A contract becomes frustrated when it is commercially impossible and/or legally impracticable for the parties (one or both) to perform their obligations under the contract. The fundamental premise of a frustrated contract argument is that a party must show that the circumstances are now so fundamentally different that the parties did not agree to be bound in those circumstances.  It is not enough to suggest that a party has simply suffered loss or hardship as a result of the different circumstances or that it is much more burdensome for that party to perform its obligations under the contract.

The burden of proving impossibility of performance is usually placed upon the party which has been unable to complete their obligations.

Unfortunately, there is no hard and fast rule as to what event will be deemed a frustrating event by the courts. Accordingly, consideration must be had to the specific circumstances that impact upon a contract.

A contract cannot be frustrated unless it is impossible to perform its obligations. It therefore cannot be frustrated for the following reasons:

When a contract becomes frustrated, it is automatically terminated at the point of frustration, making void all future obligations. The contract is not void ab initio (“from the beginning”); only future obligations are discharged. This means any previously incurred obligations, prior to the frustrating event, still remain.

Different states have different legislation regarding expenses and costs which can be recovered. Victoria derives its authority from the Australian Consumer Law and Fair Trading Act 2012. Subsection 36 of this Act outlines that amounts paid to a party before the time of discharge of the contract are recoverable, however amounts payable at the time of frustration cease to be payable (unless the entire performance has occurred).