one might be viewed as implied acceptance of risk by the contractor for certain events that would normally be covered by such a clause (and which therefore can no longer be described as “unforeseen”). As was recently confirmed by the Supreme Court in Planet Kids (supra) at [139]:
Where risk is allocated to one of the parties under the contract, then the doctrine of frustration is excluded, in so far as it relates to the occurrence of one of the allocated risks. The allocation of risk can be express or by necessary implication…
Determining whether a contractor has impliedly taken on such risks in the absence of a clearly drafted force majeure clause will obviously depend on the particular facts and circumstances. Some events such as earthquakes or other natural catastrophes could be viewed as foreseeable risks which should have been clearly allocated in construction contracts, failing which the court may find that one of the parties has taken on the risk by necessary implication, for example through being reflected in the agreed price. In such a case, if the court finds the risk has been impliedly allocated under the contract the doctrine of frustration will may be excluded.
However, there may be other scenarios where the court determines that an event falls outside what the parties expressly allowed for in a force majeure clause (or implicitly allowed for in the absence of such a clause). In such a case, if it is not reasonable to place the risk of non-performance for the events which have occurred on one party or the other or neither, the contract may be frustrated. For example, in Metropolitan Water Board v Dick Kerr & Co Ltd [1918] AC 119 (HL) contractors entered into a contract in July 1914 to construct reservoirs at an agreed price within six years. In February 1916 the government prohibited the continuance of work due to the outbreak of war. The contract provided the engineer power to extend time for completion in the event of any “difficulties, impediments, obstructions, oppositions…whatsoever and howsoever occasioned”. The House of Lords considered that this scenario could not possibly have been in the contemplation of the parties to the contract when it was made and therefore, it fell outside the scope of the force majeure clause. The contract was therefore frustrated as the works were prohibited by law (at [126]).
Conclusion
The threshold for frustration is high, and the operation of frustration will be contractually constrained by what the parties have allowed for in their contract, in particular with reference to the force majeure clause. Increasingly, parties are already allocating risks or at least addressing some risks in their contract, such that the doctrine of frustration often does not apply. However, it is arguable that a well drafted force majeure clause assists the court in reaching a finding of frustration where there has been a truly frustrating event, as the court can clearly identify which risks the parties have foreseen and allocated accordingly. How strong the doctrine of frustration will be in modern day contracting will continue to be tested by (most commonly unfortunate) catastrophic events.
Authors Profile
Janine Stewart (left) and Hannah Gillies (Right) work for Minter Ellison Rudd Watts in Auckland New Zealand
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