Australia: Dealing with the unknown in contracts – Frustration and Force Majeure

Last Updated: 26 June 2017
Article by Scott Alden and Cyril Jankoff (The RIsk Doctor)
Most Read Contributor in Australia, September 2018

This article is the first in a series with a focus on problematic commercial contract issues and considers the effect of contractual frustration and force majeure on the parties' contractual obligations to each other.

Part 1: Frustration

Under the common law doctrine of "absolute liability", if a party voluntarily enters into a contract, that party must perform all its agreed obligations, even if performance is impossible, and failure to perform would render the non-performing party liable to compensate the other party.1 The justification for this was that a party could always negotiate for contingences. However, a strict application of this can have unfortunate results if, for example, performance becomes impossible through neither party's fault.

The "doctrine of frustration"

In 1863 the court2 acknowledged this hardship and found that there should be an automatic mutual discharge of the contract where performance becomes impossible, with neither party being at fault, and the obligations under the contract being "radically different" from those contemplated by the parties to the contract. This is called the doctrine of frustration. The legal consequence of a contract found to have been frustrated is that the contract is automatically terminated at the point of frustration. The contract is not void ab initio ("from the beginning"), it is only future obligations that are discharged. This means that, after the point of frustration neither party can demand further performance by the other. At common law, obligations which fell due for performance before the frustrating event are valid, and if the obligation is not performed the innocent party can seek a remedy. Furthermore, contractual promises that were not conditional upon further performance of the contract may remain enforceable, as may terms in the contract that are clearly intended to be operative after termination (whether or not by frustration). An example of this is an alternative dispute resolution process which, if drafted correctly, always binds the parties after termination.3

Examples of frustrating events

Some examples of frustration include:

  • Physical destruction of the subject matter of the contract.4
  • A change in the law rendering performance illegal.5
  • Restraint by injunction.6
  • Non-occurrence of an event which formed the basis of the contract.7
  • Outbreak of war.8

Examples of non-frustrating events

A contract will not normally be found to be frustrated in the following situations:

  • Construction delays, shortage of materials, and shortage of skilled tradespersons as these are inherent risks in construction, and therefore reasonably foreseeable.9
  • A supervening event that was contemplated by the parties, even if the parties fail to anticipate the severity.10
  • Self-induced frustration.11
  • Hardship, inconvenience or a bad bargain.12

How to avoid frustration

If we draft a contract broadly enough to cover new situations, we may be able to avoid the contract being frustrated, but can instead codify the effect of a particular event in our contract. An example of this is a force majeure clause which avoids frustration by specifying that there will be a suspension of performance due to a supervening event where neither party is at fault. Performance can then usually resume when the event has passed. Examples of such an event are flood, bushfire, nationwide airline strike and so on. Force majeure clauses will be discussed in Part 2 of this article.

The law of restitution

The question of whether any contractual pre-payments are to be repaid in the event of frustration is not yet settled. However, it is considered that the High Court may follow the Fibrosa13 case and rule that where there has been a total failure of consideration, a prepayment is recoverable in quasi-contract. This is an attempt to prevent unjust enrichment.

The effect of statute

Under the common law doctrine of frustration, losses lie where they fall. An example is where a venue hire deposit has been paid for an event for this Saturday night, but the venue burns down the day before the event. Under the common law, the contract has been frustrated, and all obligations from the point of frustration will cease for both sides. However, subject to recovery under restitution (discussed above), the deposit would be forfeited. In Australia only three jurisdictions have created legislation to reduce this harshness: New South Wales (Frustrated Contracts Act 1978), South Australia (Frustrated Contracts Act 1988), and Victoria (Australian Consumer Law and Fair Trading Act 2012). Each statute operates slightly differently however the overarching aim is to provide a fair result where, for example, in the example case the deposit would be repaid.

Key frustration law takeaways

  • Where further performance of a contract is impossible or futile due to a supervening event, the contract is frustrated and terminated by that event, discharging the parties from further performance.
  • At common law, prior obligations still apply,14 as do those that would always survive termination (such as dispute resolution).
  • Contracts are not terminated by frustration where there is a bad bargain, the events were foreseen, or there is hardship. However delay, destruction of the subject matter, and outbreak of war may result in frustration where the commercial purpose of the contract has been frustrated.
  • If the return of a deposit etc is important, and you do not want to rely on the restitutionary remedy of total failure of consideration, then when drafting the contract you can: (1) ensure that your contract is subject to the laws of one of the three jurisdictions where the doctrine of frustration has been amended by statute (NSW, South Australia or Victoria); or (2) use an appropriate force majeure clause.

