Davis Contractors Ltd v Fareham Urban District Council [1956]

Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3 is a notable English contract law case concerning the frustration of a contract.

The dispute centred around an agreement for Davis Contractors to construct 78 houses within a stipulated time frame of eight months, for a total cost of £92,425, as agreed with Fareham Urban District Council (UDC). However, the actual construction extended to 22 months due to shortages in labour and materials, resulting in a total cost of £115,223. Davis Contractors asserted that the contract was frustrated, rendering it void, and sought compensation based on quantum meruit for the work completed.

The House of Lords rejected the argument that the contract had been frustrated. Despite the increased burden on performance, the court maintained that frustration did not apply. Lord Reid, in his perspective, emphasised that frustration is not contingent upon implying new terms into the contract but rather hinges on the accurate construction of existing terms. The determination of frustration involves examining the nature of the contract and considering the surrounding circumstances that existed at the time of its formation.

Lord Radcliffe's concurrence highlighted the relevance of the officious bystander test in assessing frustration. According to this test, frustration occurs when, without any fault from either party, a contractual obligation becomes impossible to perform due to unforeseen circumstances. Frustration is recognised by the court when these circumstances fundamentally alter the nature of the performance initially undertaken in the contract.

An additional argument put forth by Davis Contractors, regarding an express term stipulating that the agreed price was binding only if sufficient supplies of labor and materials were available, did not find favour with the court. The court's decision underscored that even explicit contractual provisions may not necessarily preclude frustration if the prevailing circumstances fall outside the envisaged scope of the contract.

In summary, the Davis Contractors case establishes the principle that frustration is determined through the careful examination of existing contract terms, considering the nature of the agreement and the circumstances surrounding its formation. This decision emphasises the court's role in interpreting contracts and recognising frustration when the performance of a contractual obligation becomes substantially different due to unforeseen circumstances, regardless of explicit contractual terms.
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