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CQUniversity Division of Higher Education School of Business and Law

LAWS11062 Contract Law B Topic 8 Frustration Term 2, 2014 Anthony Marinac

© CQUniversity 2014

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Table of Contents

1.0 Introduction ...................................................................................... 3

1.1 Objectives ....................................................................................... 4

1.2 Prescribed Readings ...................................................................... 4

1.3 Key Terms ...................................................................................... 5

2.0 Frustration ........................................................................................ 5

2.1 Conditions for a frustrating event ................................................. 5

2.2 Classes of frustration .................................................................... 7

2.3 Review questions ........................................................................ 13

3.0 Circumstances which are not Frustration ....................................... 15

3.1 Inconvenience ............................................................................. 15

3.2 Contractual provisions ................................................................ 17

3.3 Delay and interruption ................................................................ 17

3.4 Self-induced frustration .............................................................. 19

3.5 Review questions ......................................................................... 21

4.0 Effects of Frustration ...................................................................... 22

4.1 Common law doctrine ................................................................. 23

4.2 Statutory provisions .................................................................... 25

4.3 Review questions ........................................................................ 26

5.0 Review ............................................................................................. 27

6.0 Tutorial Problems .......................................................................... 28

7.0 Debrief ............................................................................................. 29

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Topic 8 Frustration

1.0 Introduction

No doubt by now many of you have come to realize that

frustration is very nearly the normal condition of a student of

contract law!

This week we look at the termination of contracts by

frustration. How does a contract become frustrated? What are

the implications when this happens? Who should bear any

losses caused by the frustrating event?

In short, a frustrating event is an unforeseen event outside the

control of the parties which fundamentally changes the

environment in which the contract was supposed to operate. A

frustrating event might have the effect of making it impossible

to carry out obligations under the contract; or the frustrating

event might allow those obligations to continue, but devoid

them of any real meaning or benefit.

In these circumstances, there is no moral opprobrium attached

to the party which fails to deliver upon their contractual

obligations. They are not simply failing to perform their

obligations; rather, they have been caught up in the

circumstances of frustration and their performance or non-

performance no longer has any sensible meaning. In these

circumstances, the overall purpose of the law will be to do the

best possible justice for both parties.

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1.1 Objectives

After studying Topic 8 you should be able to demonstrate:

An understanding of the specific meaning of frustration

within contract law, and the reasons why frustrating can

terminate a contract;

An understanding of the different categories of frustration;

The ability to differentiate between true frustration and

circumstances which appear similar to frustration, but

which do not have the same legal effect; and

The remedies and outcomes which may be applied by

courts to deal with frustrated contracts.

1.2 Prescribed Readings

Lindy Willmott, Sharon Christensen, Des Butler and Bill

Dixon, Contract Law (Australia Oxford University Press,

4th ed, 2013) ch. 22.

Bank Line Ltd v Arthur Capel & Co [1919] AC 435

Baltic Shipping Co v Dillon (1993) 176 CLR 344

Codelfa Constructions v State Rail Authority of NSW

(1982) 149 CLR 337

Cooper & Sons v Nielsen & Maxwell [1919] VLR 66

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe

Barbour [1943] AC 32

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Joseph Constantine Steamship Line Ltd v Imperial

Smelting Corp Ltd [1942] AC 154

Krell v Henry [1903] 2 KB 740

Morgan v Manser [1948] 1 KB 184

Taylor v Caldwell (1863) 122 ER 309

1.3 Key Terms

Frustration: Circumstances beyond the control of either

party, which make it impossible to perform contractual

obligations, or which render the obligations radically different

from those envisaged when the contract was made.

In futuro: From that point forward.

Restitution: An equitable remedy, usually involving the

payment of money, which seeks to restore parties to the

position they would have been in but for the frustrating event.

Supervening illegality: Describes the situation where

conduct is not unlawful at the time the contract is made, but

becomes unlawful after the contract is made, and therefore

makes the completion of the contract unlawful.

Total failure of consideration: Describes the circumstance

in which one party is completely unable to deliver on any part

of their obligations under the contract.

