Your Contract and Coronavirus – The Law of FrustrationArticle Index
Understandably people and businesses are concerned in the midst of the uncertainty surrounding the COVID 19 pandemic and want to know where they stand with their current contracts, whether they’re bound by them, to terminate them or not, and if they’re going to get their money back.
The truth is there’s not a ‘one size fits all’ answer and it will depend on the specific facts of each case.
However, there will be some contracts which are ‘frustrated’, that’s to say that performance of the contract is impossible or radically different due to an unforeseen event – Coronavirus – which is of no fault of either party.
If successful in relying on frustration, the parties will be released from their contractual obligations and the money paid by one to the other returned, potentially less a deduction for any expenses incurred in delivering or attempting to deliver the contract.
I’ve heard some commentators suggest that frustration may not succeed due to the contractual performance being suspended rather than rendered impossible, which is arguable, but more the exception rather than the rule. The problem is, we just don’t know how long the current circumstances will last.
Importantly these legal doctrines are not just a way of avoiding contracts and one has to consider the nature of the contract. For example:
– It is unlikely that a construction contract would be frustrated. but rather the delay in completion accounted for and the completion date adjusted accordingly.
– The purchase of a new car may be frustrated, simply owing to the possibility of it not being the current model year, registration number and/or suffering depreciation when it arrives. However, it is not beyond the wit of man to overcome these issues and make the necessary financial adjustments to keep the deal ‘in bed’.
– Weddings are a hot topic and are probably 50/50: some may be able to be rebooked to a later date or until next year, but not everyone will be able to get the same day or date and there may be circumstances where it’s simply not possible.
Importantly frustration must be differentiated from a force majeure clause: if there is one then it determines the outcome. Force majeure means unforeseeable circumstances that prevent someone from fulfilling a contract. The scope of a force majeure clause, what it covers or not, is set out in the clause itself. Pandemics are drafted as standard in many but not all, so the devil is in the detail. Also, the clause may just suspend or extend the time for performance rather than bring the contract to an end.