Coronavirus – if you cannot rely on a force majeure clause, can you rely on the law of frustration?
Following the Prime Minister’s announcement earlier this week and the coronavirus outbreak generally, many businesses face inevitable concerns about their position with their employees and commercial contracts.
In this mini-series of articles, our Corporate & Commercial and Disputes teams consider some critical issues which require careful consideration from a legal and commercial perspective, including: (i) the dangers of varying contracts during the coronavirus outbreak, (ii) force majeure clauses (below), (iii) frustration and (iv) what your insurance may (and may not) cover.
In yesterday’s article, we considered what a force majeure clause is and whether force majeure clauses are likely to expressly cover coronavirus. Here is a link to that article. This article considers the position in circumstances where there is no force majeure clause or the force majeure clause does not extend to the current pandemic.
In the event that there is no force majeure clause in the contract or the force majeure clause does not cover the current coronavirus or governmental actions, parties may need to try and rely on the common law doctrine of frustration as a way of avoiding liability for failing to perform its contractual obligations. This is an undesirable route as it is, historically, rarely permitted by the courts and should only be pursued as a last resort.
The law of frustration is complex and will only be permitted in limited circumstances as the threshold is high. For example, a party seeking to rely on this doctrine must show a radical change or impossibility in a party’s ability to perform its contractual obligations. Whether the parties could ‘foresee’ such a radical change in its obligation is also important. The question will be could any contractual party have been expected to foresee a pandemic like coronavirus?
During these unprecedented times, these are fundamental questions at the heart of businesses and contracts across the world. The law is complex, and it is now more important than ever to ensure correct steps are taken to protect your business. Our highly experienced legal teams, across all sectors, are on hand around the clock to provide urgent advice should you have any concerns.Back to Our Thinking →