Proving that a contract is frustrated is never an easy task; the chances of success are dependant upon the facts of the particular matter, but assistance can be found in the case law.
The doctrine of frustration is a principal whereby an event occurs after the contract has been entered into which brings a construction contract to an end. Parties to a construction contract may try to claim that a contract has been frustrated because the circumstances have changed and the contract does not actually equate to a good commercial deal However, when will the doctrine of frustration apply? In short, rarely.
Keating on Construction Contracts (11th ed 2021) states:
“Very rarely after the contract has been lawfully entered into and is in course of operation there may arise some intervening event or change of circumstances of so catastrophic or fundamental a nature as to determine the contract prematurely by the operation of the doctrine of frustration.”
The case of Davis Contractors v Fareham UDC [1956] AC 696, 729 also added:
“Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract… it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.”
For instance, the case of Pioneer Shipping Limited v BTP Tioxide Limited (The Nema) [1982] AC outlined that an event which caused an “imprudent commercial bargain” was not deemed to have been frustrated. Here, a shipping contract was entered into for six voyages within nine months, however, as a result of a strike this was not possible. The key is that it is imperative to understand the facts of a matter before claiming that a contract is frustrated.
Any attempt to convince a tribunal that a contract has been frustrated will not there be without difficulty. So how then does one establish that a construction contract has been frustrated? The case of J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1provided useful guidance:
- The doctrine of frustration aims to achieve a just and equitable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances;
- The application of the doctrine must be kept to very narrow limits;
- The frustration event brings the contract to an end automatically and does not require an operative act from one of the parties to the contract;
- The doctrine will not apply if the frustrating event occurred as a result of the act or election of the contracting party which is seeking to rely on it;
- The party seeking to benefit from the frustrating event cannot be blamed or at fault for the event.
If you are a party to a construction contract, which you or the other party believe to be frustrated, it is key that you obtain advice on this point as soon as possible. Proving that frustration has occurred will not easily be achieved and prior to committing to this position a detailed analysis ought to be undertaken in order to establish whether the above principles have been satisfied.
Trying to prove that a construction contact is frustrated is likely to be frustrating in itself, however, there is guidance available that can assist. For more information on the points raised in this article, please contact the Construction Team at Brabners.