2.0 Frustration

2.1 Conditions for a frustrating event

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The first, and perhaps most difficult concept to get one’s head

around, is the question of what sort of event is actually

considered to frustrate a contract. The usual test for frustration

was stated for Australia in the case Codelfa Constructions v

State Rail Authority of NSW (1982) 149 CLR 337, although this

case essentially quoted from earlier caselaw in the United

Kingdom. In Codelfa, Codelfa had contracted with the New

South Wales State Rail Authority to undertake excavation work

and to complete the work by certain date. Both parties

understood that completing the work by that date would

require Codelfa to have its workers on site for three shifts per

day, six days per week. In other words, work would have to

proceed around the clock.

Once work was underway, an injunction was issued preventing

Codelfa from continuing to work around the clock. In the

course of their negotiations, both parties had obtained legal

advice that such an injunction could not be obtained. As a

result, an external event occurred which would prevent Codelfa

from completing its obligations under the contract, through no

fault of its own. The test applied by the court was as follows:

Frustration occurs whenever the law recognizes that without

the fault 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.

In the case of Codelfa, a due date which was perfectly

reasonable in circumstances where the company could work 24

hours a day was incapable of being performed once the work

day was reduced to 16 hours a day.

Let’s unpack this definition of frustration.

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First, we note that the frustrating event must occur without the

fault of either party. We will return to this point further below,

so at this stage let’s just take it as a general rule that the

frustrating event must not be caused by either of the parties.

Second, we note that the contractual obligation must be

incapable of being performed. This is conceptually similar to

the concept of force majeure, which we came across in

Contracts A. The interesting thing is, though, that the test

relates to the effect of the frustrating incident. The law does not

automatically regard certain types of event as being frustrating;

rather, the law looks to the effect. Did the event – whatever it

might have been - have the effect of making the contractual

obligation incapable of being performed?

Third, and finally, we come to the reason why the obligation

must be incapable of being performed: it must be incapable of

being performed because the circumstances have changed, and

the effect of this change of circumstances would make the

obligation a thing radically different from that which had been

contemplated when the contract was originally made.

All of this will make some more sense if we look at a few

examples.

2.2 Classes of frustration

Initially, I was somewhat concerned about how to describe this

sub-topic. After all, I have just said that we identify frustration

from its effects. It is not possible to look at a specific event and

just assume, from the nature of the event, that it will frustrate

any related contract.

Having said that, it is definitely the case that there are some

categories of event which have commonly occurred in

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frustration cases. Learning about these makes the concept of

frustration more clear – however please, please do not fall into

the trap of believing that these events are automatically

frustrating, or that an event has to fall into one of these

categories to count as frustrating. It’s just not like that.

2.2.1 Destruction of the subject matter of the contract

This is possibly the easiest form of frustration to understand.

In Taylor v Caldwell (1863) 122 ER 309, Caldwell owned a

music hall, which was leased to Taylor for a series of days.

Taylor proposed to hold concerts and fetes in the music hall

during those days. However after the formation of the contract,

but before the day came for the concerts to begin, the music hall

burnt down. The fire was accidental, and was in no way the

responsibility of Caldwell (or indeed of Taylor). The fire, of

course, made it impossible for the music hall to be let, and

certainly impossible for any concerts to be held. Taylor sued for

damages, to recover the money which had been spent preparing

for the concerts. However the court found that the contract had

been frustrated – the music hall simply no longer existed.

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2.2.2 Death or incapacitation of a party

In Morgan v Manser [1948] 1 KB 184, Manser was a “variety

artiste” and Morgan was his agent. They signed a fairly typical

management contract, under which Morgan was to use his best

efforts to secure work for Manser, and Manser in turn was to

make himself available for such work, and pay Morgan a share

of the proceeds. Unfortunately, Manser was soon called up, or

conscripted, for compulsory military service in the UK Army

during the Second World War. As a result, of course, he was

unable to fulfil his contractual obligations to Morgan.

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It wasn’t Manser!

(Picture believed public domain)

When Morgan sued, the court found that the contract had been

terminated by frustration. Manser was not responsible for the

war, nor for the policy of conscription, nor for his own calling-

up. Those events made it effectively impossible for him to meet

his obligations under the contract (impossible, at any rate,

without going absent from his military service). As a result,

neither party should be held to the bargain after the time of

frustration.

Note, however, that in many cases the mere death of a party

may not be enough to frustrate the contract, particularly if the

contract obliges the deceased person to pay money. Those

debts may simply fall upon the deceased person’s estate.

