Agreement Has Not Been Frustrated

The date of conclusion of the contract is also relevant for predictability. Whether or not the effects of Covid-19 were foreseeable depends on when the parties entered into a contract. Parties who entered into a contract after Covid-19 received media attention cannot rely on the doctrine of frustration. However, there are a few principles that you must adhere to. The length of the delay in relation to the overall order should be a relevant factor. For example, if a party to a three-year common office contract has not had access to the premises for two months, it is probably considered insignificant and would not cause frustration. However, if the contract lasted six months and the occupation was banned by the government for five months, it is possible that this thwarted the contract. The test of a frustrated contract was defined by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696. In the current context, we have heard many reasons to say that a contract has been frustrated – or not.

Most of them are. This is untenable. Companies have competing interests: often, the conclusion that a given contract has been frustrated (or not) can be determined almost entirely by what a judge or arbitrator considers to be the commercial significance of the event they are relying on as frustrating for the contract. The Australian courts have held that the relevant issue in determining whether a contract has been frustrated is whether the situation resulting from the event is “fundamentally different” from that provided for in the treaty. [1] The event must have serious consequences and there must be a “radical” change that deems it impossible to perform the contract. An event is not a frustrating event if it makes the contract more expensive, impractical or painful, or when another performance method is available. It is essential that the event be unforeseen for the treaty to be frustrated. This means that, when a treaty contains a force majeure clause (which we explain in more detail in a previous article) that deals with the circumstances that lead to the frustrating event, it is likely that the use of the frustration doctrine will be excluded. This is because the inclusion of a force majeure clause can show that the parties have already addressed the frustrating issue and thought about how to take on the risk of a frustrating event. When a law is passed after the conclusion of the contract, making the fundamental principle of concluding the contract illegal, the contract is perceived as frustrated.

[20] There are several situations in which this can happen. Events such as war can make certain commercial or commercial activities illegal, as was the case in Denny, Mott & Dickinson v. James Fraser[21] and Ertel Bieber and Co v. Rio Tinto Co Ltd [1918] AC 260. . .