Introduction
In English contract law, the principle of pacta sunt servanda (agreements must be kept) is fundamental. This creates a strong presumption that once a contract is made, the parties are bound to perform their obligations. However, the law recognises that in exceptional circumstances, a party may be excused from performance. Two key mechanisms for this are the common law doctrine of frustration (which deals with impossibility) and contractually agreed force majeure clauses. The statement that "an increase in price and thereby causing a loss to one of the parties is not a force Majure event or an impossibility to perform the contract" is, as a general rule, an accurate reflection of the English courts' position. This essay will argue that the courts are consistently reluctant to allow parties to escape their contractual duties simply because performance has become more expensive or economically disadvantageous. It will first examine the high threshold required to establish frustration and show why price increases almost never meet this test. It will then analyse the nature and interpretation of force majeure clauses, demonstrating that while they can be drafted to cover economic hardship, this is not their standard function and courts will construe them narrowly.
Impossibility and the Doctrine of Frustration
The doctrine of frustration provides a narrow exception to the rule of absolute liability in contract. A contract may be discharged by frustration where an event occurs after the contract's formation, which is not the fault of either party, and which renders performance of the contract impossible, illegal, or "radically different from that which was undertaken by the contract" (McKendrick, 2022). The modern test for frustration was famously articulated by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696. He stated that frustration occurs when the law recognises that, without the default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.
The courts have applied this test very strictly, with the result that the doctrine is rarely invoked successfully. Crucially for the purposes of this essay, it has been firmly established that a contract becoming more difficult or expensive to perform is not a ground for frustration. The Davis Contractors case is itself the leading authority on this point. In that case, a building contractor agreed to build 78 houses for a fixed price within eight months. Due to an unexpected shortage of skilled labour and materials, the work took 22 months and cost the contractor significantly more than anticipated. The contractor argued the original contract was frustrated, and they should be entitled to be paid on a quantum meruit basis (a reasonable sum for the work done). The House of Lords rejected this argument. It was held that the contractor had taken on the risk of the work becoming more expensive; the fact that the work became more onerous and less profitable did not mean the fundamental nature of the obligation had changed. Lord Reid noted, "It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play."
This judicial attitude was confirmed in Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93. A contract was made for the sale of groundnuts to be shipped from Sudan to Hamburg. Both parties expected the shipment would be via the Suez Canal. After the contract was made, the Suez Canal was closed to shipping. The seller could still have shipped the goods by going around the Cape of Good Hope, but this would have taken much longer and would have been considerably more expensive. The seller argued the contract was frustrated. The House of Lords disagreed, holding that the alternative route, while more costly, did not render the performance "radically different". The contract was for the shipment of groundnuts, and that could still be done. The method of performance had changed, but not the fundamental obligation.
These cases illustrate the core judicial policy: to uphold contractual certainty. Parties, particularly in a commercial context, are presumed to have allocated the risks of the venture between them when they agree on a price. The risk of rising costs, whether for labour, materials, or transport, is a standard commercial risk. To allow a party to escape a contract simply because it has turned into a bad bargain would undermine the very foundation of commercial law. Therefore, as far as the doctrine of frustration is concerned, an increase in price causing a loss to one party does not constitute an impossibility or a radically different performance.
Force Majeure Clauses
Unlike frustration, which is a common law doctrine applied by the courts, a force majeure clause is a creature of contract. It is a provision that the parties themselves include in their agreement to anticipate certain events that are beyond their control and which may hinder or prevent performance. If a specified event occurs, the clause typically allows the affected party to suspend its obligations or, if the event continues for a prolonged period, to terminate the contract without being liable for breach (Treitel, 2020).
The key question is whether an "increase in price" is a force majeure event. The answer depends entirely on the wording of the specific clause in the contract. A typical force majeure clause will list specific events such as "acts of God, war, riot, terrorism, strikes, or natural disasters". It is highly unlikely that a general market increase in the price of raw materials or services would fall within such a list. Parties seeking to rely on such a clause bear the burden of proving that the event falls squarely within its wording (Chitty, 2022).
Courts interpret these clauses strictly and generally against the party seeking to rely on them. If a clause contains a general catch-all phrase like "or any other cause beyond our reasonable control", it will usually be interpreted ejusdem generis (of the same kind), meaning the general words are limited to events of the same type as the specific ones listed. It is improbable that a court would consider a price increase to be in the same class as a war or a natural disaster.
In Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 (Comm), a long-term contract for the supply of gas became highly unprofitable for the supplier when the market price of gas rose dramatically. The supplier tried to argue that this constituted a force majeure event. The clause in question referred to events beyond the reasonable control of the party that prevented it from performing its obligations. The court held that a change in economic circumstances, however dramatic, was not a force majeure event. The court stated that the purpose of the contract was to insulate the buyer from price fluctuations, and the supplier had accepted that risk. The supplier was not "prevented" from performing; it was just more expensive to do so.
This does not mean it is impossible for a force majeure clause to cover price increases. Parties are free to contract on whatever terms they wish. A sophisticated commercial contract could be drafted with a specific "price escalation" or "economic hardship" clause. This might define a trigger event, such as the price of a key raw material increasing by a certain percentage above a benchmark. However, this is not a standard force majeure provision. It is a specifically negotiated risk-allocation tool. In the absence of such clear and express wording, the English courts will not imply a term that a contract is suspended or terminated simply because market prices have moved against one party. Therefore, the statement that a price increase is not a force majeure event is correct in the vast majority of standard commercial contracts.
Conclusion
In conclusion, the proposition that a mere increase in price, leading to financial loss, is not grounds to claim frustration or invoke a standard force majeure clause holds true under English law. The doctrine of frustration is reserved for truly exceptional events that make performance impossible or radically different, not just more expensive. The courts have consistently held in cases like Davis Contractors and Tsakiroglou that economic hardship does not meet this high threshold, as it is considered a normal commercial risk that a party is expected to bear. Similarly, while a force majeure clause is defined by the parties themselves, standard clauses do not include economic changes. As cases like Thames Valley Power demonstrate, courts interpret these provisions strictly and will not allow a party to use them to escape a bad bargain unless the wording is unequivocally clear. The underlying rationale for this strict approach is the paramount importance of contractual certainty in English commercial law. The law’s function is to enforce the bargain the parties made, including the allocation of risks, not to rewrite it for them when it becomes unprofitable.
References
Chitty, J. (2022) Chitty on Contracts. 34th edn. Sweet & Maxwell.
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696.
McKendrick, E. (2022) Contract Law: Text, Cases, and Materials. 10th edn. Oxford University Press.
Taylor v Caldwell (1863) 3 B & S 826.
Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 (Comm).
Treitel, G.H. (2020) The Law of Contract. 15th edn. Sweet & Maxwell.
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93.
