When is your QLD construction contract frustrated? Learn of its distinction from Force Majeure events

John Merlo
11 minutes ago
12 min read

When you sign a construction contract, you are securing a set of promises—a roadmap for a project's future. But what happens when an unforeseen event completely derails the journey, making the destination unreachable or fundamentally altering the path? You might be facing a situation where your contract is frustrated.

This scenario can be incredibly stressful, leaving you with significant financial exposure and uncertainty about your rights and obligations. Perhaps a once-in-a-century flood has inundated your building site, a sudden government regulation has made the project illegal, or the specific, unique materials required have been destroyed in a fire. These are not mere inconveniences; they are game-changing events that can strike at the very heart of a contract.

This comprehensive guide is designed to clarify the complex legal doctrine of frustration under Queensland law. We will explain what it means for a contract to be frustrated, explore the remedies available, distinguish it from a standard breach of contract, and examine its relationship with force majeure clauses. Understanding this principle is vital for protecting your business when the unexpected becomes a reality.

What is a frustrated contract?

In the context of Australian law, a frustrated contract is one that, through no fault of either party, can no longer be performed in the way it was intended. A "frustrating event" must occur after the contract was signed, making the obligations under it impossible, illegal, or radically different from what the parties contemplated at the outset.

The threshold for proving a contract is frustrated is exceptionally high. It is not enough for the contract to simply become more difficult, more expensive, or less profitable to complete. A court will not let a party out of a bad bargain. The law requires a complete transformation of the contractual obligations, so that it would be unjust to hold the parties to their original agreement.

This principle was famously defined in the High Court of Australia case of Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24. In that case, Codelfa was contracted to build tunnels for a new railway. Both parties assumed, based on incorrect legal advice, that Codelfa could work around the clock. However, injunctions from local residents severely restricted their working hours, dramatically increasing costs and delaying the project. The High Court found that the injunctions were a frustrating event because they made the performance of the contract a "radically different" undertaking from what was originally agreed.

The Core Elements of Frustration

For a contract to be deemed frustrated, three essential conditions must be met:

A Supervening Event: An event must occur after the contract was formed. It cannot be a pre-existing issue that one party was unaware of.
No Fault: The event cannot be the fault of the party seeking to rely on frustration. You cannot cause the problem (for example, by running out of money or ordering the wrong materials) and then claim the contract is frustrated. This is known as "self-induced frustration" and is not permitted.
Radical Impact: The event must make the contractual obligation impossible, illegal, or so fundamentally different that it would be unjust to hold the parties to their original agreement.

Common Examples of Frustrating Events in Construction

While every case depends on its specific facts, certain scenarios are more likely to give rise to a successful frustration claim in the building and construction industry:

Destruction of the Subject Matter: If a house you are contracted to renovate burns down before you can complete the work, the contract would likely be frustrated. The very thing the contract was about has ceased to exist.
Unavailability of a Specific Person or Thing: If a contract requires the use of a uniquely skilled artisan who passes away or a specific piece of machinery that is irreparably destroyed, the contract may be frustrated. However, this typically does not apply if a suitable replacement is available.
Changes in the Law (Supervening Illegality): If the government passes new legislation or regulations that make the planned construction illegal, the contract will be frustrated. For example, if a new environmental law prohibits building on a specific site after the contract has been signed.
Government Intervention: The government compulsorily acquiring the land for a public purpose would be a classic frustrating event.
Injunctions: As seen in the Codelfa case, a court order that fundamentally alters the method of performance can frustrate a contract.
Extreme and Unforeseeable Delays: While normal delays are a common part of construction, an inordinate delay that is unforeseeable and not covered by the contract (e.g., the outbreak of a war that halts all material supply for years) could be a frustrating event.

What is NOT a Frustrating Event?

It is crucial to distinguish true frustration from common project challenges.

The following are generally not considered frustrating events:

Increased Hardship or Cost: A contract becoming more expensive or less profitable is not grounds for frustration. If timber prices double unexpectedly, you are still bound by the original contract price. This is a commercial risk you are assumed to have accepted.
Foreseeable Events: If the event was something the parties could have reasonably foreseen and provided for in the contract (e.g., through a force majeure clause), frustration will not apply. In Queensland, events like cyclones and heavy rain are often considered foreseeable to some extent.
Bad Weather: Normal or even severe weather is not typically a frustrating event, as it is an expected risk in the construction industry. Contractual clauses for an extension of contract time are the usual remedy for weather-related delays. Only a truly catastrophic, unforeseeable weather event might qualify.
Shortages of Materials or Labour: While the COVID-19 pandemic caused significant supply chain disruptions, these were generally held to make contracts more difficult or expensive, not impossible or radically different. Therefore, they rarely met the high bar for frustration.

If you are facing a situation you believe may be a frustrating event, it is essential to seek advice from an expert construction lawyer such as Merlo Law. Arguing frustration incorrectly could lead to you being found to have repudiated (wrongfully terminated) the contract, exposing you to a claim for damages.

