Argentina! Strikes, Frustration and 'Force Majeure'

A review of the modern common law doctrine of frustration in the context of contract law.

The doctrine of frustration arises out of a need for the recognition that it may not always be possible to perform a contract in the manner originally intended.

To better understand the modern common law doctrine of frustration, which may arise in the context of contract law, it is helpful to refer to the statement of Lord Radcliffe in Davis Contractors Ltd. v Fareham Urban District Council (1956). Here, he explained that:

"Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do."

Following Lord Radcliffe's definition, in order for a contract to be frustrated, it is essential that performance of said contract, in the new situation, be "radically different" from that originally contemplated. Combined with the fact that the doctrine of frustration is applied "within very narrow limits"1, it is by its nature inherently uncertain.

In relation to commercial transactions, certainty is of great importance2. Given the inherently uncertain nature of the doctrine of frustration and the strict confines within which it operates, it is common for sale contracts and charterparties to attempt to obviate this uncertainty by inserting express contractual provisions into the sale contract. Such provisions are commonly referred to as "force majeure" clauses.

The aim of a force majeure clause is to provide relief to one or both parties to the contract on the occurrence of a particular event. The clause may provide for a total discharge of the contract on the occurrence of the specified event3. If so, it will resemble in effect, the common law doctrine of frustration. However, it is more common for a force majeure clause to provide relief in the form of a suspension of performance under the contract. When and how the clause operates will depend on the wording of the clause and is thus a question of construction.

An example of a force majeure provision can be found in the recently revised GAFTA No. 38 (Contract for grain from Argentina in bulk FOB terms) (effective 1 September 2010) under clause 17 which provides that:

Sellers shall not be responsible for delay in...