COVID-19 & frustration of contracts16th April 2020 - Published by Kuits litigation team
Many commercial contracts have been practically impacted by the COVID-19 pandemic and a number of businesses in supply chains currently find themselves in breach of their contracts.
Parties will often include terms in their contracts which set out various circumstances in which a failure to perform a contract will be excused. Often such clauses are described as Force Majeure clauses. If, however, their contractual arrangements do not include such a clause, a party must seek to try to rely on the doctrine of frustration if it is to be discharged from performance.
It is important to note that the doctrine of frustration will not be available if a Force Majeure clause is included in a contract but, for whatever reason, does not cover the event in question.
Frustration, historically, has rarely applied to excuse a failure to perform. Only time will tell whether the current pandemic will alter the Court’s approach. Frustration has generally applied only where the event makes performance impossible, illegal, or something radically different from that originally contemplated by the parties. It does not apply if the circumstances have simply made it more difficult, expensive or onerous than originally envisioned. Should a party purport to bring a contract to an end by using the doctrine of frustration, where it is actually not entitled to do so, the other party could, arguably, accept this conduct as a repudiatory breach of contract, allowing the innocent party to bring the contract to the end and to sue for damages.
It is highly advisable to take prompt legal advice on the status of a contract owing to the impact of the unforeseen event, for example, COVID-19, before openly declaring a contract frustrated. Further, relief from contractual obligations by claiming frustration may not be available if the event was actually foreseen, a party is at fault, or has contributed to the circumstances leading to the contractual failure, for example, by failing to take adequate precautions.
Of course there will be situations where the doctrine of frustration is applicable, and as a result the parties to the contract will automatically be discharged from any further performance. However, obligations or liabilities which have already accrued will survive.
If you face difficulties with performing contractual obligations because of COVID-19 or as a consequence of the same then we can advise you as to how best to manage the position. Contact our experienced commercial litigation team on 0161 838 7807 or online HERE.