In these uncertain and unusual times, many businesses and individuals who have signed contracts are increasingly finding it difficult to fulfil their obligations in light of the COVID-19 restraints.
As a consequence, it may become necessary for you to consider the relevant legal principles which apply to your contracts.
Many contracts may contain a mechanism for review or to allow either party to avoid the obligation to fulfil its performance.
Frustration of a contract may occur where the following three criteria are met:
- Through no fault of either party,
- An unforeseen event occurs, and
- The event renders performance of the contract completely impossible or materially different from what was originally anticipated.
- Where a contract specifies a method of performance which is essential to the contract, COVID-19 restrictions which make that method impossible may amount to frustration.
- Where key personnel / staff become unavailable or essential timeframes cannot be met, that may also frustrate the contract.
In these circumstances, the contract becomes frustrated as it has become impossible to perform.
It is not uncommon for a contract to include a force majeure clause.
Force majeure clauses often relieve a party from liability for an inability to fulfil their contractual obligations due to circumstances beyond their control such as, for example, COVID-19.
However, the circumstances must be unforeseeable and unavoidable, and must make performance of the agreement impossible for the duration of the event.
It is therefore prudent to seek legal advice regarding the status of any contracts that have been or may be impacted by the COVID-19 event.
If the contract is frustrated, it is necessary to consider which obligations are to be discharged and whether there is any scope to recover monies already paid.
As we do not know how long the effects of COVID-19 may last, it is prudent to make provision in future agreements to cover both COVID-19 interruptions and similar events that may occur in the distant future.
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This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.