Davis Contractors Ltd v Fareham UDC [1956] AC 696 (HL)

Facts

• Davis Contractors Ltd entered into a contract with Fareham Urban District Council to construct 78 houses at a fixed price, with an estimated completion in eight months.
• The project encountered unforeseen shortages of labour and materials, resulting in significant delays and increased costs.
• Completion was extended to 22 months due to these difficulties.
• The contractors argued the contract was frustrated by the unforeseen delays and rising expenses, seeking extra payment on a quantum meruit basis, asserting the original contract was no longer binding.
• The local authority maintained that the contract should be performed according to its agreed terms.

Issues

1. Whether the increased difficulty, delay, and cost due to labour and material shortages constituted frustration of contract.
2. Whether the contractors were entitled to extra payment beyond the fixed price on the basis that the contract was frustrated.
3. Whether the doctrine of frustration should be applied using the implied term theory or a construction-based approach to the contract.

Decision

• The House of Lords rejected the contractors’ claim of frustration, holding that the delays and increased costs did not amount to a fundamental change in the contractual obligation.
• The contract’s core remained the construction of the houses; the performance, though more onerous, was not radically different from the parties’ original intention.
• The court confirmed that frustration requires an event to render contractual obligations fundamentally different, not simply more difficult or expensive.
• The House of Lords moved away from the implied term theory, endorsing a construction-based approach to determining frustration.
• The claim for additional payment failed, and the original contract remained enforceable.

Legal Principles

• Frustration requires a radical change in the nature of contractual obligations; mere hardship, delay, or expense is insufficient.
• The doctrine operates by law, not on hypothetical intentions of the parties.
• The test for frustration involves an objective analysis of whether the contract is capable of applying to the new circumstances, not what the parties might have agreed.
• If difficulties or delays were foreseeable, frustration will generally not apply; parties are expected to allocate such risks contractually.
• The implied term theory is rejected; courts must construe the contract and circumstances to determine frustration.

Conclusion

Davis Contractors Ltd v Fareham UDC established that only a fundamental, unforeseen change transforming the nature of contractual obligations amounts to frustration. Increased difficulty or cost does not suffice, and the courts apply an objective, construction-based approach to decide such claims. The principles from this case define the narrow boundaries for applying the doctrine of frustration in English contract law.