As business, professional and personal lives throughout the country are impacted on a significant scale by the Covid-19 pandemic sweeping the globe, consideration is being given to the continued honouring of contractual obligations between businesses.
It goes without saying that serious difficulties are being encountered in all aspects of business life whether it be in connection with human resources, logistical and travel difficulties or availability of source material and supply of products.
The doctrine of frustration in contract law is a relatively uncommonly used one which is reserved for the happening of supervening events, generally of a serious nature, which would in no way have been contemplated by parties at the time of entering into the contract, and which make it impossible to perform the contract. In such circumstances the frustration gives rise to the termination of the contract and all outstanding obligations fall away.
At first glance this would appear to be a suitable and attractive argument for those facing difficulties in the continued performance of contractual obligations currently and who do not have the benefit of a force majeure clause to rely on in their contract.
It is clear however that the doctrine of frustration is not one which can simply be invoked in circumstances where the performance of contractual obligations are proving to be more expensive, difficult, inconvenient and/or generally causing hardship for a contracting party. The frustrating event must go to the very core of the contract such that it is impossible to perform the contract and could never have been contemplated by parties at the time the contract was entered into. Whilst that may appear something applicable in the Covid-19 scenario, the requirement is that the supervening act or event must also be one of a permanent nature and this would appear to prove a stumbling block in any contractual dispute in the current crisis.
Obviously there are situations arising where the doctrine of frustration may be successfully argued here, if for example an event or act was cancelled as a result of intervening legislation or Government direction. However in the main the arguments would seem to emphasise additional burdens on contracting parties as a result of Covid-19 as opposed to actually frustrating the contract.
In summary a word of caution is advised in regard to the use of the doctrine of frustration as a possible argument by contracting parties. Certainly circumstances can be envisaged where the argument could be successfully made, however it should be borne in mind that this does result in the termination of a contract.
Clearly businesses will, in the current climate in particular, be anxious to preserve and salvage commercial relationships to develop and pursue post the Covid-19 pandemic and therefore it would appear to be prudent for contractual parties, if possible, to seek to reach agreement on difficult matters which may arise in the current circumstances.
Professional advice should always be taken before acting on any of the matters discussed. Please contact a member of our team should you wish to discuss this topic further.
