Frustrated Contracts

Many governments now provide specific rules as to exclusion clauses. In England there is the Unfair Contract Terms Act 1977 which includes inter alia that the provisions apply to both contractual relationships and tort. Another important section provides that there can be no exclusion of liability for death or personal injury. It stipulates that all other exclusion must be ‘reasonable’ although ‘reasonableness’ is not precisely defined by the Act. There will be times when the contract becomes impossible to perform, or where one party is prevented from performing his obligations. In such circumstances we say that the contract is ‘frustrated’ and that the obligations and liabilities of the respective parties cease. In other words, where a party is forced to breach a contract because of a ‘frustrating event’ he will not be liable for that breach. The contract is said to be frustrated where it becomes impossible to perform by an outside intervening event which was not possible to foresee when the contract was formed and which was not the fault of either party. Previously, when a contract became frustrated the courts, under common law, would say that the loss would ‘lie where it fell’. Today the position in England is governed by Law Reform (Frustrated Contracts) Act 1943. This Act somewhat mitigates the harshness of the Common Law rule. For example it provides that sums payable before the contract is discharged are now recoverable. Sums yet to be paid in cease to be payable. The court may in its discretion allow a party to recover expenses incurred before the discharge of the contract. Another provision is that where one party obtains a valuable benefit (other than money) as a result of something done by the other party, a sum of money may be directed as payable to that other party in respect of the benefit.