Understanding Frustration of Contract

‘Frustration of contract’ is a doctrine in Australian contract law that can automatically bring a contract to an end when an unexpected event, through no fault of either party, makes performance impossible or radically different from what was agreed. It can apply to all manner of formal contracts, such as commercial leases, supply agreements and business contracts. Frustration of contract is commonly misunderstood, however – many people assume it can get them out of a contract when, legally, it cannot. This blog post explains when frustration of contract can be applied and what you need to establish it.

When Frustration of Contract Can Be Applied

The most important thing to note is that frustration of contract can only discharge parties from performing where the unexpected event fundamentally changes the nature of the contractual obligations. It does *not* apply simply because performance has become more difficult or more expensive.

There are a number of factors the court will consider when deciding whether frustration applies. A key question is whether the event was foreseeable. If the parties could have anticipated the risk – and especially if the contract already deals with who bears it – the court is unlikely to find the contract frustrated, because the parties are taken to have accepted that risk. The court will also consider whether the event was genuinely outside the parties’ control. Frustration cannot be relied on where a party has brought the event about through its own choice or default; this is known as ‘self-induced frustration’.

Most importantly, the court will examine whether the event has radically transformed the parties’ obligations.

Evidence Needed for Frustration of Contract

The burden of proof rests on the party asserting it. To prove frustration, you will need objective evidence rather than personal opinion. Evidence includes the original contract, documents identifying the alleged unexpected event, correspondence between the parties and any other relevant documents that prove the impact of the event.

In a nutshell: frustration is a high bar. It is not a way out of a contract that has simply become inconvenient – it applies only where an unforeseen event has made performance impossible or radically different. When those requirements are met, frustration operates automatically by law to bring the contract to an end. If you have any questions about a possible frustration of contract, please do not hesitate to contact us. We are here to help.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.