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Frustration: from the coronation to coronavirus?

A guest post by Catherine Penny, partner, and Andrew Reid, associate, at Surrey firm Stevens & Bolton

Catherine Penny

It is relatively rare for frustration to be called upon as a solution for contractual non-performance in English law. Its scope is limited to circumstances where an event completely outside the control of the parties renders performance impossible or radically different.

Such events are fairly uncommon and the doctrine has historically only developed during times of social and economic change.

In recent years, judicial scrutiny of frustration has been sparse, but the unprecedented effect of Covid-19 on business dealings could see the doctrine once again play a prominent rule in months to come.

Frustration took root in English law in the landmark decision of Taylor & Caldwell [1863] EWHC QB J1, which saw a music hall suffer significant fire damage and led to event promoters suing the hall owners for failing to make the hall available as promised.

The court held that both parties’ obligations were discharged given the “impossibility of performance” and the traditional approach of holding parties to their contractual promises regardless of the circumstances was left behind.

In 1902, the so-called Coronation cases built on that new approach. In Krell v Henry [1903] 2 KB 740, Mr Henry had hired a flat on Pall Mall to watch the coronation procession, paying a deposit to the flat owner, Mr Krell. When the coronation was postponed, Mr Krell sought the balance of the fee but Mr Henry refused and court proceedings followed.

Although not an express term, it was clear that the parties intended the contract to allow Mr Henry to watch the procession. The postponement of the coronation therefore defeated that ‘purpose’ and the contract was deemed frustrated and was discharged, notwithstanding that the hiring of the flat was still possible.

Fast-forward to the outset of the First World War and the English courts continued their narrow approach to frustration, enforcing any contract that was not entirely frustrated by a change in circumstances. For example, a contract for the provision and maintenance of streetlamps was upheld despite the blackouts, as the maintenance aspect remained capable of performance.

Andrew Reid

Soon though, the widespread and prolonged effect of the conflict became more evident and direct government control became common in many industries. In response, the courts increasingly held that such relationships should be discharged on the grounds of frustration, such as in Anglo-American Trading Co v Emlyn Jones & Williams [1917] 2 KB 78, when a charter party was discharged where the ship had been requisitioned.

The court in Metropolitan Water Board v Dick Kerr & Co [1918] AC 119 even accepted that delay “so long as to destroy the identity of the work or service” could constitute frustrating events, even though performance had not yet become physically ‘impossible’.

By the time World War II broke out, it was well established that government intervention was a ground for frustration and many of the cases that arose during the conflict generally related to such supervening illegality – for example, the prohibition on timber trading that frustrated a contract in Denny, Mott and Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265.

Since the end of the war, frustration has been invoked more sparingly, as articulated in British Movietone News Ltd v London and District Cinemas (1952) AC 166, when Lord Simon declared that even a “wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to the execution, or the like”, would not be enough to affect the contract.

Such ‘commercial impossibility’, which had previously released parties from performance, was again deemed to be insufficient in the often cited Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93, where the Suez Canal crisis meant goods had to be shipped via the Cape of Good Hope. Despite a three-week delay and increased costs, the contract was not deemed to be frustrated.

Nowadays, the requirement for performance to be an ‘impossibility’ or ‘radically different’ is interpreted strictly; a contract that merely becomes more difficult or expensive to perform will not be deemed to be frustrated.

We have already seen new legislation permitting a government requisitioning of goods and obligatory cancellation of events. Such measures leave open the potential for any contracts affected by them to be deemed frustrated, and the courts will no doubt be asked to consider the scope of the doctrine over the months and years to come.

What role will frustration play in the Covid-19 crisis? At the time of writing, the answer is still unclear. Frustration and Covid-19 claims are yet to come before the courts substantively.

That said, the High Court (in Natixis & Anor v Famfa Oil Ltd [2020] 2 WLUK 330) has left open the possibility that government intervention could be relied upon as a frustrating event, even before the event had happened, provided it created a “real risk” that performance would become impossible or radically different.

It is certainly an interesting one to watch, and one that will go down in the history books.

Frustration was recently discussed in the context of force majeure in a Legal Futures webinar [1].