For decades, the legal issue of compliance with contracts has been a subject of discussion in courts. The primary challenge of executing a contract agreement is ensuring that the agreement between the signing parties would take into account the possible external implications and attributes. Breaching the contract due to unforeseen events is generally known as contract frustration. Since the ratification of the law reform on handling frustrated contracts, the process of negotiating damages has changed dramatically.1 However, while both contract parties can now reach a settlement, the legal system does not provide detailed insights into the characteristics of a frustrated contract.
The history of frustrated contracts received the most attention during the cases related to the 1902 coronation of King Edward VII and Queen Alexandra. Thus, for example, in Krell v Henry2, the legal precedent addressed the defendant’s inquiry for rent reimbursement. Initially renting an apartment to witness the coronation, the defendant was unwilling to pay the total price to the tenant after the event was cancelled. However, the judges ruled that without an explicit contract breach on the plaintiff’s side, the latter was eligible to receive the rental price discussed in the agreement3.
A similar ruling was issued in Herne Bay Steamboat Co v Hutton4, as the judges found no contract frustration and ruled a full financial reimbursement for the plaintiff. Before the coronation incident, another claim was rejected in the case of Taylor v Caldwell5, where the defendant was not financially reimbursed after the rented concert hall burned to the ground. Since then, the Law Revision Committee decided to reconsider the existing legislation and provide parties with partial or full reimbursement in case of unforeseen events.
In 1943, the Law Reform on Frustrated Contracts came into effect, clarifying the sides’ rights in the event of frustration6. According to the Act, the court has the prerogative to modify the initial terms of the agreement once frustration is identified. However, if the performance of the contract fails due to other events, frustration laws are inapplicable. For example, in Davis Contractors Ltd v Fareham Urban District Council, Davis Contractors filed for frustration in order for the plaintiff to pay the cost difference for the services provided7. The motion was denied because increased complexity does not comply with an unforeseen event.
The same rule applies to the wording of the contract in question. For example, in Arnold v Britton, the defendant addressed that the lease signed more than two decades ago had then resulted in unprecedently high service charges and could not be viewed as a reliable contract8. The judges ruled that the disturbing and unbeneficial implications of a contract do not qualify for its frustration. Hence, it can be concluded that currently, the law on the frustration of contract implies immediate contract termination and bilateral reimbursement agreements only if the event of frustration has not been caused by any of the parties and has been justified as such by the court.
To conclude, the notion of contract frustration remains relevant given the context of the COVID-19 pandemic and complex legal relationships between the stakeholders. Considering that even the existing issue of impossibility to fulfil the contractual agreements serves no ground for frustration and termination on mutual terms, more legal advice is needed in the future. The ratification of the Law Reform Act does not provide sufficient insights into the potential implications of frustrating events because the law does not encompass the complexity of modern contractual agreements.
Footnotes
- Law Reform (Frustrated Contracts) Act 1943
- Krell v Henry [1903] 2 KB 740
- Ibid.
- Herne Bay Steamboat Co v Hutton [1903] 2 KB 683
- Taylor v Caldwell [1863] EWHC QB J1
- Law Reform (Frustrated Contracts) Act 1943
- Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3
- Arnold v Brittan [2015] UKSC 36