DOCTRINE OF FRUSTRATION

INTRODUCTION.

In English law, “a contract may be discharged on the ground of frustration when something
occurs after the formation of the contract which renders it physically or commercially
impossible to fulfil the contract or transforms the obligation to perform into a radically
different obligation from that undertaken at the moment of the entry into the contract.

Kenya has adopted principles of the doctrine of frustration from English Law as is stipulated
in the Law Reform (Frustrated Contracts) Act of UK of 1943 pursuant to Section 2 of the
Law of Contract Act of Kenya. The court in Kenya Union of Commercial, Food and Allied
Workers v Tusker Mattresses Limited [2020] eKLR10, stated that while Covid-19 was
unforeseeable – before it became an emergent pandemic – the party relying on the doctrine of
frustration needed to show how Covid-19 had made it difficult to adhere to a collective
bargaining agreement and pay employees their full wages as stipulated under their individual
employment contracts, additionally, the party relying on frustration wrongly conflated
frustration with the force majeure mechanism which was actually not a clause included in the
collective bargaining agreement. While force majeure and frustration of contracts are similar
principles, they are not substituting of each other and there are legal principles underlying
each.

TEST FOR FRUSTRATION.

The test for frustration is from Davis Contractors Limited v Fareham Urban District
Council11 where the Doctrine of Frustration was described to occur whenever the law
recognizes that without default of either party a contractual obligation has become incapable
of being performed because the circumstances in which the performance is called for would
render it as a thing radically different from that which was undertaken by the contract, that is,
it was not this that I promised to do. The House of Lords in this case held that a contract
cannot be frustrated just because it becomes more onerous and expensive.

The principles in this Davis’s case was applied in Codelfa Construction Pty Limited v SRA of
New South Wales.12. Codelfa had agreed to build tunnels for the rail authority on the basis of
work being done 24 hours a day, 7 days a week, so as to complete the work on time. Noise
complaints from residents led to an injunction which restricted work hours. The rail authority
refused to pay additional costs, arguing Codelfa had not acted in accordance with the
contract. Codelfa unsuccessfully argued that it was an implied term ofthe contract that the
company be granted an extension of time to finish the work. On appeal, Codelfa was
successful in establishing the contract had in fact been frustrated, with the court holding that
the injunction was a frustrating event that had created a situation radically different to what
the parties had originally contemplated. Key to the court finding was the fact both parties had
relied on incorrect legal advice that there was no chance an injunction would hinder the work.

Examples of Frustration.

Destruction of the Subject matter or unavailability of subject-matter of contract

The most simple case is probably that where the performance of the contract is made
impossible by the destruction of a specific thing essential to that performance15, or the
failure of the factor relied upon to produce the subject matter. So if A agrees with B to
supply and install certain machinery in B’s factory premises, and the premises are
destroyed by fi re, the contract will be frustrated. But if the machinery only is
destroyed, leaving the premises untouched, then it is still possible to obtain other
machinery and A must do the work over again: the contract will not be discharged.
Where an agreement for the sale of specific goods has been made and, before the risk
passes to the buyer, without any fault on the part of the seller or buyer, the goods perish,
the agreement is avoided.

Case: Taylor v. Caldwell (1863)

Taylor v. Caldwell is a landmark English contract law case from 1863 that established the
doctrine of impossibility of performance. Here are the key facts and ruling:

Case Facts:

Parties Involved: Taylor (plaintiff) and Caldwell (defendant).

Contract Agreement: Taylor agreed to rent the Surrey Gardens and Music Hall from Caldwell
for four separate concert events. Taylor planned to host these events with elaborate
performances, including singing, fireworks, and other attractions.

Incident: Before the first scheduled event, the Music Hall was destroyed by fire, an
unforeseen and uncontrollable incident. Taylor then sued Caldwell for breach of contract,
seeking compensation for expenses incurred in preparation for the concerts.

Legal Issue:

The central legal issue was whether Caldwell was liable for breach of contract, given that the
venue’s destruction made it impossible to fulfil the agreement.

Court Ruling:

The court ruled in favour of Caldwell, introducing the doctrine of impossibility. Justice
Blackburn reasoned that there was an implied condition in the contract that both parties
expected the existence of the Music Hall as essential for performance. The unexpected
destruction, not caused by either party, rendered performance impossible. As a result, neither
party was held liable for failure to perform, absolving Caldwell from liability......In this
foundational case, the parties entered into a contract for the use of a music hall. Before the
event, the hall was destroyed by fire. The court held that the contract was frustrated as the
specific venue’s destruction made performance impossible. This case established that a
contract could be terminated if the subject matter essential to the contract no longer exists.

