COVID-19 and Contractual Obligations – Frustration

Is COVID-19 getting in the way of you complying with your obligations under a contract?

We find ourselves in new territory as COVID-19 impacts the way we comply with our contractual obligations. Especially when the government is implementing measures and restrictions to flatten the curve of COVID-19.

Contracts are generally drafted with a force majeure clause. This clause is designed to free both parties from liability or obligation when an extraordinary event or circumstance beyond the control of either party (such as a strike, riot or epidemic) prevents one or both parties from fulfilling their obligations under the contract. Depending on the wording, some force majeure clauses take into consideration pandemics or government responses to a pandemic.

If the force majeure clause in your contract does not cover pandemics like COVID-19, the doctrine of frustration may discharge your obligations under the contract. Frustration is when performance of the obligation required is rendered radically different from those originally contemplated by the parties.

The presence of COVID-19 will not automatically frustrate your contract, you will need to consider the specific impacts it is having on the performance of your obligations in the context of your contract.

Let’s discuss frustration and its impacts when a contract may be affected.

What is the Doctrine of Frustration?

Frustration is where, without fault of either party, the contract is incapable of being performed due to an unforeseen event (or events), and it is no longer possible for the parties to perform their obligations under the contract.

The doctrine of frustration looks to discharge the party/parties from performing their obligations when a frustrating event occurs.

Therefore, you may be relieved from the performance of certain contractual obligations if you can establish that your contract has been frustrated.

What is a Frustrating Event?

To establish a frustrating event, you must be able to prove the following:

1. through no fault of either party;
2. an unforeseen event occurs; and
3. this event renders performance of the contract impossible or radically different from that originally contemplated.

Examples of a frustrating event is where:

1. an individual’s personal capacity is required for performance, and that individual is prevented from performing the contract; or

2. performance of certain obligations are essential and required to be done within a specific timeframe, but the performance of the obligation is significantly impeded, delayed or postponed; or

3. a contract specifies a method of performing the obligations (and the method specified is essential in its performance), and it is impossible to perform the obligations using that method.

On the contrary, frustration or a frustrating event will not occur where:

1. the impossibility of performance is the fault of either of the parties; or

2. performance has only become more onerous or expensive..

A frustrating event will be determined on a case by case basis. Accordingly, it is important to consider the terms of your contract to determine the express contractual rights of each party where the contract may be affected by COVID-19.

Call Rostron Carlyle Rojas Lawyers if you believe your contract has become frustrated or you wish to assess your existing contractual arrangements.

Also, we can assist with reviewing your existing contracts, and to ensure your future contracts protect your interests in uncertain times.

This article is written by way of general comment and any reader wishing to act on information contained in this article should first contact Rostron Carlyle Rojas Lawyers for properly considered legal advice which takes into account your specific situation.

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