Davis Contractors Ltd v Fareham Urban District

Council

Frustration
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Acontractwillbe'frustrated'whenanevent(unprovidedforinthecontract)rendersthecontract
practicallyincapableofbeingperformed,notbyfaultofeitheroftheparties.Thetestforfrustrationis:

Ifaneventoccurs,byfaultofneitherpartyandunprovidedforinthecontract,which
completelychangesthestateofthings,makingtheperformanceofthecontract
impossibleorimpracticablebecausethesituationorperformancearenowradically
orfundamentallydifferenttowaswhatoriginallycontemplated,acontractwillbe
frustrated.[1]

However,frustrationwillnotberecognisedwhen:
1.

Theeventwasprovidedforinthecontract.[2]

2.

Theeventshouldhavebeenreasonablyforeseeable.[3]

3.

Theeventoccurredbyfaultofthepartyseekingfrustration.[4]

Ifacontractisdeterminedtobe'frustrated',itmeansthatthecontractimmediatelyendedasthe
frustratingeventoccurred:

Thismeansthatallrightsandliabilitieswhichhaveaccruedunconditionallypriorto
thetimeofthefrustratingeventremaininplace,whilethepartieswillbedischarged
fromfutureobligations.casereferenceneeded.

T
Frustrationoccurswhenaneventrendersthecontractpracticallyincapableofbeingperformed,notby
faultofeitheroftheparties.

Forexample,AhiresahalloffBforamusicalperformance.Thedaybeforethe
musicalperformance,thehallburnsdownsbyarandomfire.

Itisnowimpossibletoperformthecontract,butneitherpartyisatfault.

Thecontractisfrustrated.TheeffectoffrustrationistoexcuseAfromperformance
hedoesnothavetopayBforthehall.

Thedevelopmentoffrustration
Frustrationhasalwaysbeenappliednarrowlybythecourts,onlyinexceptionalcircumstances.Over
theyears,thecourtshaveexpandedthedoctrinetocovermorescenarios.

Impossibilityofperformance
Originally,frustrationcouldonlyoccurwhentheperformancewasrenderedabsolutelyimpossible.

Forexample,AandBenterintoacontractforAtopaintB'shouse.

Adiesbeforeperformance.

ItisnowabsolutelyimpossibleforAtoperformthecontract.Thecontractis
frustrated.

Anabsoluteimpossibilitythusrisesfromthedestructionofthesubjectmatterofthecontract.This
wasdiscussedinTaylorvCaldwell.

Note:Inearlycasessuchasthis,therewasnoreferencetofrustration.Theapproach
bythecourtswastodecidethatthecontractwassubjecttoanimpliedtermthatthe
subjectmatterwouldcontinuetoexist.

Thereisadistinctionbetweenapositive,definitecontracttoonewherethereisan
impliedorexpressconditionunderlyingthecontract.

"Theprincipleseemstoustobethat,incontractsinwhichtheperformancedepends
onthecontinuedexistenceofagivenpersonorthing,aconditionisimpliedthatthe
impossibilityofperformancearisingfromtheperishingofthepersonorthingshall
excusetheperformance[5]."

Forexample,anemploymentcontracthasanimpliedconditionthatthepersontobe
employedwillbealive...hedoesnot'breach'thecontractifhedies.

TaylorvCaldwellisanexampleoftheearlyapproachofthecourt.Thepartiescouldonlybeexcused
fromperformanceifthesubjectmatterwasdestroyedandperformancewasrenderedabsolutely
impossible.

Foundationofthecontractceasestoexist
However,thisstrictviewwasrelaxedinKrellvHenry,wherethecourtdiscussedhowcontractmaybe
frustratediftheassumptionorfoundationunderwhichthecontractwasenteredintoceasestoexist:

Ithinkthatyoufirsthavetoascertain,notnecessarilyfromthetermsofthecontract,
but,ifrequired,fromnecessaryinferences,drawnfromsurroundingcircumstances
recgonisedbybothcontractingparties,whatisthesubstanceofthecontract,andthen
askthequestionwhetherthatsubstantialcontractneedsforitsfoundationthe
assumptionoftheexistenceofaparticularstateofthings[6]."

"Ifthecontractbecomesimpossibleofperformancebyreasonofthenonexistenceof
thestateofthingsassumedbybothcontractingpartiesasthefoundationofthe
contract,therewillbenobreachofthecontractthuslimited[7]."

Effectively,thismeansthatabsoluteimpossibilityofperformanceisnotarequirementanymore.Ifthe
unforeseeneventsbroughtaboutanewsituationwherethepurposetowhichthecontractwasentered
intoceasedtoexist,acontractwillbefrustrated.Thiscanalsobeseenasperformancebeingrendered
impractical.

ThiswasalsodiscussedinBrisbaneCityCouncilvGroupProjectPtyLtd,inwhichthecommercial
purposebehindthedefendant'sagreementceasedtoexist:

Acomparisonneedstobemadebetweenthecontemplatedsituation,asrevealedby
construction,andthesituationinfactresultingfromthefrustratingevent.

Inthiscase,"Therehasarisen,asaresultofthecompulsoryacquisitionoftheland
bytheCrownforaschoolsite,suchafundamentallydifferentsituationfromthat
contemplatedwhenthecontractwasenteredintothatitisproperlytoberegardedas
havingcometoanendatthedateofacquisitionbytheCrown[8]."

