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Discharge by Frustration

In some cases a contract will be brought to an end because of a supervening event that is beyond the control of the parties; for example, a contract between A and B, whereby B agrees to hire A's theatre on a particular night may be frustrated if, as a result of a terrorist act the theatre is destroyed prior to the date for performance of the contract (see Taylor v Caldwell (1863) 3 B & S 826).

Application of the doctrine of frustration

The doctrine of frustration applies only in a limited range of circumstances - generally where the event renders performance of the contract something fundamentally different from that anticipated by the parties. The courts are likely to be unsympathetic if the event could have been anticipated and therefore provided for by the parties in their contract.

Effect of frustration

At common law, where frustration is established the contract is terminated automatically (in futuro); there is no option to discharge or to perform and, at common law, the loss resulting from the termination lies where it falls (although there are limited exceptions to that rule).

Statutory modification

Statutory modification means that in most cases the harshness that might result from that common law rule is avoided (see eg, Fair Trading Act 1999 (Vic) Part 2C)

Detailed discussion forthcoming

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