deceased’s estate/representatives.


References and Sources

Irish Textbooks and Casebooks

Clark, R. Contract Law in Ireland 8th Ed. (2016) Ch 18

Friel, R. The Law of Contract 2nd Ed, (2000)

McDermott, P.  Contract Law (2001) 2nd Ed (2017) Ch 20

Enright, M. Principles of Irish Contract Law (2007)

Clark and Clarke Contract Cases and Materials 4th Ed (2008)

English Textbooks and Casebooks

Poole, J. Casebook on contract law. (2014) 12th edition

Stone and Devenney, The Modern Law of Contract 10th Ed (2015)

McKendrick, Contract Law 10th Ed (2013)

Chen-Wishart, Contract Law 5th Ed (2015)

Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)

Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.

Chen-Wishart, M. (2015) Contract law. 5th Ed.

Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.

Duxbury, Robert (2011) Contract law. 2nd Ed.

Halson, Roger (2012) Contract law. 2nd Ed.

Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)

O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)

Peel, and Treitel, The law of contract. 13th Ed. (2011).

Poole, J.Casebook on contract law. 12th Ed. (2014).

Poole, J.  Textbook on contract law. 12th Ed. (2014)

Richards, P Law of contract. 10th Ed. (2011)

Stone, R.  The Modern law of Contract. 10th Ed. (2013)

Treitel, G. H.  An outline of the law of contract. 6th Ed (2014).

Turner, C Unlocking contract law. 4th Ed. (2014).

Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).

UK Casebooks

Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)

McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)

Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)

Burrows, A. S.  A Casebook on Contract. 4th Ed.

Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)

Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)

UK Practitioners Texts

Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)

The above are not necessarily the latest edition.