Thus,ifafrustratingeventcompletelychangesthesituationwhichwasoriginally
contemplatedbytheparties,acontractmaybefrustrated.

Modernapproach
ThedoctrinewasexpandedfurtherinCodelfaConstructionvStateRailAuthorityofNewSouthWales,
whichisnowthemodernapproach:

Ifaneventoccurs,byfaultofneitherpartyandunprovidedforinthecontract,which
completelychangesthestateofthings,makingtheperformanceofthecontract
impossibleorimpracticablebecausethesituationorperformancearenowradically
orfundamentallydifferenttowaswhatoriginallycontemplated,acontractwillbe
frustrated.

The'impliedterm'wayshouldnotbeusedanymore,althoughpreviousdecisionsare
stillvalid.

LimitationsofFrustration
[9]

Frustrationwillnotberecognisedwhen:
1.

Theeventwasprovidedforinthecontract.[10]

2.

Theeventshouldhavebeenreasonablyforeseeable.[11]

3.

Theeventoccurredbyfaultofthepartyseekingfrustration.[12]

Theconsequencesoffrustration
Commonlaw
[13]

Frustrationmeansthatthecontractimmediateendedasthefrustratingeventoccurred.Thismeans
that"allrightsandliabilitieswhichhaveaccruedunconditionallypriortothetimeofthefrustrating
eventremaininplace,whilethepartieswillbedischargedfromfutureobligations [14]".

Statutelaw
LegislationhasbeenenactedinNSW[15],SA[16]andVIC[17]whichvariestheconsequencesof
frustration.

References
CasebookreferstoPaterson,Robertson&Duke,Contract:CasesandMaterials(LawbookCo,11th
ed,2009).
TextbookreferstoPaterson,Robertson&Duke,PrinciplesofContractLaw(LawbookCo,3rded,
2009).
ACLreferstotheAustralianConsumerLaw.
1.

DavisContractorsLtdvFarehamUrbanDistrictCouncil;CodelfaConstructionvState
RailAuthorityofNewSouthWales(1982)149CLR337

2.

CodelfaConstructionvStateRailAuthorityofNewSouthWales

3.

DavisContractorsLtdvFarehamUrbanDistrictCouncil[1956]AC,696,731

4.

BankLineLtdvArthurCapel&Co[1919]AC435,452

5.

(1863)3B&S826,839

6.

[1903]2KB740,749

7.

[1903]2KB740,749

8.

(1979)145CLR143,162

9.

Casebook,p.474[17.55]

10. CodelfaConstructionvStateRailAuthorityofNewSouthWales
11. DavisContractorsLtdvFarehamUrbanDistrictCouncil[1956]AC,696,731
12. BankLineLtdvArthurCapel&Co[1919]AC435,452
13. Casebook,p.474[17.60]
14. Casebook,p.474[17.60]
15. FrustratedContractsAct1978

(NSW),ss515
16. FrustratedContractsAct1988

(SA)
17. FairTradingAct1999

(VIC),ss32ZE32ZO

Davis Contractors v Fareham UDC [1956] AC 696

Davis Contractors agreed to build 78 houses for Fareham Council within 8
months for an agreed price of 85,000. Due to a shortage in skilled labour

and material the contract took 22 months to complete and was much more
expensive than anticipated. Davis Contractors were paid the contractually
agreed price but bought an action arguing for more money based on the fact
that the contract had become frustrated and therefore they were entitled to
further payment based on a quantum meruit basis.
Held:
The contract was not frustrated. The fact that a contract becomes more
difficult to perform or not so profitable is not sufficient to amount to
frustration. It was still possible to perform the contract.

Abadbargain
Acontractwillnotbefoundtobefrustratedwhereonepartystrikesabadbargainorfaceshardship,
inconvenienceormaterialloss.
Certainrisksaredeemedinherenttocontracting.Forexample,delayinaconstructioncontractduetoa
shortageofskilledlabourwasfoundnottohavefrustratedthecontractbecausethedelaydidnotresult
inanewstateofaffairsthatthepartiescouldnothavereasonablyforeseen(seeDavisContractors
LimitedvFarehamUrbanDistrictCouncil[1956]AC969).

DavisContractorsLtdvFarehamUrbanDistrict
Council[1956]AC696;LordRatcliffesdefinitionof
frustratingeventisaclassicalstatementwhichisnot
disputedinthemodernEnglishlaw:
frustrationoccurswheneverthelawrecognizesthatwithoutdefaultofeitherpartyacontractual
obligationhasbecomeincapableofbeingperformedbecausethecircumstancesinwhichperformance
iscalledforwouldrenderitathingradicallydifferentfromthatwhichwasundertakenbythecontract.
Nonhaecinfoederaveni.ItwasnotthisIwaspromisedtodo.
LordReidatp.720:
Itappearstomethatfrustrationdepends,atleastinmostcases,notonaddinganyimpliedterm,buton
thetrueconstructionofthetermswhichareinthecontractreadinlightofthenatureofthecontractand
oftherelevantsurroundingcircumstanceswhenthecontractwasmadeOnthisviewthereisnoneed
toconsiderwhatthepartiesthoughtorhowtheyorreasonablemenintheirshoeswouldhavedealt
withthenewsituationiftheyhadforeseenit.Thequestioniswhetherthecontractwhichtheydidmake
is,onitstrueconstruction,wideenoughtoapplytothenewsituation:ifitisnot,thenitisatanend.