FREEL100

Frustration & Force Majeure

- a 'Freelance Informer' legal article from Roger Sinclair

What does it mean when a contract is frustrated? What exactly is Force Majeure?

Frustration is one of those legal ‘patches’ that has evolved over the years in attempts by the Courts to ensure that the framework of contract law remains adequate to satisfy that framework’s commercial raison d’etre.

In earlier times, a contract was a contract, and if one entered a contract then one was obliged to comply strictly with all its terms, come hell or high water. The view taken by the Courts then was that a party entering a contact had the opportunity at that time to provide for any contingencies that might arise; if he chose not to do so, then, tough! A party remained liable for damages for non-performance, regardless even of impossibility.

During the 19th century thing began to change, and what we now know as the doctrine of ‘frustration’; began to emerge. In Taylor v Caldwell (1863) the parties contracted for the hire of a music hall, which then burnt down. The Courts decided that the contract was subject to an implied term that the parties would be excused their obligations if performance became impossible. Later cases have caused that test to evolve further over the years, and the present test of whether a contract can properly be regarded as frustrated appears to be whether as a result of an post-contract event, either (1) to require the contract to be performed would be to require something which, if not impossible, is at the least radically different from what had originally been intended by both parties, or (2) the contract has been deprived of its commercial purpose.

Thus

a contract for the hire of a room to view the expected coronation procession for a day in 1903 was frustrated when the coronation itself was postponed (deprivation of commercial purpose – there was nothing to see) – but a contract to hire a boat to see the King review the fleet (also 1903) was not frustrated when the King didn’t turn up – because the fleet was still there and viewable.

in 1966 a contract between the Barron Knights (remember them?) and their drummer was held to be frustrated as a result of the drummer’s illness – so the illness of an individual – where that individual was intended by both parties to perform the contract – may be sufficient to frustrate a contract, though one would have to weigh up the likely length of the illness, and the time-criticality of performance, before deciding whether the contract was in fact frustrated.

a contract which becomes illegal to perform will be frustrated

delays outside the control of the parties may cause frustration, if as a result performance then becomes radically different, or if the contract is deprived of its commercial purpose.

A contract will not be regarded as frustrated if it simply becomes more difficult or expensive (or less profitable) to perform; or if there is already an express term in the contract covering the contingency which has occurred; or where the event was a foreseeable part of the normal risk that party would expect to carry; or if the event was self-induced by the party seeking to rely on it.

If a contract is frustrated, then what are the consequences? First, each party is released from any further obligation to perform any further contractual obligations. Secondly, any money which has already been paid is repayable (and any money which had become payable but had not yet been paid ceases to be payable), subject only to deduction for expenses already incurred. And thirdly, where one party has obtained a valuable benefit before discharge, the other party may recover such amount as the Court considers just.

How, then, does ‘force majeure’ fit into the above? ‘Force majeure’ is a term borrowed from French law, which differs fundamentally from English law. There is not (so far as I can see) any precise legal meaning (under English law) for the expression – it is simply a shorthand way of describing the kind of contractual term intended to give a party some relief, on the happening of an event beyond his control. The relief may be a complete ‘get out’ from the contract, or a right to suspend, or to an extension of time – it all depends on what the clause itself says. As is the general rule, it’s open to the parties to negotiate and agree whatever terms they are willing to agree. If an ‘event’ happens, then the party seeking to take advantage of the term has to prove not only that what has occurred was one of the events the term itself provided for, but also that his non-performance was a result of circumstances beyond his control, and that there were no reasonable steps he could have taken to mitigate the event or its consequences.

21^st September 2001

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