In the realm of contract law, businesses often enter into agreements with the expectation that all parties involved will fulfil their respective obligations, leading to a successful and beneficial outcome.
However, sometimes unforeseen circumstances arise, rendering the performance of the contract impossible or radically different from what was initially envisioned. In such cases, the doctrine of frustration comes into play, providing a potential remedy for the parties involved.
Understanding the concept of frustration of contract can prove invaluable in navigating the legal landscape. Let's delve into the intricacies of this rare remedy and how it might apply to your business contracts.
What is frustration in contract law?
Frustration in contract law refers to a situation where an unforeseen event occurs after the formation of a contract, rendering its performance impossible, illegal or fundamentally different from what the parties originally intended. It’s important to note that frustration only applies in exceptional circumstances and isn’t a substitute for breach of contract claims.
To demonstrate frustration effectively, the following elements must be present:
- Supervening event – the event that leads to frustration must occur after the formation of the contract, and it must be beyond the control of the parties at the time the contract was made.
- Beyond control – the supervening event must be beyond the control of the parties at the time the contract was made.
- Radically different – the event must fundamentally alter the nature of the contractual obligations, making it substantially different from what was initially agreed upon or rendering the contract's performance impossible or illegal.
- No fault of either party – the frustrating event must not be caused by any fault or negligence of either party involved in the contract.
Examples of incidents that have been ruled frustration events include:
- The subject matter of the contract being destroyed by fire or some other disaster
- A change of law that makes the performance of the contract illegal
- A particular event is cancelled (for example, the Court accepted that the 1902 postponement of King Edward VII's coronation because the King developing peritonitis was a frustrating event)
Consequences of frustration under breach of contract
When a contract is frustrated, it’s considered to be discharged, immediately releasing both parties from their future obligations. However, the consequences of frustration may vary depending on the circumstances:
Damages for frustration of contract
Unlike in cases of breach of contract, where damages are awarded to the innocent party to compensate for losses incurred, frustration doesn’t typically entitle the parties to damages. The law considers frustration as a risk that both parties assumed when entering into the contract.
Time of the frustrating event
The timing of the frustrating event is crucial in determining its effect on the contract. If the frustrating event occurs after the contract has been partially performed, the parties may (in certain circumstances) be entitled to claim a quantum meruit – a reasonable sum for the work completed prior to the frustrating event.
Force majeure clauses
Contract contracts commonly include force majeure clauses that allocate the risk of certain unforeseen events between the parties. These clauses define the scope of events that will excuse non-performance or grant the right to terminate the contract. If a force majeure clause is present, it will take precedence over the doctrine of frustration.
How to prove frustration of contract
Proving frustration of contract can be a complex task, and it’s advisable to seek legal advice to navigate the intricacies successfully. To get you started, here are a few steps to assess whether frustration applies to your contract:
1. Review the contract terms – examine the contract terms thoroughly to understand the agreed-upon obligations, timeframes and any force majeure clauses that might be included.
2. Identify the frustrating event – determine the event that occurred after the contract's formation and assess whether it falls under the doctrine of frustration. It must be an unforeseen event beyond the parties' control and significantly impact the contract's performance or render it impossible or illegal to perform.
3. Prior to the frustrating event – consider the circumstances leading up to the frustrating event. If there were any indications or foreseeability of the event before entering the contract, frustration may not be applicable.
4. Effect of frustration – evaluate how the frustrating event renders the contract's performance impossible or radically different from the parties' original intentions.
5. Seek legal advice – consult with an experienced contract lawyer to assess the situation thoroughly and determine the most appropriate course of action.
Is there a remedy for frustration of contract?
As mentioned earlier, frustration is a rare remedy in contract law. Since it discharges the contract, it effectively terminates the parties' future obligations. However, it’s important to remember that frustration isn’t a cure-all solution and not all contractual disputes can be resolved through this doctrine. To ensure your business is well-protected, consider the following proactive measures:
- Comprehensive contract drafting – ensure your contracts are drafted with precision, covering potential risks and unforeseen events where possible
- Force Majeure Clauses – include well-defined Force Majeure clauses in your contracts to allocate the risk of specific events and their consequences
- Monitoring contract performance – keep track of your contracts' performance and address any potential issues as they arise to prevent frustration scenarios
Get legal assistance LawBite
Relying on the doctrine of frustration shouldn’t be seen as a straightforward way to get out of your contractual obligations. However, as a business owner, understanding the implications of frustration can help you navigate challenging situations where contract performance becomes impossible or substantially different from what was initially intended.
If you believe your contract has been frustrated, you should seek legal advice to assess your situation properly and explore the most suitable options. Our team of experienced contract lawyers can review your contracts to assess the possibility of frustration.
By partnering with LawBite for your contract review needs, you can benefit from the following:
- Expertise – our contract lawyers boast in-depth knowledge of UK contract law and a wealth of experience in reviewing contracts across various industries
- Transparency – we value transparency in all our interactions, which is why you can receive a fixed-price quote for your contract review without the risk of cost creep
- Affordability – we’re approximately 50% less than the cost of comparable law firms, with lawyers of a similar level of experience
By working with us, you can gain peace of mind knowing that your contracts have undergone thorough scrutiny and are robust enough to protect your interests. To find out more, book a free 15 minute consultation with one of our expert contract lawyers or call us on 020 3808 8314.