Government Intervention or War

When a new Law/ Directive has been enacted after entering into contract, then the
contract becomes frustrated. Illustration: ‘A’ enters into a contract with ‘B’ that ‘A’ will
provide 50 bags of Methyl Bromide, but the Government bans the Methyl Bromide then
the contract will become void. When performance of contract becomes impossible to
fulfil due to war. Illustration: When ‘X’ an Indian company enters into contract with ‘Y’
a Russian company that ‘Y’ will provide material for ‘X’ company manufacturing but
after entering into contract war breaks out between Russian and India then the contract
can be considered as void.

Case: Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. (1943)

The case Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. (1943) is a
landmark decision in English contract law, particularly concerning the doctrine of frustration
and the concept of unjust enrichment.

Facts

In 1939, Fibrosa, a Polish company, paid £1,000 to Fairbairn, a British company, as an

advance for the purchase of textile machinery. The contract stipulated delivery in a few
months. However, before the machinery could be delivered, World War II broke out, and
Germany invaded Poland, making it illegal for British companies to trade with Poland due to
the outbreak of hostilities.

Legal Issue

The primary issue was whether the contract could be rescinded due to the doctrine of
frustration, and if so, whether Fibrosa could recover the advance payment, given that the
performance of the contract had become impossible due to the war.

Ruling
The House of Lords ruled in favor of Fibrosa, allowing the company to recover the advance
payment. The court held that the contract was frustrated because the unforeseen war event
made the performance of the contract impossible. Importantly, the ruling established that
where there is a “total failure of consideration,” the party who made a payment under a
contract is entitled to restitution. In this context, “total failure of consideration” means that
the paying party received no part of what was promised under the contract.

The case is significant because it clarified the legal principles related to frustration of
contracts and laid the groundwork for claims based on unjust enrichment, emphasizing that
parties should not be unfairly enriched when a contract is frustrated by an unforeseen event
beyond their control.

Personal Incapacity or D Death, or Incapacity for Personal Service

Where performance of obligations under a contract for personal services is rendered

impossible or radically different by the death or incapacitating illness of the promisor,
the contract will be frustrated.

In Stubbs v Holywell Railway Co it was held that a contract for personal services was
put an end to by the death of the party by whom the services were to be rendered.

Robinson v Davison

D’s wife, an eminent piano player, promised to perform at a concert, but was prevented
from doing so by a dangerous illness. An action was brought against D claiming
damages for breach of contract. It was held that the contract was discharged by D’s
wife’s illness, and it was not therefore broken by her failure to perform, nor, on the
other hand, could she have insisted on performing when she was unfit to do so as
frustration is not brought about by an action of election.
Case: Condor v. The Barron Knights Ltd. (1966)

A 16 year old agreed by contract to play the drums for the defendant band for 7 nights per
week for 5 years. The claimant suffered a mental breakdown and was told by his doctor that
he should not perform more than 4 nights per week. The band dismissed him. He brought a
claim for wrongful dismissal.

Held: The claimant’s action was unsuccessful as his medical condition made it impossible for
him to perform his contractual obligations and the contract was thus frustrated.These are
examples of cases where performance by the relevant party is personal and cannot be carried
outby anyone else so that death or illness gives rise to frustration.Similar decisions have been
reached in the case of the discharge of a seaman’s contract.

Change in Law

In a scenario where a company enters into a contract to export certain goods to a

foreign country. If, after the contract is signed, the government enacts a new law
banning the export of those goods to that specific country (due to sanctions or trade
restrictions), the contract could be considered frustrated. The company would no longer
be able to legally fulfil its obligations under the agreement, discharging both parties
from further performance.

Case: Metropolitan Water Board v. Dick, Kerr & Co Ltd. (1918)..

Facts:

In 1914, the Metropolitan Water Board entered a contract with Dick, Kerr & Co Ltd to
construct a reservoir, with a stipulated completion time of six years. The contract included a
clause that allowed extensions for delays caused by unforeseen events. However, in 1916,
during World War I, the British government issued an order through the Ministry of
Munitions, halting construction and requiring the contractors to sell off their equipment and
materials. Consequently, the Metropolitan Water Board sued the contractor, seeking
enforcement of the agreement to continue construction once the interruptions ceased.