2.2.3 Failure of the basis of the contract

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Here we come to the famous “coronation cases”. If the whole

purpose of the contract rests upon some event or underlying

premise, and that premise fails through no fault of either party,

then that may frustrate the contract. The classic case is Krell v

Henry [1903] 2 KB 740.

In this case, Henry hired a flat from Krell, because Krell’s flat

had a balcony from which Henry would be able to clearly see

the coronation parade of King Edward VII. Both parties well

and truly knew that the only reason for the contract was to view

the coronation.

However, King Edward became ill on the day of the coronation,

and the coronation parade was cancelled. Krell tried to insist

upon Henry paying the hiring fee anyway: after all, Krell was

still prepared to provide the flat and balcony, just as the

contract required.

The court, however, found that the whole contract had been

based upon the existence of the coronation parade, which had

not occurred. Under those circumstances, the basis for the

contract no longer existed, so the contract had been frustrated.

www.nam.ac.uk

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Scene from the coronation procession of Edward VII

2.2.4 Delay

Delay is an interesting example, because whether or not an

event which causes a delay to delivery will frustrate the contract

depends very much upon the facts in the actual dispute. The

mere imposition of an external event causing a delay will not

necessarily frustrate the contract. The question will remain

whether the delay makes the obligation a thing radically

different from that which had originally been contemplated.

We will consider the question delay in more detail below, when

we consider circumstances which are not frustration.

2.2.5 Impossibility

Sometimes is may be that due to events which occur after

contract formation, and which are the fault of neither party, it

may be impossible to complete a contract in the manner which

is prescribed in the contract itself.

For instance, let us imagine a situation in which a contract for

the carriage of goods between Brisbane and Sydney stipulated

that the goods must be carried via the Pacific Highway, and

must arrive before a certain date. Now let us imagine that

during this time, the Pacific Highway was closed to traffic due

to a natural disaster such as a flood. It might still be possible to

get the goods to Sydney on time, but it would be necessary to

use another route, for instance, the New England Highway.

The parties could, of course, simply amend their contract to

allow the goods to travel by the New England Highway.

However if one party refused to amend the contract, the

contract would become frustrated – the circumstances would

make it impossible to complete.

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2.2.6 Illegality

A final form of frustration, very similar to impossibility, it that

arising from what is known as supervening illegality. This is a

situation where conduct is not illegal at the time of the

contract’s formation, but becomes illegal after the contract’s

formation.

For instance, let us imagine that we operated an import/export

business in 1997, shortly after the disastrous Port Arthur

massacre. At this time, we ordered a quantity of semi-

automatic rifles from an overseas supplier, for on-sale to a

chain of commercial gun shops. Very quickly after Port Arthur,

however, the laws in Australia regarding gun ownership were

changed; so let us imagine that before the rifles were imported

into Australia, the law changed to make the sale of semi-

automatic rifles unlawful, except for military or police use.

Can you see how this would frustrate the contract? Through

neither party’s fault, a contract which had been perfectly legal

at the time of signing became illegal before the contract was

completed. In this situation, the contract would be frustrated.

Having considered these examples, does the doctrine now make

more sense? All of these examples would meet the test set out

in Codelfa. They all arise without the fault of either party; they

prevent the contract from being completed; and they do so by

radically changing what would be meant by performance of the

contract.

2.3 Review questions

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Question 1

Which of the following is not one of the elements of frustration?

a) The event must make contractual obligations capable of

being performed;

b) The event must be frustrating in the opinion of a

reasonable person in the circumstances of the parties;

c) The event must occur without the fault of either party;

d) The event must make the obligation radically different

from what had been initially contemplated by the parties.

Answer: (b)

Question 2

Which of the following would not constitute frustration?

a) The death of a party before they had completed the

payment of their mortgage;

b) The death of a motivational speaker who had a contract to

speak at a public engagement;

c) The imprisonment of a party due to a criminal offence not

related to the contract;

d) The internment of a party after Australia declares war on

that party’s nation of origin.

Answer: (a)

Question 3

What is the difference between a contract which is vitiated by

illegality and a contract which is frustrated by supervening

illegality?

a) There is no effective difference because both contracts are

void;

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b) The parties are aware of illegality in the case of vitiation,

but they are not aware of the illegality in the case of

frustration;

c) An illegal contract contains provisions setting out

responsibility for the unlawful conduct, while a frustrated

contract does not;

d) The unlawful conduct is unlawful at the time of formation

for a vitiated contract, but it is lawful at the time of

formation for a frustrated contract.

