There’s been a lot of discussion recently, about contracts and what happens, or could happen, with them in the current climate. One of the phases that keeps coming up is ‘ooh, that contract might be frustrated’. This doesn’t mean that it’s fed up, but that the parties are legally excused from their performance obligations under it.
So, what is frustration and when does it occur?
Well, the case law on frustration started in 1863 and involved a Music Hall, “fireworks and full illuminations, Grecian statues, tight rope performances and air gun shooting” or rather the lack thereof as the Music hall burned down. But don’t worry, we’re not going into detail on that.
We’re going to look at pens.
A practical example: Geoff, the Journal and the Pens.
Imagine you’ve entered into a contract regarding pens. The terms of the contract govern the supply and maintenance of pens to be used by Geoff for writing in his one of a kind irreplaceable bespoke personal journal. For which Geoff pays a hansom fee. Now, several things could go wrong during the course of this contract. Lets’ consider some examples:
- A pen runs out of ink. This is to be expected at some point as, frankly, pens do run out of ink. The contract ought to cover this and deal with who is responsible for finding new ink, who pays for it and how long Geoff can be left waiting for the new ink to arrive as well as, if no new ink turns up, who can terminate the contract and what happens if they do. Running out of ink whilst annoying, isn’t a frustrating event for the contract; or
- The price of pens increases. It’s therefore commercially unattractive to stay in the contract. Well, again that’s annoying and should have been dealt with in the contract. But it isn’t frustration; or
- The supplier of the pens buys them in from a third party, doesn’t get them delivered to them on time and they are late supplying them to Geoff. That’s the supplier’s problem and it’s problem alone. It’s not a frustration of the contract; or
- The pens don’t write as well as they usually do in Geoff’s one of a kind irreplaceable journal. This isn’t frustration. The supplier knew about the specific requirements of Geoff at the time they entered the contract, so they can’t rely on this as an event of frustration.
- After 6 months of supply the government bans the use of pens and makes possession or supply of them illegal that is a frustrating event and the parties can be released from their obligations under the contract ;or
- Geoff dies (sorry Geoff) that’s a frustrating event and Geoff’s Estate doesn’t have to pay to buy pens nor does the supplier have to supply them to Geoff’s estate; or
Essential elements of Frustration
- Geoff’s one of a kind irreplaceable journal is completely destroyed (through no fault of Geoff or the supplier) then that would be a frustrating event.
These are all rather silly and very simplistic examples, but generally speaking, a frustrating event is an event which:
- Happens after the contract has been formed;
- Attacks the fundamental purpose of the contract;
- Is completely beyond what was expected by the parties when they entered into the contract;
- Is neither of the contracting party’s faults; and
What is the effect of frustration?
- Makes performing the contract from that point on impossible, illegal or radically different from what was expected by the parties when they entered into the contract.
If a contract is frustrated, then the parties are excused from their future performance of it (in this case the supply and maintenance of pens or payment for them). In certain circumstances you can get back sums you’ve already paid over before the frustrating event happens or be entitled to charge a ‘just sum’ if you couldn’t perform the whole of your obligations but did do something.
Even if your contract is not frustrated, there may still be terms in it that you can turn to your advantage. These may include:
- The right to vary the price you have to pay, or the volume/ timing of supplies you have to make;
- The right to request changes to the services that you have to provide;
- The ability to temporarily take over services that you have outsourced;
- The right to give notice of termination on the contract.
So, if recent events have left you thinking about what to do about your obligations under your contracts of if your customers have started to question whether they can cancel do get in touch with the team at Legal Studio as a review of your contract will help you to understand your legal options and the strength of your negotiating position with your customers and suppliers.
P.s sorry again Geoff.