The Doctrine of Frustration
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Brief Summary of Legal Aspects
1. Frustration brings the contract to an end
Under the common law frustration kills the contract itself and discharges the parties from their further contractual obligations ‘forthwith, without more and automatically’. Therefore application of the doctrine not only released the parties from their future respective obligations under the contract, it eliminated all contractual relationships between the parties and any rights already accrued as from the time of frustration.
Rapid development of the doctrine begun in the first years of the twentieth century, when financial loss, incurred as a result of frustrating event - sudden illness of King Edward VII in June of 1902 and subsequent cancellation of the coronation procession - brought in existence a line of ‘coronation cases’. Anticipating an event, spectators leased many rooms and bought seats in stands, along the route planned for the coronation procession. Moreover, some boats were hired for the purpose of viewing the naval review, which should take place same day with procession. Many spectators had contracted their leases or hires and made payments in advance before the King fell ill, and claimed afterwards that their contracts were frustrated. Collins M.R., in Chandler v Webster [1904] 1 KB 493 stated that the law relives parties from further performance of the contract and leaves both sides where they were at the moment of frustration – ‘the loss lies where it falls’, but everything that has already been done in pursuance of the contract has been considered as validly done. The Master of the Rolls rejected soundness of claim to recover money had and received on a total failure of consideration, saying that such remedy is available only when the contract was wiped out altogether, ‘But that is not the effect of the doctrine; it only releases the parties from further performance of the contract’.
This state of law, when lack of legal instruments to deal with financial consequences of frustration resulted in hardship, was sometimes considered to be arbitrary and open to review , but nevertheless remained in force for almost forty years. Only in Fibrosa Spolka Akcyjna v Fairbaim Lawson Combe Barbour Ltd [1943] AC 32 the House of Lords unanimously held that there is no strict principle of law stating that "the loss lies where it falls" which has to be applied to the contracts frustrated by a supervening event releasing the parties from further performance. That the money paid under a contract can be recovered when consideration has wholly failed on the ground that the law gives a remedy in quasi-contract based on natural justice and equity. It is well to emphasize here that although the House of Lords has undoubtedly articulated in favour for a "more civilized rule", Viscount Simon L.C. at p.49 and Lord Porter at p.78, entered a caveat of caution that ‘whether one adopts the principle that money so paid is recoverable or irrecoverable, one may be found to have treated one side or the other with considerable harshness’.
Basic principles of Fibrosa case has been later developed into the statue law, and nowadays financial consequences of frustration are regulated by the law of restitution, most of which can be found in the Law Reform (Frustrated Contracts) Act 1943.
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