Frustrating Times

This post has been contributed by Professor Roger Halson, Module Convenor for Contract law.

The doctrine of frustration provides relief from a contract when its performance becomes impossible, illegal or in other analogous circumstances. Two recent cases, in very different tribunals, have examined the doctrine in the context of the COVID 19 outbreak.

In 2020 Jennie Barber booked two return tickets to Japan with British Airways. The flights were cancelled because of COVID restrictions. Ms Barber rejected BA’s offer of vouchers and asked for a full refund which BA declined. In January 2023 Ms Barber, who had studied A level law, represented herself in her action in Redditch Magistrates’ Court against BA. Magistrates Courts have jurisdiction in minor civil law cases. Ms Barber relied upon the Law Reform (Frustrated Contracts Act) 1943 and won her case! As there is no report other than those in newspapers, we must assume that the Court accepted that: the contract was governed by English law, the effect of the COVID restrictions amounted to a frustrating event with the consequence that under Section 1 (2) of the Act all sums paid under the contract prior to the frustrating event became repayable.

A contrasting approach was recently taken by the highest Court of Appeal in Australia, in Laundy Hotels v Dyco Hotels (March 2023). The case involved the sale of a hotel which required the seller to carry on business before completion of the sale. Before completion Covid struck and the operation of the business was curtailed, but not altogether stopped, by Government restrictions. All courts held that the sale contract was not frustrated and interpreted the contract to only require that the business be kept operating lawfully and this they were able to do, albeit on a restricted basis. Consequently, the vendor could successfully sue for non-completion.

Frustration cases often involve a difficult judgment of degree as to whether the effect of the alleged frustrating event was sufficiently catastrophic to render the contract frustrated. The impossibility of flight in the BA case was sufficient to frustrate the ticket sale; the restricted trading in the hotel sale case was not.