The Recession May Be Bad But It Isn't Frustrating?

One of the reasons a contract can be abandoned is that the performance of the contract is ‘frustrated’ – something happens which makes it impossible to complete.

In August 2007, the builders Barratt contracted with site owner Gold Group Properties Ltd. to build a large number of houses and flats. The nature of the agreement was that once the properties were built, they would be sold and the sale proceeds would be shared between Barratt and Gold. The contract was in the form of a ‘development agreement’. The land was transferred to Barratt in early 2008. The development agreement specified minimum prices for the properties sold.

Barratt was later advised that the minimum selling prices included in the development agreement would not be achieved and decided not to commence the development. Gold sued for £9.5 million in lost profits.

Barratt defended the action, using the argument that the minimum prices set out in the development agreement constituted a guaranteed minimum return or a condition which must be satisfied for the contract to have effect. It contended that the contract was therefore frustrated.

The court could not accept this argument. For a contract to be frustrated, an event must occur which is a change that is so significant that the parties to the contract could not reasonably have foreseen it when they entered into it. A fall in property prices is not such an event. 

The lesson to be learned is that if protection from changes in the prevailing economic conditions or any other factor is important in a contract, the appropriate terms should be agreed at the outset. Contact Clare Magill for more advice.