Answer: (d)

3.0 Circumstances which are not

Frustration

As you can imagine, if you are the party who is relieved of their

contractual liabilities by frustration, then a finding of

frustration is very desirable. As a result, parties have often

argued before the courts that contracts were frustrated, where

in fact they failed to meet the test set out in Codelfa. Again, it is

possible to categorise some of these common circumstances

which are claimed to be, and yet which are not, frustration.

3.1 Inconvenience

Let’s start with a situation where completion of the contract is

not made radically different, but rather far less convenient.

Convenient, here, is used as a fairly broad term. It may mean

that completion of the contract is less profitable; it may mean

that completion of the contract will be more time-consuming or

will involve a delay; it may simply mean that another, less

convenient method will need to be employed. In any event, the

doctrine of frustration will not come to the rescue in such a

case.

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A great example here is Cooper & Sons v Nielsen & Maxwell

[1919] VLR 66. In this case, there was a contract for the

delivery of steel bars to the dockside in Melbourne, by a British

company. The British company intended to source the steel

bars from a foundry in Germany. As you can probably guess

from the date of the case, the British company found that they

were no longer able to source the bars from Germany, because

the First World War commenced, and trade with Germany was

forbidden.

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At first glance, this looks like it ought to be frustration, doesn’t

it? After all, the trade with Germany had been lawful when the

contract was signed, but then subsequently became unlawful

due to the war. However, the contract did not stipulate that the

steel must come from Germany. This was certainly understood

to be the expectation, but it was not absolutely necessary. So,

the supplier could have met their contractual obligation by

sourcing the steel from somewhere else – the United States, for

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instance. The contract was not frustrated: it was just a lot more

inconvenient.

3.2 Contractual provisions

Naturally, sometimes contractual risks are foreseeable. Many

events which might be frustrating might also constitute force

majeure events, such as acts of war or severe natural disasters.

Often, contracts will include a force majeure provision in which

the parties will agree what should happen in the event of some

such event.

In other cases, specific provisions might be put in place to

manage known risks. Perhaps the most obvious example of this

is that when a customer makes a contract with a hire car

company, the contract usually includes provisions for insurance

of the vehicle, including insurance against conduct which is not

the fault of the customer (such as the vehicle being stolen, or

being damaged in a collision caused by a third party). Such

provisions establish the rights and liabilities of each party in

these specific circumstances.

Where the parties to a contract appear to have made provision

for an event, those contractual provisions will be given effect,

even if the event would otherwise frustrate the contract. In

other words, the doctrine of frustration will only come to the

rescue of a contract if the contract itself is insufficient to resolve

the obligations of the parties.

3.3 Delay and interruption

OK, let’s return to this question of delay. The mere intervention

of some delaying circumstance will not be enough, on its own,

to frustrate the contract. If that were the case, then the doctrine

of frustration would find constant employment … even a minor

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delaying event might be held to be frustrating, and this would

likely have extremely unjust effects. For a delay to frustrate a

contract, the delay must meet the tests set out in Codelfa. Any

delay short of that may well constitute a breach of the contract

– thus requiring damages. It may even give a party the right to

rescind the contract. But it will not call into account the

doctrine of frustration. Let’s consider an example, called Bank

Line Ltd v Arthur Capel & Co [1919] AC 435. See that date

again? The First World War was an absolute boon, it seems, for

the doctrine of frustration.

In this case, Bank Line agreed to lease a brand new steamer

(boat) for Arthur Capel, for a period of twelve months.

However before the boat was delivered, it was requisitioned by

the government, for the duration of the war. At that point, it

would seem fairly clear that the contract had been frustrated.

However a few months later, Bank Line received an offer from a

third party, which wished to purchase the steamer outright, if it

could be released from the government’s service. Bank Line

then made an arrangement with the government, which agreed

to release the steamer if a replacement could be provided. This

went ahead, and the steamer was sold.

Of course, Capel was unimpressed, because the steamer had not

been detained for the duration of the war; in fact, it had been

detained for just a mere few months. They sued, and Bank Line

responded that the contract had been previously ended by

frustration.

