The doctrine of frustration deals with situations where circumstances change after a contract has been made and this makes performance impossible, or at least significantly different from what was intended. The following aspects need discussion:
The nature of the doctrine. Is the doctrine based on an implied term in the contract, or simply on a rule of law?
424What sort of events will lead to the frustration of a contract? Examples include:
destruction of the subject matter – this is the clearest example of frustration;
where personal performance is important, the illness of one party may frustrate the agreement;
where the contract presumes the occurrence of an event, its cancellation may be treated as frustration;
if the contract becomes illegal, or a government intervenes to prohibit it.
Limitations on the doctrine. It will not apply where:
the contract simply becomes more difficult or expensive to perform;
the ‘frustration’ is attributable to the actions of one of the parties;
the parties have provided for the circumstances in the contract itself.
Effects of the doctrine under the common law:
the contract is terminated automatically; but
all rights and liabilities that have already arisen remain in force; except that
if there is a total failure of consideration, money paid may be recovered.
The Law Reform (Frustrated Contracts) Act 1943. This Act amends the common law, so that:
money paid prior to frustration can generally be recovered;
benefits conferred, which survive the frustrating event, can be compensated for.