Discuss the scope of the doctrine and remedies for frustration of contract in English law, in particular under the Law Reform (Frustrated Contracts) Act 1943 and in the use of 'force majeure' clauses. Is the law as it stands in a satisfactory state?

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Discuss the scope of the doctrine and remedies for frustration of contract in English law, in particular under the Law Reform (Frustrated Contracts) Act 1943 and in the use of 'force majeure' clauses. Is the law as it stands in a satisfactory state?

The courts have interpreted the scope of the doctrine of frustration narrowly, in accordance with the principle pacta sunt servanda - agreements must be kept. If the courts readily held that a contract was frustrated, it would cast significant doubt on an array of agreements that make commerical enterprise possible. As Lord Radcliffe advised in Davis Contractors Ltd v Fareham UDC, "[f]rustration is not to be lightly invoked as the dissolvent of a contract."i

This discussion will first examine the underlying reasons for the narrowness of the doctrine before considering the specific limitations. Here it will be argued that in some instances the courts' decisions have been inconsistent and in others they have been unduly harsh. The following part of the discussion will examine the remedies available to parties of a frustrated contract, as found under the Law Reform (Frustrated Contracts) Act 1943. The deficiencies in the statute will be explored, amongst them ambiguity, which has led to the rare use of the Act. Instead, parties have opted to 'draft out' the Act and include provisional clauses of their own. These force majeure and hardship clauses provide for a solution if a supervening event occurs which makes it impossible or more onerous for one party to perform. With the unsatisfactory state of the law governing frustration, it will be posited that these clauses are vital to retain an element of certainty in commercial contracting.

The scope of the doctrine of frustration

Contract law is founded on the principle that liablity for non-performance is strict. While this seems particularly severe, it is substantiated with the belief that parties receive valuable consideration for taking risks. The allocation of risks "provides a major function of the law of contract: it enables individuals and corporations to plan for the future with a moderate degree of certainty and hence to maximise their freedom of action."ii

A contract can only be frustrated when performance becomes impossible, or a supervening event takes place that would make performance radically different to that which was contracted to by the parties. If frustration is sufficiently pled, its result is to bring the contract to an end. Given this drastic outcome, the courts have interpreted the scope of the doctrine narrowly in order to preserve the 'sanctity of contract'.iii Paradine v Jane is most frequently cited to demonstrate this:

When a party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract.iv

Furthermore, if a party feels that they would be unable to perform if a supervening event occurs, they should provide for it in the contract. Many supervening events that can impede performance are foreseeable and parties should construct their contracts accordingly.

There are several circumstances that may qualify for discharging the contract on grounds of frustration. These include the subject matter of the contract being destroyed; illness or incapacity of a contracting party; the non-occurrence of an event that formed the foundation of the contract; supervening illegality.v It is certainly not a rule that these circumstances will frustrate a contract. As Lord Sumner stated in Bank Line Ltd v Arthur Capel and Co, "ultimately the frustration of an adventure depends on the facts of each case."vi There are three main limitations to the doctrine. Firstly, if there are provisions in the contract that provide for a solution if an event occurs, then an argument based on frustration is unlikely to be entertained as the parties have already provided for the occurrence.vii
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Secondly, if the event is foreseeable, the parties are unable to avail of the doctrine of frustration. In Amalgamated Investment and Property Co Ltd v John Walker & Sons Ltdviii the claimants sought to set aside a contract for sale of a property, when they found that a day after they had signed the contract, the property became listed and could not be redeveloped. This reduced the value of the property by approximately 90%. The court held that the contract was not frustrated because the claimants were aware of the risk, as evidenced by a pre-contract enquiry as ...

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