What is (legal) “frustration”?

September 4, 2021

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3 min read

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Origins

Frustration is a contract law doctrine that was first formally recognised in the 1863 case of Taylor v Caldwell.  Imagine you’ve hired a village hall to have a concert in, but a few days before your hire date, the place burns down.  Frustrating, right?  But in legal terms, Taylor v Caldwell essentially established that when the subject matter of a contract ceases to exist, the contract cannot go ahead.  In other words, a contract is frustrated due to an occurrence that makes it impossible for one party to perform their contractual obligations.

Overview

Today, frustration applies to a few exceptional circumstances. Contracts cannot go ahead if a new law is passed that makes the deal illegal, following the signing of a contract, or if a vital entity, such as a building, item or person that is essential to the contract, is destroyed or dies through no fault of the contractually-bound parties. Seriously abnormal delays which drastically affect what was expected at the time of contracting can also amount to frustration.

Davis Contractors v Fareham UDC in 1956 drastically restricted the doctrine, stating that it can only apply where the performance of the contract would be “radically different” from what was expected. This applies when parties have not allocated risk, such as in a force majeure clause.  Prior to this, the Law Reform (Frustrated Contracts) Act 1943 detailed that any contractual obligations after the frustrating event are no longer binding, and any benefits received from the contract must be paid for.

Frustration has recently arisen due to Brexit. In 2019, Clifford Chance acted for Canary Wharf Group, who were opposing the European Medicines Agency’s (EMA) appeal to get their 25-year office lease in Canary Wharf revoked.  The High Court had held that the EMA’s lease would not be frustrated because of Brexit.  Part of the EMA’s claim was based on the lease no longer being fit for purpose as they thought it illegal to remain in the UK after Brexit.  The lease was signed in 2011, and while Brexit was not reasonably foreseeable at the time, the lease did indicate that the EMA would be liable for the lease until 2039 unless they could sublet or assign it. This case has set a precedent indicating that hugely impactful, globally recognised events cannot automatically frustrate contracts.  Covid-19 has raised this issue again with businesses using force majeure clauses to allocate risk so as to avoid litigation and keep contracts enforceable.

Verdict

The niche scope of frustration is helpful in preventing abuses.  Countries including Australia and Singapore operate the doctrine on a similarly high threshold to English law. However, Brazil and Germany for example operate the doctrine on a much lower threshold.  In Brazil, if a party is merely burdened by an unforeseeable event, but could still perform their obligations under contract, they can request termination under frustration.  Germany operates frustration in circumstances where the common understanding of contractual terms has changed.  This disparity can be attributed to the requirement of good faith, which exists in Brazil and Germany in the negotiation and contract formation stages.  English law does not have this requirement, making it an attractive choice for parties in international commercial contracts.  Parties may have autonomy over negotiations to reach the agreement that they want, meaning a truly frustrating event in English law is a lot harder to come by.

Report written by Evangeline Taylor

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