COVID-19 is seeing many of us trying to terminate all sorts of contracts and agreements. These terminations will be actioned by using Force Majeure clauses or the doctrine of Frustration. For information on this clause, please click here to get in touch with a member of our team.
If there is a force majeure clause that covers coronavirus then frustration will not apply.
However, if this is not the case then parties to the contract may be able to bring the contract to an end by relying on Frustration to avoid liability breach of contract.
How do you know if a contract is frustrated?
- The frustrating event occurred after the contract had been formed.
- The frustrating event was not the fault of either party to the contract.
- The frustrating event was beyond the contemplation of the parties at the time the contract was entered into.
- The frustrating event made the performance of future obligations under the contract impossible, illegal or radically different.
Whether a contract will be frustrated by a supervening event occurring as a result of coronavirus will depend on the individual facts of each case. The bar is high for frustration, yet it is very likely during these times that this bar will be reached.
What happens if a contract is frustrated?
The contract will automatically be discharged at the time of frustration. This means that the parties to the contract do not need to perform any future contractual obligations. Damages cannot be claimed for any future non-performing obligations. Any money paid pursuant to the contract before the frustrating event occurred is repayable.
Can expenses incurred before the frustrating event be recovered?
If a party has incurred expenses before the frustrating event occurred then they can seek to retain or recover these expenses from any money paid or payable at the time of frustration. The court will decide this based on individual circumstances. A party will not be able to retain or recover a sum greater than the amount of money paid or payable at the time of the frustration event.
What happens if one party to the contract has obtained a valuable benefit before frustration?
In circumstances where one party to the contract has already obtained a valuable non-monetary benefit before the contract is discharged, that party may be ordered by the court to pay to the other party a sum that the court considers just.
