Coronavirus and Contracts – Has the Contract been frustrated?

Whilst many of us continue to work successfully from home there are some businesses, more than others, that have been affected by the Coronavirus outbreak and the contractual and legal issues surrounding it.

The hospitality and services industries have been hugely affected, supply chains have been hit for many, public events have been cancelled and travel has been curtailed – so how does the pandemic affect a businesses’ contractual obligations?

In English law contracts are absolute, but there are some exceptions, one of these is Frustration which can terminate a contract automatically when a subsequent ‘event’ occurs which is: unexpected; beyond the control of the parties; makes it commercially impossible to discharge; and makes performance impossible, or radically different from those expected by the parties at the time the contract was made. It would seem that the ‘event’ of the Covid-19 pandemic could allow for the doctrine of frustration to apply to some contracts, but as always it will be depend on specific circumstances.

Examples of some contracts that might be frustrated are as follows:

1. Temporary unavailability – if someone was essential for the contract and are not around it could frustrate a contract.  Similarly if a time period was specified and was essential to the contract.
2. An imposed lockdown – the performance of the work in a particular area no longer accessible could be seen to frustrate the contract, but each situation will be judged on its own facts.
3. Failure of a specific source – i.e. if goods or parts from a country cannot be brought in due to factors beyond the parties’ control.
4. Method of performance impossible – however, in this case if a different method is available and not radically different the courts could state the contract is not frustrated.
4. Illegality – this could be used as a result of any Government emergency legislation if the contract becomes illegal as a result of changes in law.

“During these difficult times we would hope that businesses could pull together and help each other through the tough times, but as always there will be some who need to fall back on the law to determine whether or not they can survive in the long term.  Of course all business contracts vary on a contract by contract basis and so the argument of frustration has the potential to impact different contracts in different ways.” said Head of Commercial Litigation, Christopher Burke.

“In general terms if an external force operates to prevent the contract being fulfilled both parties are discharged from their obligations under the contract, as the contract has been ‘frustrated’. Both parties may be open to agreeing a mutually beneficial change to the terms of the original contract to get over the problem and resolve any contractual issues.  If not it is sensible to take legal advice at the earliest possible stage,” he added.

For advice on any areas on commercial litigation please contract Christopher Burke on 0161 785 3500 or email Christopher.burke@pearsonlegal.co.uk

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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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