The court found that the contract had indeed been ended by

frustration, because at the time of the frustrating event, it had

not been possible to predict how long the steamer would be

unavailable; all that was known for sure was that the delay was

likely to be extensive, as it was to last for the entire duration of

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the war – more than likely, the delay would have been longer

even than the period of the lease. Had the likely delay been

less, then the event would not have been frustrating. Of course,

from the moment the contract was frustrated, the contractual

obligations were at an end. This did not change merely because

different circumstances prevailed a few months later.

To summarise: if the delay will have the effect of radically

altering the nature of the contract, the delay is likely to frustrate

the contract. If, on the other hand, the delay merely generates a

shorter-term inconvenience, then the delay will not frustrate

the contract. The court will be required to find, as a finding of

fact, which of these is the case in any specific dispute.

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3.4 Self-induced frustration

The Codelfa test for frustration states that the frustrating event

must not be due to the default of either party. This makes a

great deal of sense. After all, if a party could absolve

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themselves of their contractual liabilities by causing the

contract to be frustrated, there would be no end of frustrating

events!

As a result, a self-induced frustrating event will not be sufficient

to frustrate a contract. This, of course, leads to the obvious

question of what constitutes self-induced frustration. In

particular, is it required that the act should be deliberately

undertaken in order to cause the contract to be frustrated? Or

would it be enough that one party could have prevented the

frustrating event, but failed to do so? What about an accident

which occurs due to negligence or want of care?

These questions were considered in Joseph Constantine

Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC

154. In this case, just prior to the time the contract was to

commence, an explosion in the ship’s boiler room rendered the

ship unsuitable to carry out the contract. On its face, this seems

pretty clearly to be a frustrating event. However the Smelting

Corporation argued that the Steamship Line had been “in

default” when the explosion occurred; in other words, they

argued that the frustrating event was caused by the steamship’s

failure to prevent an explosion in the boiler room. If their

argument was successful, then the contract would not have

been frustrated; rather, the Steamship Line would have

breached the contract.

The court found that on the facts in this particular case, the

steamship line could not be held to have induced the frustrating

event. Viscount Simon LC put it this way:

Suppose that a vessel, while on the high seas, disappears

completely during a storm. Can it be that the defence of frustration

of the adventure depends upon the owner's ability to prove that all

his servants on board were navigating the ship with adequate skill

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and that there was no "default" which brought about the

catastrophe? Suppose that a vessel in convoy is torpedoed by the

enemy and sinks immediately with all hands. Does the application

of the doctrine require that the owners should affirmatively prove

that those on board were keeping a good look-out, were obscuring

lights, were steering as directed, and so forth? There is no reported

case which requires us so to hold. The doctrine upon which the

defence of frustration depends is nowhere so stated as to place this

onus of proof on the party relying on it.

As a result, it seems clear that “default” implies genuine

responsibility, in a moral and practical sense rather than merely

in a technical sense.

3.5 Review questions

Question 4

If a contract is frustrated by delay, from what point is the

contract regarded as having been frustrated?

a) From the time at which the contract was made;

b) From the commencement of the period of delay;

c) From the conclusion of the period of delay;

d) From the point at which the delay is sufficiently long that

it radically alters the nature of the parties’ obligations.

Answer: (b)

Question 5

What is meant by a “self-induced” frustrating event?

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a) An event which a party has deliberately undertaken in

order to frustrate the contract;

b) An event in which a party’s serious neglect or lack of care

has resulted in the frustrating event;

c) An event which the party might have foreseen and

prevented, but did not;

d) An event which the parties had both foreseen as an

unlikely possibility.

Answer: (a) & (b)

Question 6

What is the relationship between frustration and

inconvenience?

a) Mere inconvenience is not sufficient to result in

frustration;

b) Substantial inconvenience not caused by the fault of either

party may result in frustration;

c) An objective test is applied to determine whether

inconvenience reaches a sufficient threshold to result in

frustration;

d) The parties must agree before inconvenience can be

regarded as frustration.

Answer: (a)

4.0 Effects of Frustration

So, what happens to the contract once a frustrating event has

taken place? We know, from the general topic of this lecture,

that frustration is one of those events which is taken to

discharge a contract. However, this doesn’t get us very far. In

a frustrated contract, the parties are not going to be satisfied;

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their contract has not resulted in success. Who should bear the

losses when a contract is frustrated?