The Critical Role of 'Force Majeure' Clauses

Many modern building contracts contain a "force majeure" clause. This is a provision that the parties negotiate to deal with the consequences of specific, disruptive events that are outside their control (often called "acts of God"). These clauses typically list the events they cover, such as war, terrorism, pandemics, or extreme weather, and set out a process for what happens if one occurs, which usually involves suspending obligations and granting an extension of time.

The existence of a force majeure clause is very important. If an event occurs that is covered by the clause, the parties must follow the procedure laid out in the contract. The doctrine of frustration will not apply because the parties have already turned their minds to the issue and agreed on a solution. Frustration only operates when the contract is silent on the matter.

What is the remedy for a frustrated contract?

When a contract is frustrated, it is automatically terminated by law at the moment the frustrating event occurs. This happens without any action or choice by either party. The key question then becomes: what happens to the money, work, and materials already invested in the project?

The Common Law Position in Queensland

Unlike New South Wales, Victoria, and South Australia, Queensland does not have a specific Frustrated Contracts Act. This is a critical point. In Queensland, the consequences of a frustrated contract are governed by the common law.

The traditional common law rule is often summarised as "the loss lies where it falls." This can lead to harsh and seemingly unfair outcomes. The effects are:

Automatic Termination: The contract ends immediately from the point of the frustrating event.
Future Obligations Discharged: Both parties are released from any further obligations. You do not have to complete any more work, and the principal does not have to make any more payments for future work.
Accrued Rights Remain: This is the most important and often most difficult part of the rule. Any rights that had already been unconditionally acquired or accrued before the frustrating event remain enforceable.

Let's consider a practical example. Imagine a builder is contracted to construct a shed for a total price of $50,000, payable on completion. The day before the builder is finished, the shed is destroyed by a freak lightning strike and fire.

Under the strict common law rule, the contract is frustrated. The builder is released from the obligation to finish the shed. However, because the right to payment was conditional on completion, that right had not yet accrued. The builder would be unable to claim any of the $50,000 contract price, despite having done 99% of the work. The loss lies where it falls.

Conversely, if the contract stipulated progress claims, and a $20,000 payment for the slab and frame had already become due and payable before the fire, the builder would still be entitled to claim that $20,000.

Adjusting the Losses Through Restitution

The harshness of the "loss lies where it falls" rule has been softened by the law of restitution, which aims to prevent one party from being unjustly enriched at the expense of the other.

Two key restitutionary claims can arise after a contract is frustrated:

Recovery of Money Paid (Total Failure of Consideration): A party who has paid money before the frustrating event can claim it back if there has been a "total failure of consideration." This means they received absolutely none of the benefit that the payment was for. If the paying party received even part of the intended benefit, this claim will fail.
Payment for Work Done (Quantum Meruit): A party who has performed work that has benefited the other party may be able to make a claim for payment based on quantum meruit (a Latin phrase meaning "what one has earned"). This is a claim for a reasonable sum for the work performed. However, this can be complicated. In the example of the destroyed shed, the principal received no lasting benefit from the builder's work, making a quantum meruit claim very difficult. If the frustrating event was a change in law that halted the project, the work already completed (e.g., foundations) provides a tangible benefit to the landowner, strengthening the basis for a claim.

Navigating these common law principles requires careful legal analysis. If your project has been halted by an unforeseen event, understanding your rights regarding payments made or work performed is a critical first step. Issues around payment can quickly become complex, and understanding the nuances of security of payment legislation is also vital.

What is the difference between breach of contract and frustration?

It is easy to confuse a frustrated contract with a breach of contract, but they are fundamentally different legal concepts with vastly different consequences. Mistaking one for the other can have serious financial and legal repercussions.

The core difference comes down to one word: fault.

Breach of Contract: A Matter of Fault

A breach of contract occurs when one party, without a lawful excuse, fails or refuses to perform their obligations as set out in the agreement.

Cause: It is caused by the actions or inaction of one of the parties.
Fault: One party is at fault. The other party is "innocent."
Examples: A builder using materials that don't meet the specifications in the contract, a homeowner failing to make a progress payment on time, or a contractor abandoning the site without justification.
Remedy: The innocent party has the right to sue for damages to compensate for the loss caused by the breach. For a serious breach (repudiation), the innocent party may also have the right to terminate the contract and claim damages. The goal is to put the innocent party in the position they would have been in had the contract been performed correctly.

A breach of contract is an internal failure of one party to uphold their end of the bargain. This often leads to building and construction disputes that require careful management and resolution.

Frustration: A Matter of No Fault

Frustration, on the other hand, is not caused by either party. It is triggered by an external, unforeseen event that is beyond the control of the parties.

