UK: Recession Not Frustrating - Legally Speaking

Last Updated: 8 March 2010
Article by Rupert Choat

On Wednesday the Technology and Construction Court gave a judgment that is relevant to contracts said to be frustrated by the recession and thereby brought to an end.

The facts were as follows. In August 2007, shortly before the UK housing market took a downward turn, Barratt contracted with the freehold owner of a site, Gold, to build a large number of houses and flats ("the Development Agreement"). Once built, they were to be sold on long leases with Barratt and Gold sharing the proceeds.

Barratt was given vacant possession of the site in early 2008. However, it was advised that the minimum prices in the Development Agreement would not be achieved and as a result did not start work. Late last year Gold sued Barratt for approximately Ł9.5m in lost profits.

The judge rejected Barratt's defence that the minimum prices acted as a guaranteed minimum return or a condition precedent. Therefore Barratt breached the Agreement in failing to carry out the building works.

Of wider interest, the judge also held that the Agreement was not frustrated. A contract is frustrated by an event (without either party's default and for which the contract makes inadequate provision) which significantly changes the nature of the outstanding contractual duties. The change is so significant from what the parties could reasonably have contemplated when the contract was made that it would be unjust to hold them to it. In such a case the contract is immediately brought to an end and both parties are discharged from further performance. As this involves allowing parties to avoid performing their contractual duties, the courts are reluctant to find frustration.

The judge doubted that an "event" of frustration had occurred. There was no more than a forecast drop in property prices. Furthermore a drop had been foreseen when the Agreement was negotiated and allowed for in its terms. There was no injustice requiring the contract to be performed because the minimum prices could be renegotiated and both parties had an interest in making the Agreement work. As the Agreement was meant to last for two years a gloomy forecast during that period was not a frustrating event. In addition, Barratt could not say when the Agreement was frustrated. The judge asked rhetorically: how many of the properties had to drop below the forecast minimum prices? One, two, all of them? And for how long, given that the forecast prices fluctuated? The lack of clear answers to these questions militated against a finding of frustration.

So where does this leave us?

  • Usually a contract will adequately provide for frustrating events implicitly, in allocating risks, or in express provisions such as for "force majeure" or "Acts of God". In express clauses, frustrating events are often defined more broadly than the general law would otherwise require for frustration. The contract may even permit a party (such as an employer under a construction contract) to terminate for convenience. Alternatively, the contract may provide for something other than its discharge if a defined frustrating event occurs. For instance, in construction contracts exceptional bad weather that prevents work from being carried out may give the contractor relief from damages for delay, if not also compensation for its prolonged presence on site and any disruption caused. However, the contract may go further and provide for the contract to end if the event persists beyond a certain period. Without such a contractual provision, most bad weather does not usually excuse contractors as they are taken to have contemplated their possibility.
  • If the parties foresee the event but make no contractual provision for it that will usually prevent the doctrine of frustration from applying. Subject to that, if a contract fails to make sufficient provision for a frustrating event, the doctrine of frustration may apply. Equally, even if a contract makes some express provision, an event may be so abnormal as to fall outside what the parties contemplated by the clause.
  • An example of a frustrating event under the general law is where a contract's performance becomes permanently illegal. However, economic forces that make performing a contract more onerous, but not impossible, to perform will very rarely constitute frustration. While Barratt relied upon a forecast downturn rather than the downturn itself (no doubt because the Agreement was meant to last for two years) it is unlikely that the latter would better avail parties claiming frustration. The unexpected and abnormal nature of the recent recession (which stills affects many areas of the UK economy) does not put it in a different class as far as the English doctrine of frustration is concerned. This extreme pro-contract approach has been tempered in many countries by hardship laws which provide relief when a contract becomes excessively onerous.

In short though, under English law at least, the recession was not frustrating – although many involved in the real estate and construction sectors, as well as many other parts of the economy, would swear to the contrary - and then some.

Reference: Gold Group Properties Ltd v BDW Trading Ltd [2010] EWHC 323 (TCC) (

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 05/03/2010.

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