Foreseeable Risk Should Be Contracted, Not Hoped Away: The Limits of Frustration

The more foreseeable a disruption is, the less comfortable leadership should be leaving it to frustration doctrine.

The Week 5 materials identify several limits on frustration. Increased difficulty or expense is generally insufficient. Self-induced events may prevent reliance on frustration. Express contractual provisions may govern the event instead. The tutorial scenario involving James, Mary and Fratelli makes these limitations practical.

James and Mary begin refurbishment before securing council approval for the restaurant. When the regulatory position changes, they attempt to stop the construction contract. Fratelli can argue that approval risk was foreseeable, that the refurbishment still has value and that the clients created part of the exposure by proceeding before approval was secured.

The Strategic Context

Projects are often launched before every external dependency is settled.

Finance is pending. Permits are incomplete. planning approvals are uncertain. third-party access is unresolved. long-lead procurement starts early.

Sometimes this is rational.

But once leadership knowingly proceeds, uncertainty should be governed explicitly.

The source's self-induced frustration example, Maritime National Fish v Ocean Trawlers, illustrates a party unable to rely on frustration where its own choice produced the disabling outcome.

What Leaders Commonly Misread

The first mistake is confusing externality with absence of responsibility. A government decision may be external, but the organisation may still have chosen to proceed without making approval a contractual condition.

The second is believing foreseeability automatically determines frustration. The modern legal position is more nuanced and requires verification. [FACT CHECK REQUIRED]

The third is failing to use express contractual mechanisms. The Week 5 notes explain that where the contract already provides for the event, the contractual allocation may govern instead of frustration.

The fourth is waiting until disruption occurs to decide who owns the risk.

Reframing the Issue

The strategic question is:

Which uncertainties are material enough that we should allocate them before commitment?

That transforms frustration from a doctrine of last resort into a lesson in contract design.

Risks involving approvals, law, access, finance, key resources and external events should be considered during formation.

Strategic Analysis: The James and Mary Governance Failure

The tutorial is valuable because the parties' legal arguments are uncertain, but the governance weakness is obvious.

James and Mary know the restaurant depends on external approval.

They commence refurbishment while finance and regulatory matters remain unresolved.

Later, they want the construction contract to disappear because the business purpose has been disrupted.

Fratelli can respond that construction itself remains possible and still creates value.

That dispute could have been reduced by an express condition, staged notice to proceed or other contractual allocation of approval risk.

Hypothetical project example: A company orders bespoke equipment before planning approval for the facility is final. If approval fails, the equipment may still be manufacturable but commercially useless to the buyer. Leadership should decide before award who bears that risk.

Decision Framework

Before committing where an external dependency remains unresolved, ask:

Dependency

What external event or approval must occur?

Probability

How uncertain is it?

Consequence

What happens if it fails?

Reversibility

Can the contract be paused or cancelled?

Allocation

Who bears sunk cost?

Mechanism

Should the contract include a condition, contingency, staged authorisation or other express provision? [FACT CHECK REQUIRED]

From Strategy to Execution

Immediate action: identify all contracts currently proceeding ahead of external approvals.

Medium-term capability building: add dependency-risk reviews to procurement gates. Finance, permits and third-party approvals should be visible before notice to proceed.

Long-term strategic positioning: build standard contractual responses for recurring external risks instead of renegotiating each crisis from first principles.

Detailed treatment of force majeure is not supported by the supplied Week 5 materials and would require external research. [EXTERNAL RESEARCH REQUIRED]

Portfolio Governance Implication

Foreseeable external dependencies should be visible at portfolio level because several projects may be exposed to the same regulator, approval pathway or funding assumption. What appears to be a project-specific risk can therefore become a concentrated enterprise risk.

Leaders should look for common dependencies across the portfolio and decide whether standard contractual mechanisms, sequencing rules or investment gates are required. The point is not to eliminate uncertainty. It is to avoid discovering too late that many projects relied on the same unallocated assumption.

Signals to Monitor

Watch for repeated work starting before permits, business cases assuming unapproved external events, teams saying “we will sort it later”, contracts lacking any response to foreseeable disruption and managers trying to use frustration after risk has already materialised.

Questions for the Leadership Team

Which current projects rely on unresolved external approvals?
What sunk cost is exposed if those approvals fail?
Who contractually owns that risk?
Are we proceeding because the risk is acceptable or simply because schedule pressure is high?
Which recurring disruptions should be covered by standard contract provisions?
Are project gates strong enough to stop premature commitment?

Closing Perspective

Frustration doctrine matters because not every future event can be predicted or allocated.

But foreseeable uncertainty deserves a different response.

Leaders should contract the risks they can see and reserve frustration for the genuinely transformative events they could not reasonably design around.

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