4.1 Common law doctrine

To answer this question under the common law (which is the

relevant law for Queensland), we must first ask whether there

has been a total failure of consideration. In other words, has

one party been completely unable to deliver on any part of their

obligations under the contract?

For instance, let us say that I have paid $1000 for an item of

jewellery, and the seller quite simply never supplies the

jewellery. In that case there has been a total failure of

consideration.

On the other hand, let us say that I have paid $1000 for four

watches. The seller supplied two watches immediately, but was

then unable to supply the other two. In that case there has been

a partial failure of consideration.

Once we have worked out, in any particular case, whether the

failure of consideration has been partial or total, we can

determine which of the common law rules applies.

4.1.1 Total failure of consideration: restitution

Where there has been a total failure of consideration, then any

party which has paid an amount of money in return for that

consideration will be able to obtain the return of that money.

This is an action in restitution, essentially intended to prevent

the other party from being unjustly enriched as a result of the

frustrating event.

An example of this is Fibrosa Spolka Akcyjna v Fairbairn

Lawson Combe Barbour [1943] AC 32. Please don’t ask me to

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pronounce that! In this case, there was a contract for the

supply of machinery to the Fibrosa company which was in

Poland. The company paid £1000 as a deposit, but then Poland

was invaded by Nazi Germany, and the contract was frustrated.

No equipment was ever delivered, so the court held (and it

seems quite clear) that there was a total failure of

consideration. In this event, Fibrosa obtained a refund of their

£1000.

4.1.2 Partial failure of consideration

Where there has only been a partial failure of consideration,

quite a different doctrine applies. The law holds that the

contract has been made void in futuro. In other words, the

contract becomes void from the moment of the frustrating

event. The result is that the losses and gains are said to lie

where they fall. Thus, if one party has paid the entire amount

they were required to pay under the contract, but the other

party has only completed a small amount of their obligation at

the time the contract is frustrated, the second party will have a

substantial windfall gain: they will be released from the rest of

their obligations by the frustrating event.

A good example of this is a case called Baltic Shipping Co v

Dillon (1993) 176 CLR 344, which we shall meet again in

coming weeks. In this case, Mrs Dillon departed on a 14 day

cruise, but the cruise ship sank on the tenth day. This

particular case was ultimately resolved on the question of

breach, as it was not held to have been a frustrated contract.

However let us imagine, for a moment, that it had been held to

have been frustrated by the ship’s sinking. In this

circumstance, Mrs Dillon would have been entitled to …

nothing. Not a penny. Not a sausage. The reason for this

would have been that there was not a total failure of

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consideration. After all, the cruise line had provided ten of the

fourteen days’ cruise they had been contracted to provide.

If you are reeling just now at the potential injustice of this

outcome, then you are certainly not alone. It is well understood

that the doctrine of frustration has the potential to cause

substantial injustice. However the alternative is just as

difficult. Since the frustrating even was not (by definition)

caused by the default of either party, then how would the court

go about apportioning the costs and benefits of the frustrating

event? Coming up with a sensible rule would be, at the very

least, extremely difficult.

4.2 Statutory provisions

Three Australian jurisdictions – New South Wales, Victoria,

and South Australia – have attempted to grapple with the

potential injustice of the doctrine of frustration, by

implementing legislation which deals with frustrated contracts

(although not all – certain classes of contract are excluded from

the operation of the Acts).

In each Act, the underlying principle is that each party should

receive a just share of the costs and the benefits of the

frustrated contract. So, if a party has paid money but has not

received fair value in terms of goods or services, they should be

refunded their money, less whatever costs have been reasonably

incurred by the other party. In other words, neither side ought

to have a windfall gain or loss.

Sounds hunky-dory, right?

Once you begin to look at the detail of each legislative scheme,

the schemes begin to break down a little. The schemes rely on

terribly complicated formulas to try to apportion costs and

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benefits; and then on top of these complicated processes of

valuation, the statutes provide the court with a general

discretion to amend the outcome of the statutory process, if (in

the opinion of the court) the statutory process would produce

an unjust outcome. In other words there is a system, but it

operates essentially at the discretion of the judicial officer

hearing the case.

While these legislative schemes represent a commendable effort

to improve on the (patently unfair) common law rule, it can be

questioned whether they are successful, or indeed whether they

provide any real guidance at all. It is little surprise that other

jurisdictions have not followed suit.