Issue:

The primary legal issue was whether the contract was still enforceable despite the
interruption or if the drastic change in circumstances had frustrated the contract, thus
discharging the parties from their obligations.

Ruling:

The House of Lords ruled in favor of Dick, Kerr & Co, holding that the contract was
frustrated. The court reasoned that the government’s intervention fundamentally altered the
nature of the agreement. The clause permitting extensions for delays was deemed applicable
only to temporary disruptions, not to indefinite and substantial changes brought about by
wartime government orders. The ruling established that such unforeseen and fundamental
changes were beyond what the parties could have anticipated when the contract was signed,
effectively rendering the performance of the contract impossible and discharging it under the
doctrine of frustration

...A contractor was hired to build a reservoir, but the UK government requisitioned their
resources for the war effort. The court ruled that the contract was frustrated as the
government’s intervention made completion impossible. This case established that a change
in law can frustrate a contract.

Extreme Delay or Change in Circumstances

Non-occurrence of a particular event

The principle of frustration has also been held to apply to cases concerning the
cancellation of an expectedevent. In the so-called ‘Coronation cases’, which arose out of
the postponement of the coronation of King Edward VII owing to his sudden illness, it
was applied to contracts the performance of which depended on the existence or
occurrence of a particular state of things forming the basis on which the contract had
been made.

In Krell v Henry for instance:

H agreed to hire a flat from K during the daytime of 26 and 27 June 1902; the contract
itself contained no express reference to the coronation processions, but K had advertised
that the windows of the flat were to be let to view the processions which would pass the
flat on those days, and H had entered into the contract after reading the advertisement.
Th e processions were cancelled. Two-thirds of the rent had not been paid when the
processions were abandoned and the Court of Appeal held that K could not recover it.
The Court considered that the processions and the relative position of the flat lay at the
foundation of the agreement. The contract was therefore discharged. It should not be
imagined, however, that failure before performance of the factor which induced the
parties to enter into theagreement will necessarily discharge the contract; for ‘it may be
that the parties contracted in the expectation that a particular event would happen,
each taking his chance, but that the actual happening of the event was not made the
basis of the contract’.

In Herne Bay Steamboat Co v Hutton:

The defendant chartered from the claimant the SS Cynthia for 28 and 29 June 1902, for
the express purpose of taking paying passengers to see the Coronation naval review at
Spithead and to tour the fleet. The review was cancelled, but the fleet remained. The
Court of Appeal, composed of the same judges as in Krell v Henry, refused to hold the
defendant discharged. They did so, partly on the ground that a tour of the fleet was still
possible, but mainly because they considered that it was the defendant’s own venture
and it was at his risk. The Court pointed out that ifthe existence of a particular state of
things is merely the motive or inducement to one party to enter into thecontract, as
distinct from the basis on which both contracts, the principle cannot be applied.

In both Krell vHenry and Herne Bay Steamboat Co v Hutton the example was given of
the hire of a vehicle to take the hirer to Epsom to view the races on Derby day; the hirer
will not be discharged if the races are cancelled, for the hirer’s purpose is not the
common foundation of the contract to hire the vehicle.

Case: Krell v. Henry (1903)

Krell v. Henry (1903) is a key English contract law case that established the doctrine of
frustration, where a contract is voided due to unforeseen events that render its performance
impossible.

Case Facts

In this case, the defendant, Henry, rented a room from the plaintiff, Krell, to view the
coronation procession of King Edward VII, scheduled for June 26 and 27, 1902. The rental
agreement, however, did not explicitly mention the purpose related to the coronation. When
the King fell ill, the procession was postponed, and Henry refused to pay the remaining rental
fee, arguing that the contract's purpose was frustrated as the primary reason for renting the
room (to view the coronation) was no longer possible.

Ruling

The Court of Appeal ruled in favour of Henry, determining that the contract was indeed
frustrated. The judges concluded that both parties entered into the agreement with the implicit
understanding that the room was rented specifically for the coronation view, even though this
was not stated explicitly in the contract. Since the event did not take place, the very
foundation of the contract collapsed, excusing both parties from their contractual obligations.
The ruling relied heavily on the precedent set by Taylor v. Caldwell (1863), emphasizing
that when an unforeseen event destroys the fundamental basis of the contract, the parties are
discharged from performing their obligations.

This case has become a landmark in contract law for illustrating how frustration can apply
when the underlying purpose of an agreement is thwarted by unexpected events.

Effects of frustration

Effects of the Doctrine of Frustration under Contract Law

The effects of this doctrine are profound, as it can dissolve contractual obligations without
fault on either party. This section discusses the implications of the doctrine of frustration,
supported by relevant case laws.

