Force Majeure and the Doctrine of Frustration

Unarguably, the growing impact of the Covid-19 pandemic is leaving a number questions marks relating to current contractual obligations that cannot be fulfilled during this period of uncertainty. Whether parties have entered into commercial contracts or tenancies/leases may very well experience the dramatic effect of Covid-19 and the potential legal implications associated to their obligations under the agreement in question.

Parties to a contract may wish to consider invoking a force majeure clause (provided the governing contract specifies an express clause) or the common law doctrine of frustration in order to gain relief. 

What is Force Majeure?

Otherwise known as “superior force” this clause is intended to either suspend or terminate contractual obligations if an unforeseeable event occurs that is outside the parties’ control which ultimately prevents one of the parties from performing its obligations. It is important to note that force majeure is not statute based and therefore the express wording of the clause in the governing contract is of paramount importance. 

Types of Force Majeure

Typically, the types of specified events that fall under force majeure are as follows:

• Adverse/extreme weather conditions
• War
•  Riot
• Act(s) of God
• Industrial action
• Government action.

The Effect 

If one or more of the specified events occurs then the contractual performance will be suspended for a specific period of time. 

If the event is still occurring at the end of the contract date then it can be considered terminated. However, this is clearly going to be problematic given that there is no timescale which can reasonably be provided for this pandemic to come to an end. 

Conclusion

Whether one can rely on and gain relief exercising force majeure is very much dependent on the wording of the clause specified in the governing contract. In any event, a negotiated commercial outcome held between the parties could potentially be the most reasonable and cost effective method going way forward as Covid-19 has been deemed, by some as indefinite for now. 

Doctrine of frustration

In the event that there is no force majeure clause in the governing contract or the clause does not cover the event of a pandemic, parties may wish to rely on the doctrine of frustration. 

This allows a contract to be discharged when an unforeseen event occurs that renders the performance of the contract impossible, particularly when it not the fault of either party. 

What is a frustrating event?

A frustrated event can be defined as follows:

1.     Unexpected

2.     Beyond the parties control; and

3.     Makes performance of the contract impossible, illegal or radically different from that which parties initially contemplated at the time of entering into the contract.

If frustration is satisfied, then the contract can be brought to an end automatically and all parties will be released from their obligations.

It is certainly worth noting that Tthe threshold of successfully bringing either claim is considerably high.  Therefore, it is strongly advised to seek legal advice in order to consider whether there is scope for either claim to be made as there can be severe consequence for the complaining party should any wrongful claims be made.