Apply frustration and its financial consequences
Distinguish a radically changed obligation from inconvenience, then apply the 1943 Act's discretionary adjustments.
Exam scope and assessment notes
A Level · section 3.3.3. Original educational scenarios about the law of England and Wales, checked on 14 October 2026. Model answers are formative reasoning, not advice about a real dispute, Cambridge marks or predicted grades. Read the exact statute, case and exam-year source where a rule is disputed or changes. A larger annotated authority bank, full unseen papers and specialist law-teacher review remain outstanding.
Before you begin
- Read a short source carefully and separate its rule from the facts
- Explain which element a fact supports and what is still uncertain
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What should a legal problem answer connect?
What you will learn
- Explain frustrating events and doctrinal limits
- Apply Law Reform (Frustrated Contracts) Act sections 1(2) and 1(3)
Test the changed obligation
Without relevant fault, a supervening event can make agreed performance impossible, illegal or radically different, including destruction of an essential venue or failure of a shared foundation. Taylor v Caldwell and Krell illustrate distinct routes; Davis Contractors shows why additional cost or difficulty alone is not enough. A mere reduction in one party's hoped-for profit does not necessarily destroy the common contractual purpose.
First check any express risk allocation or force-majeure clause. Self-induced inability, foreseeable or allocated risks and an event within ordinary contractual expectations can defeat frustration. Foreseeability is not a mechanical rule detached from degree, knowledge and allocation. Frustration operates automatically when its stringent requirements are met and releases future performance, rather than retroactively declaring the bargain never existed.
Adjust money and benefits carefully
Under section 1(2), prepayments are generally recoverable and sums payable before frustration cease to be payable, subject to the court's just allowance for qualifying expenses within the statutory limits. The allowance is discretionary, not an automatic deduction of all expenditure. Apply the Act's scope, exceptions and contractual provisions before assuming the scheme applies.
Section 1(3) concerns a valuable non-money benefit obtained before frustration and permits a just sum no greater than that benefit's value, taking relevant expenses and the event's effect into account. It is not an automatic price award for every unfinished service. The common-law losses and the statutory adjustments should be distinguished, and neither party should receive double recovery.
Sources for this lesson
Pause and explain
Does qualifying expenditure automatically have to be deducted from the prepayment?
Worked example
Assume a covered contract is frustrated after a £200 prepayment. Qualifying expenses are £120 and no other adjustments apply. Must the refund always be £80?
Show the worked solution
- The starting prepayment is recoverable.
- The court may allow qualifying expenses justly within limits.
- A £120 allowance is not compulsory.
Answer No. In this simplified exercise the court may allow between £0 and £120, so the refund can range from £200 to £80. The arithmetic follows a discretionary allowance; it does not turn expenses into a mandatory deduction.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Guided: Calculate the simplified refund if the court allows £50 of expenses.
Give me a hint
Use the allowance, not the full expenditure.
Compare my reasoning
- Start with £200.
- Deduct the allowed £50.
- Separate allowance from £120 spent.
The refund is £150 on these stipulated facts. The court has allowed only £50, so deducting all £120 would incorrectly replace the discretionary decision with total expenditure.
Look for these in your work
- Calculates £150
- Uses allowed amount
- Preserves discretion
Independent: A task remains possible but costs more than expected and the contract allocates that risk to the supplier. Explain the frustration difficulty.
Give me a hint
Cost and allocated risk differ from radical change.
Compare my reasoning
- Identify continued possibility.
- Identify additional expense.
- Read the contractual risk allocation.
Continued possible performance at higher cost, particularly where that risk was allocated to the supplier, does not by itself establish frustration. The stringent radically-different obligation test needs more than disappointment with the bargain.
Look for these in your work
- Uses possibility
- Uses cost limit
- Uses allocation
Application: Before frustration one party receives an identifiable non-money benefit. What bounds a section 1(3) award?
Give me a hint
Benefit value and a just sum are distinct.
Compare my reasoning
- Identify the obtained benefit.
- Evaluate its value and the event's effect.
- Apply a just sum no greater than that value.
The court considers the actual non-money benefit, its value, relevant expenditure and the effect of frustration, and can award a just sum within the benefit-value ceiling. It does not automatically award the original full price or every expense.
Look for these in your work
- Identifies benefit
- Uses statutory factors
- Uses ceiling
Common mistakes
- Equating extra expense with frustration
- Treating all expenses as automatically deductible
- Using section 1(3) for a money benefit
What can you explain now?
Does qualifying expenditure automatically have to be deducted from the prepayment?
Compare with the explanation
No
Section 1(2)'s expense allowance depends on the court's just discretion and statutory limits.
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Make it stick
Does qualifying expenditure automatically have to be deducted from the prepayment?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.