1. Discharge of Contractual Obligations

The primary effect of the doctrine of frustration is the discharge of contractual obligations.
When frustration is established, the contract is automatically terminated at the point of the
frustrating event. This means neither party is required to perform any future obligations under
the contract.

Case Law: Taylor v. Caldwell (1863)

In Taylor v. Caldwell, the parties contracted for the hire of a music hall, but the hall was
destroyed by fire before the event could take place. The court held that the destruction of the
subject matter rendered the contract impossible to perform, thus discharging the parties from
their obligations under the contract. The principle established here is that if the performance
of a contract depends on the continued existence of a specific thing, and that thing is
destroyed without fault of either party, the contract is frustrated1.

Case Law: Krell v. Henry (1903)

In Krell v. Henry, a room was hired to watch the coronation procession of King Edward VII.
The event was canceled due to the king’s illness, and the court found that the contract was
frustrated because its main purpose was defeated. The case illustrates how a radical change in
circumstances can frustrate a contract, leading to its discharge2.

2. Restitution and Recovery of Benefits

Upon frustration, parties may seek restitution for any benefits conferred before the frustrating
event under the principle of unjust enrichment. The common law approach initially did not
allow for recovery of payments made before frustration. However, statutory changes,
particularly in the UK with the Law Reform (Frustrated Contracts) Act 1943, altered this.

Case Law: Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd (1943)

In Fibrosa, the House of Lords held that if a party had paid in advance for goods or services
that were never delivered due to frustration, they could recover those payments. This case
established that the payer could recover money paid if there had been a total failure of
consideration.

Law Reform (Frustrated Contracts) Act 1943.

This Act was introduced to address inequities caused by the rigid common law approach. It
allows for the apportionment of losses and the recovery of money paid or payable before the
frustrating event occurred. The Act ensures that parties can recover a fair amount based on
the benefits conferred and expenses incurred prior to frustration4.

3. Automatic Termination of the Contract

A key effect of frustration is that the contract is terminated automatically, not by the action of
either party but by the operation of law. The termination takes effect from the point of the
frustrating event, and no further performance is required.

Case Law: Hirji Mulji v. Cheong Yue Steamship Co. Ltd (1926)
Facts of the Case:

A charter party (a contract for the hire of a ship) was entered into between Hirji Mulji (the
charterers) and Cheong Yue Steamship Co. Ltd (the shipowners).

The agreement specified that the ship, owned by Cheong Yue, was to carry a cargo of rice
from a port in Japan to India.

Before the chartered voyage could commence, the ship was requisitioned by the Japanese
government for its use.

The requisition effectively took the ship out of the control of the owners for several months,
making it unavailable for the agreed charter.

After months of government use, the requisition ended, and the ship was returned to its
owners.

The ship owners notified the charterers that the vessel was now available to carry out the
agreed voyage. The charterers, Hirji Mulji, refused to proceed with the contract, arguing that
the lengthy delay had fundamentally altered the circumstances of the contract.

They claimed the contract was frustrated due to the unforeseen event of requisition, which
rendered the performance of the contract impossible or fundamentally different from what
was intended.

The ship owners, Cheong Yue Steamship Co., contended that the delay was only temporary
and that the contract should remain in force now that the ship was released.

They sought damages for the charterers’ refusal to fulfill their contractual obligations.

Legal Issue:

The key legal question was whether the charter party agreement was discharged by the
doctrine of frustration because of the delay caused by the requisition of the ship.

Ruling:
Frustration of Contract: The Privy Council ruled in favour of the charterers, Hirji Mulji. It
held that the contract was frustrated by the government requisition.

The court reasoned that the delay caused by the requisition was so substantial that it
fundamentally altered the nature of the contract. The initial purpose of the charter, which was
a timely commercial voyage, was rendered impossible to achieve because the circumstances
had drastically changed by the time the ship was released.

The doctrine of frustration applies when an unforeseen event occurs that is not the fault of
either party, and this event makes it impossible to perform the contract or transforms the
obligations into something radically different from what was originally agreed upon.

Discharge of Obligations: As a result of the frustration, the contract was deemed to have been
automatically discharged, and neither party was required to fulfill any further obligations
under it.

In Hirji Mulji, the court emphasized that frustration leads to automatic discharge, not reliant
on the declaration by the parties. The court also clarified that the doctrine is applied only in
cases where the event occurs without fault or breach by either party5.

