Frustration in construction contracts
Frustration occurs when circumstances that are not the fault of either party to a contract mean it is impossible to continue with the contract. As a result, the contract comes to an end without either party being considered to be in breach. However, the parties must be certain that a frustration event has occurred so as not to be in breach of contract.
Frustration is a common legal principle, but it is applied as narrowly as possible by the courts - it does not cover contracts that were always going to be impossible to perform. For example, it would not apply in the case of a contract to construct a tall building that could not be fulfilled because the ground conditions were completely unsuitable.
Identifying the contractual obligations of the parties at the date of the contract is key to being able to establish the conditions for frustration.
Some events that may lead to a frustrated contract include:
- The government imposing unforeseen restrictions on building.
- Laws being passed that make it illegal to undertake what was promised under the contract
- The building where works were to be carried out being destroyed.
- An event that was crucial for the contractual obligations being cancelled.
Sometimes a party may try to claim a contract is frustrated when they are obligated to make payments in a different currencies which then fluctuates. However, this does not necessarily amount to frustration.
Events that do not alter the obligations but instead delay performance, such as a workforce strike, don’t necessarily amount to frustration. However, it might do should the events have a particularly serious effect on the obligations or if the delay is particularly long.
Force majeure provisions might provide for circumstances that could otherwise be considered frustration events, and so result in termination of the contract. However, generally, force majeure (for example, exceptionally adverse weather conditions) is considered a relevant event which construction contracts allow for by an extension of time rather than termination.
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