COVID-19 and FrustrationMarch 20, 2020
Most business owners will be experiencing moments of frustration due to the ongoing pandemic. In this blog, we’re looking at the doctrine of frustration, which may allow businesses a little flexibility in navigating the disruption the COVID-19 outbreak is bringing.
Many businesses today are concerned about the fulfilment of their contractual obligations, or those of the other party. The period of uncertainty may mean that many companies are already considering whether there are options available to terminate or cancel their existing contracts.
In our previous blog we detailed the provision of the force majeure clause and its application. However, a force majeure clause may be omitted from a contract, or there may be concerns as to whether the threshold has been met. In such circumstances, it is worth bearing in mind that the doctrine of frustration may also be available.
What is it?
Frustration applies if an event has rendered the performance of a contract impossible or radically different, the event was not caused by either party, and the contract is silent on what should happen if such an event occurs. If these elements are satisfied, and one of the grounds below can be established, frustration permits the automatic termination of the contract.
Has one of the grounds of frustration occurred?
For the doctrine to apply, one of the grounds of frustration must be established. These include:
- Performance becomes impossible – for example; a complete export ban means that a contracted shipment of goods cannot be delivered
- Illegality – for example; a ban on all air travel means that a contract to charter a jet cannot be honoured
- Temporary unavailability – for example; a person or object that is essential for performance of the contract is temporarily unavailable
- Failure of a specific source – for example; specific goods cannot be imported from another country due to government mandated restrictions.
What action should be taken?
We recommend that all businesses consider their existing contractual obligations carefully, and determine whether these are able to be performed by methods other than those usually employed. If obligations can be performed, then it is unlikely that frustration has occurred.
Seek Legal Advice
The situation regarding COVID-19 is rapidly changing and it may be that some of the circumstances giving rise to force majeure or frustration evolve quickly. Accordingly, we encourage all businesses to exercise caution and seek legal assistance when deciding what action to take to get them through the next few months of disruption.