31 October 2016 - Post by:Damien Ryan
If a contract has been frustrated both parties are discharged from their future obligations and the subject matter of the contract may be destroyed (Taylor v Caldwell). Unsurprisingly, therefore, the threshold to establish frustration is high. Frustration depends on a so-called “supervening event” occurring which renders future performance radically different from what the parties had envisaged when forming the contract. The event must be one which arises without blame or fault on any side (Tsakiroglou v Noblee Thorl  AC 93). The courts will not invoke frustration “to relieve contracting parties of the normal consequences of imprudent commercial bargains” (Pioneer Shipping v BTP Tioxide Limited). What constitutes a normal consequence is a question of foreseeability.
This approach has was endorsed last week by the Court of Appeal in Armchair Answercall v People in Mind. There, a contract for services was commercially undermined when third party franchisees refused to agree to vary the way the business was carried out. The question for the court was whether frustration had occurred, given that the existing franchisees had stopped participating. The Court of Appeal held that it had not. People in Mind had a broad role under the contract. It was to support Armchair Answercall in moving the business to a new management model which covered both existing franchisees and potential new customers. As to whether there had been a supervening event, the contract had not anticipated that the franchisees would withdraw, but such a thing was nonetheless foreseeable. It was clear that the franchisees might object to the changes. Negotiation about this was always going to be delicate and complex. The franchisees could not be compelled to agree to the change and the failure to persuade them to do so was no one’s fault. What had happened was a real possibility which could have been anticipated. The inference was therefore that “one or other party [had] assumed the risk of the occurrence of the event” (Commercial Corp v Tsavliris).
As previous cases show, if you don’t make express provision for an eventuality, you may bear the risk of being left with a contract that is difficult or very expensive to perform.