Confirmation that change in economic circumstances does not entitle party to treat contract as ‘frustrated’ – Gold v BDW Trading, High Court

The parties entered into a contract for BDW to build a new property development on Gold’s land. Following the contract, the projected selling prices fell sharply because of the crash in property prices. However, the High Court ruled that BDW was not entitled to treat the contract as ‘frustrated’ and the contract had to go ahead. The change in economic situation wasn’t expected, but equally it was still not entirely unforeseeable as a possibility. ‘Frustration’ is when a supervening event occurs after the contract has been formed; it’s so fundamental as to be regarded by the law both as striking at the root of the contract and as entirely beyond what was contemplated by the parties when they entered the contract; it’s not due to the fault of either party; and it renders further performance impossible, illegal or makes it radically different from that contemplated by the parties at the time of the contract. An event of frustration may occur, for example, when the subject matter of the contract is destroyed.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘It’s rare for courts to rule that frustration occurs, because they like to ensure contracts are honoured where possible. This case doesn’t create new law, but confirms that a mere adverse change in the economic climate is not a ground to claim frustration and get out of a bad bargain. If the parties want to avoid a contract in those circumstances, it’s still open to them to draft an appropriate get-out in the contract itself to cover those circumstances.’