Cause: It is caused by an outside event.
Fault: Neither party is at fault.
Examples: The destruction of the site by a natural disaster, a new law making the project illegal, or the death of a party contracted for personal services.
Remedy: The contract is automatically terminated. The common law rule of "the loss lies where it falls" applies, subject to restitutionary claims. There is no right to claim damages for the loss of the contract because neither party is to blame.

Comparison Table

Feature	Breach of Contract	Frustration of Contract
Cause	Failure of a party to perform their obligations.	An external, supervening event.
Fault	One party is at fault.	Neither party is at fault.
Termination	The innocent party may have the right to choose to terminate.	The contract terminates automatically.
Remedy	The innocent party can claim damages for loss.	No claim for damages. Losses lie where they fall, subject to restitutionary claims.
Focus	Enforcing the bargain or compensating for its loss.	Recognising the bargain is no longer applicable.

Understanding this distinction is critical. If you declare a contract frustrated when a court later finds it was merely a performance issue (a breach), you may be found to have wrongfully repudiated the contract yourself. This could expose you to a significant damages claim from the other party. Before taking any action, it is imperative to have your situation assessed by a construction contract lawyer who can advise on the correct legal characterisation of the event.

The Queensland Building and Construction Commission (QBCC) provides extensive resources for contractors and homeowners, but for specific legal advice on complex issues like frustration, consulting with legal professionals such as Merlo Law is essential. Industry bodies like the Master Builders Queensland and the Australian Institute of Building also offer support and resources for their members. The Queensland Government's business portal also offers general guidance on contract law.

Final Steps and Key Takeaways

Navigating the end of a contract is never simple, but when it happens because of a frustrating event, the legal landscape can be particularly challenging. In Queensland, without a specific statute to guide the process, parties are left to rely on the complexities of the common law.

Here are the key takeaways:

Frustration is a High Bar: A contract is frustrated only when an unforeseen event makes performance impossible, illegal, or radically different. It is not a remedy for a bad bargain, increased costs, or inconvenience.
It's a No-Fault Doctrine: Frustration is caused by an external event beyond the control of either party, unlike a breach, which is caused by one party's failure to perform.
Termination is Automatic: The contract ends the moment the frustrating event occurs.
Losses Lie Where They Fall (with exceptions): In Queensland, the common law dictates that parties are released from future obligations, but rights accrued before the event remain. This can lead to harsh outcomes, which may sometimes be softened by claims in restitution.

The doctrine of frustration underscores the unpredictable nature of the construction industry. While you can't plan for every eventuality, you can prepare for how you will respond. If you believe your project has been affected by a frustrating event, your first and most important step is to get expert legal advice.

If you're facing a building dispute or your project has been derailed by an unexpected event, you need clarity on your legal position. Contact Merlo Law today for a consultation. Our team of experts specialises in Queensland's building and construction law and can provide the authoritative guidance you need to navigate this complex situation.

Frequently Asked Questions

Can I claim frustration if my material costs have suddenly gone up?

No, generally you cannot. A contract becoming more expensive or less profitable to perform is considered a commercial risk, not a frustrating event. The doctrine of frustration requires performance to be impossible or radically different, not just harder.

What's the difference between a force majeure clause and frustration?

A force majeure clause is a contractual term that the parties agree to, which excuses non-performance due to specific, listed events. Frustration is a common law doctrine that applies automatically when there is no such clause, or the event is outside the scope of the clause. If a valid force majeure clause covers the event, the contract terms will apply, not frustration.

Does Queensland have a Frustrated Contracts Act?

No. Unlike some other Australian states, Queensland does not have specific legislation for frustrated contracts. The consequences are determined by the common law, which means the principle of "the loss lies where it falls" is the starting point. This can be modified by restitutionary claims to prevent unjust enrichment.

If a contract is frustrated, can I get paid for the work I've already done?

It depends. Under Queensland's common law, any rights to payment that had unconditionally accrued before the frustrating event are still enforceable. For work where the right to payment had not yet accrued, you may have to make a separate claim in restitution (quantum meruit) for the value of the benefit you provided, which can be complex.

What is the first thing I should do if I think my contract is frustrated?

The very first step should be to seek specialist legal advice from a construction lawyer. Incorrectly claiming frustration can be treated as a repudiation (wrongful termination) of the contract, which could expose you to a lawsuit for damages. An expert can assess your specific situation and advise on the correct course of action.

Can a contract be partially frustrated?

The frustration of a severable part of a contract does not necessarily mean the entire contract is frustrated. If the contract can be broken down into distinct, independent obligations, it's possible for one part to be frustrated while the remainder continues to be enforceable. This requires careful analysis of the contract's terms.

Is a QBCC decision required to determine if a contract is frustrated?

No, the Queensland Building and Construction Commission (QBCC) does not have the jurisdiction to formally declare a contract frustrated. This is a matter of law that is ultimately determined by a court. While the QBCC handles many types of building disputes, a legal determination of frustration falls outside its statutory powers.

This guide is for informational purposes only and does not constitute legal advice. For advice tailored to your specific circumstances, please contact Merlo Law.