4.3 Review questions

Question 7

Which of the following jurisdictions have statutory provisions

to manage the frustration of contracts?

a) New South Wales

b) South Australia

c) Victoria

d) Queensland

Answer: (a), (b) & (c)

Question 8

If a contract is frustrated and there is only a partial failure of

consideration, what is the outcome?

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a) The contract is voidable at the election of the party which

did not cause the frustrating event;

b) The contract is void ab initio, and both parties will be

returned to the position they were in at the start of the

contract;

c) The contract is void in futuro, and the losses will lie where

they fall;

d) The contract is void in futuro, and the parties will be

restored to the position they were in at the start of the

contract.

Answer: (c)

5.0 Review

The world is a strange and uncontrollable place. More often

than we would like to admit, we’re not in full control of our

environment: whether this be the natural environment, our

social environment, our legal environment, or our commercial

environment. The result of this is that from time to time it will

be impossible to fulfil contractual provisions: not because

either party has done anything wrong, but because the

circumstances have changed to the point where, try as they

might, the parties will not be able to deliver up on their

promises. In these circumstances, it would hardly be fair to

punish either party. After all, neither party has deliberately

refused or failed to deliver upon their obligations.

The doctrine of frustration comes to the rescue. Where there is

a frustrating event: that is, an event which neither party has

caused, which makes it impossible to complete contractual

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obligations or makes those obligations radically different from

what they were first considered to be, the law asks one key

question: has there been a total failure of consideration?

If there has been a total failure of consideration, the law will

apply the doctrine of restitution to restore both parties to their

initial positions as best this can be done. If, however, there is

only a partial failure of consideration the contract is void from

the time of the frustrating event and the losses, sadly, must fall

where they lie.

The challenge of frustration comes in the task of recognizing a

frustrating event. As we have seen, there are a range of events

which may appear to be frustrating at first glance, but which the

law holds not to be frustrating. The key to understanding

frustration is becoming able to differentiate between these

situations.

6.0 Tutorial Problems

Problem 8

Cecile and the Torch Relay

Please watch the short animated video at the following link, and

then consider the questions below.

https://www.youtube.com/watch?v=hRXZLz4ixGo

Was the ability to observe the torch relay a part of the contract?

Assume it was disclosed to the reservations clerk, but never

reduced to writing.

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Are the “terms and conditions” relied on by the hotel, part of

the contract? How might you expect them to have been

incorporated?

Was the change of the torch relay route a frustrating event?

If yes, was the failure of consideration total or partial?

Based on the answer above, what will be the outcome?

[45 Minutes]

7.0 Debrief

After completing this topic you should recognize:

That a contract is frustrated when, through no fault of the

parties, the contractual obligations cannot be completed or

they take on a radically different character from that which

was anticipated when the parties form the contract;

That the classes of frustration are not closed, but some

common ones include:

o Where the subject matter of the contract is destroyed;

o Where one of the parties dies or becomes

incapacitated and this death or incapacitation

prevents the completion of contractual obligations by

the person, and by their estate or agents;

o Where some underpinning basis of the contract fails

to materialize;

o Where there is a delay so significant that the

obligations under the contract becomes impossible;

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o Where the completion of the contractual obligations

is made quite literally impossible as a matter of

practice; and

o Where the contractual obligations are lawful at the

time of contract formation but become unlawful as a

result of changes to the law, so that completion of the

contract would involve the commission of an offence.

That there are a range of circumstances which may at first

glance appear to be frustrating, but which do not meet the

definition described above:

o Where circumstances make completion of the

contractual obligations unprofitable or inconvenient

but not actually impossible;

o Where the provisions of the contract have anticipated

and provided for the frustrating event;

o Where there is a delay which does not have the effect

of radically changing the nature of the contractual

obligations; and

o Where one of the parties is the cause of the

frustrating event.

That if a contract is frustrated and there is a total failure of

consideration, the courts will apply the doctrine of

restitution to restore the parties to their positions but for

the frustrating event;

That if a contract is frustrated and there is only a partial

failure of consideration, the contract will be void in futuro

and the losses will fall where they lie; and

Several Australian jurisdictions have now implemented

statutory schemes to manage frustrated contracts but it is

doubtful whether the statutory schemes have really

clarified the law at all.