4. Limitation on the Application of Frustration

Despite its impact, the doctrine of frustration is limited in its application. It cannot be invoked
merely because a contract becomes more difficult or expensive to perform. The event must
fundamentally change the nature of the contract.

Case Law: Davis Contractors Ltd v. Fareham Urban District Council (1956)

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 is a leading case in
English contract law, specifically related to the doctrine of frustration.
Facts of the Case:

The Contract: Davis Contractors Ltd entered into a contract with Fareham Urban District
Council to build 78 houses over a period of eight months for a fixed price of £92,425.

After the contract was signed, there were unexpected labour shortages and supply issues due
to post-war economic conditions in the UK. This caused significant delays in construction.
The project ended up taking 22 months instead of the agreed 8 months, and the actual cost of
completion for Davis Contractors was significantly higher than anticipated.

Davis Contractors claimed that the contract had been frustrated due to the unforeseen delays
and increased costs. They argued that they should be entitled to additional payment beyond
the fixed contract price, as the circumstances had fundamentally changed from what was
initially agreed upon.

Legal Issue:

The central issue was whether the contract had been frustrated, meaning that the performance
of the contract had become fundamentally different from what was initially agreed upon due
to unforeseen events.

Ruling:

House of Lords’ Decision: The House of Lords ruled in favor of Fareham Urban District
Council, holding that the contract was not frustrated.

Reasoning:

The Court found that while the project took longer and was more expensive than anticipated,
the changes in circumstances (labour shortages and delays) were within the realm of
foreseeable risks in the construction industry.

The fundamental nature of the contract had not changed. It was still possible to complete the
construction project, even if it was more difficult and costly.
The case established that for a contract to be frustrated, the change in circumstances must
make it physically or commercially impossible to fulfil the contract or make the obligation
radically different from what was agreed upon. Merely making the contract more difficult or
expensive to perform is not sufficient to claim frustration.

Validity of the doctrine of frustration.

.This doctrine applies only in situations where an event, which neither party could have
anticipated or controlled, disrupts the foundation of the agreement. Frustration essentially
operates as a defense against the absolute enforcement of a contract, allowing it to be
discharged without fault from either party.

Elements of Frustration

For the doctrine of frustration to apply, several conditions must be met:

1. Unforeseeable Event: The frustrating event must be unforeseen and external to both
parties.

2. Fundamental Change in Performance: The event must alter the original purpose or
basis of the contract so significantly that continuing the contract is unreasonable.
 3. No Fault of the Parties: The event must not be caused by either party, nor should it be
an outcome they could have planned against.

Examples of frustrating events include natural disasters, changes in law, destruction of the
subject matter, or even, in some cases, events like war or political instability. However,
frustration does not apply if performance simply becomes more challenging or costly. Courts
emphasize that the change must be so substantial that it destroys the core of the contract.

The 1863 case of Taylor v Caldwell is often cited as a foundational example of the doctrine of
frustration. In this case, Taylor entered into a contract with Caldwell to use a music hall for a
series of concerts. However, before the concerts could take place, the music hall was
destroyed by fire, an event neither party could have predicted or prevented. The plaintiff
claimed damages for loss of profits, arguing that Caldwell was still liable for breaching the
contract by not providing the music hall.

The court ruled in favour of Caldwell, establishing the doctrine of frustration. Justice
Blackburn held that the contract was based on the assumption that the music hall would be
available for the concerts. Since the hall was destroyed, the essential purpose of the contract
was defeated, and Caldwell could not be held liable. The destruction of the music hall was an
unforeseen event that made it impossible to fulfil the contract. Therefore, the contract was
deemed frustrated and discharged, releasing both parties from their obligations.

The ruling In Taylor v Caldwell emphasized that when an event, through no fault of either
party, makes the contract impossible to perform, the law will excuse the parties from
performance. This judgment set the stage for the doctrine of frustration by recognizing that
contracts depend on certain underlying conditions, and when those conditions are destroyed,
the contract should end without penalty.

Limits of the Doctrine of Frustration

Despite its fairness, the doctrine of frustration has limitations. Courts apply it sparingly, as it
overrides the principle of holding parties to their promises.

Generally, frustration will not apply if:

• The Event Was Foreseeable: If the event could have been anticipated, the courts may
decide that the parties should have included provisions for it in the contract.

• Economic Hardship Alone: Simply making performance more expensive or difficult

does not typically satisfy frustration, as seen in cases where increased costs or delays
do not radically alter the contract’s nature.