Part 2: Force Majeure

To overcome the limited application of the doctrine of frustration discussed in Part 1, a "force majeure" clause is often used. This is an express agreement in the contract as to how risk is to be allocated should part or non-performance occur as a result of certain specified events. The force majeure clause was borrowed from the French Civil Code, and means "superior force". It operates to exclude liability where a party's failure to perform is caused by forces (either natural or human) beyond its control, and usually goes beyond "Acts of God" (for example tornado, flood, tidal wave etc). However, under the principles of 'freedom to contract' parties are free to define it and set its parameters as they see fit. Under a contract, parties cannot normally invoke a force majeure clause if they are relying on their own acts or omissions. The effect of a force majeure clause is that it enables the non-performing party to escape liability for failing to perform as a result of the force majeure event.15

What you need to show to get the protection of a force majeure clause

Generally there are three essential elements to force majeure:

  • It can occur by forces either natural or human.
  • It cannot have reasonably been foreseen by the parties.
  • It was completely beyond the parties' control and they could not have prevented its consequences.16

Key parts of a force majeure clause

When drafting or reviewing a force majeure clause consider the following:

  • Definitions: in addition to stating that the clause relates to acts beyond the reasonable control of the parties, specific events should be defined. Examples include electricity supply strikes, insurrections, riots, and wars. Key terms which have a degree of imprecision such as "Acts of God" should be defined and, with natural events, can be defined as including floods, bushfires and earthquakes.17
  • Effect on obligations: the agreement should identify the obligation, how it will be affected by the force majeure event, and be clear as to the:
    • Obligations on the parties arising when a force majeure event occurs. For example:
      • Will there be an obligation of mitigation?
      • Whether the buyer can engage another party to do the work if the seller cannot perform it due to a force majeure event, and whether the buyer can then charge the seller.
      • Will payments to the vendor continue notwithstanding the delay?
      • What will be the duration of the force majeure temporary period, for example 30 days, and then what happens after this maximum temporary period ends, that is after the 30th day? Will the contract be terminated or terminable by notice?
      • What will happen to payments that ordinarily would have been incurred for late or non-delivery?
      • Will the agreed number of units still need to be supplied, or is the contract terminated or terminable?
  • Obligations on the parties after the force majeure event ceases. For example what does the non-performing party need to do to catch up with its obligations?
  • Notice: the agreement should contain a requirement that the party unable to perform must advise the other party as soon as reasonably possible about the force majeure event, the expected duration of non-performance and what, if anything, can be done to ensure continuity of supply for the buyer (if the party unable to perform is the vendor).

Force majeure and the purchaser and vendor

Normally it is not in the interests of a purchaser to include a, force majeure clause in a contract because it seeks an uninterrupted service, and the effect of a force majeure clause is that the service may be temporarily interrupted without vendor liability. Consequently, if pressured by a vendor to include a force majeure clause the purchaser should consider the definition, effect on obligations and notice issues discussed above. Vendors normally seek to protect themselves through a wide definition for example: Neither party will be, or deemed to be, in default of, or in breach of any Agreement, as a result of the effects of Force Majeure. Force Majeure will include any cause beyond the reasonable control of either party, and include, but are not limited to, Acts of God, strikes, insurrections, riots, wars, terrorist acts and Government restrictions.

Matters that can affect the interpretation of a force majeure clause

As force majeure clauses are creatures of contract, their interpretation will be governed by:

  • The agreed width of the clause. For example, the vendor will want to use the words "...and include, but not limited to ..." but the purchaser will want to narrow the width by seeking to remove these words.
  • The normal rules of contractual construction:
    • According to the contra proferentem rule the clause will be construed strictly and in the event of any ambiguity the clause will be interpreted against the interests of the party that drafted it. The parties may contract out of this rule; and
    • According to the ejusdem generis rule, when general wording follows a specific list of events, the general wording will be interpreted in light of the specific list of events. In this context it means that when a broad "catch-all" phrase, such as "anything beyond the reasonable control of the parties", follows a list of more specific force majeure events, the catch-all phrase will be limited to events analogous to the listed events. Wording such as "including, but not limited to, ..." seeks to subvert this rule.

Insufficient thought given to the force majeure clause

Clauses such as indemnity and capping of liability are often fiercely negotiated, but other clauses such as force majeure are not. Lack of thought as to the composition of the force majeure clause can be very costly.

Key force majeure law takeaways

  • The effect of a force majeure clause is that it enables the non-performing party to escape liability for failing to perform contractual obligations as a result of the force majeure event.
  • Parties cannot invoke a force majeure clause if they are relying on their own acts or omissions.
  • The seller should insist on a force majeure clause, and then keep it a wide as possible.
  • The buyer should resist the clause in the contract or keep it as narrow as possible, as non-compensated supply interruptions can be very damaging.
Problematic Contract Terms Service


1 Paradine v Jane (1647) 82 ER 897.

2 Taylor v Caldwell (1863) 122 ER 309.

3 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.

4 Taylor v Caldwell (1863) 122 ER 309.

5 Scanlans New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169.

6 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.

7 Krell v Henry (1903) 2 KB 740.

8 Metropolitan Water Board v Dick, Kerr & Co Ltd (1918) AC 119.

9 Davis Contractors Limited v Fareham Urban District Council (1956) AC 969.

10 Claude Neon v Hardie (1970) Qd R 93.

11 Maritime National Fish Ltd v Ocean Trawlers Ltd (1935) AC 524.

12 Tsakiroglou & Co Ltd v Noblee Thorl Gmbh (1962) AC 93.

13 Fibrosa Spolka Ackyjna v Fairbairn Lawson Combe Barbour Ltd (1943) AC 32.

14 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.

15 Matsoukis v Priestman & Co (1915) 1 KB 681.

16 Lebeaupin v Richard Crispin & Co (1920) 2 KB 714.

17 The Commissioner of Railways (WA) v Stewart and Others (1936) 56 CLR 520.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Scott Alden
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions