More has been written on this topic in the last couple of weeks that in the last few decades.
What is “frustration” of a contract?
Frustration of a contract is where something happens which
- is not the “fault” and “outwith the control” of either party to the contract and, as a result,
- the obligations under the contract cannot be performed either at all or are radically different from what was planned, and.
- Which the contract doesn’t tell us how to deal with.
Whether frustration has occurred is a technical question of law and will depend upon the wording and interpretation of the contract itself.
It is difficult to persuade a court that a contract has been frustrated. Each contract is different and looked at individually. The fact that a contract has become more difficult or costly for a party to perform will not normally permit one party to excuse itself of its obligations on the basis of “that wasn’t what we signed up for!”
Force Majeure clause
The contract itself may make specific provision for unexpected events and this is commonly referred to as a “force majeure clause”. It may list or set out the circumstances or things that might frustrate the contract or … it may not.
In the construction sector, some of the standard form contracts refer to “force majeure” as a relevant event to allow the contractor to ask for a change to the contract but there is no definition of what force majeure is.
Leaving force majeure undefined gives flexibility. Trying to define what you can not foresee is not the most straightforward of tasks in any business … but it does leave it completely open to interpretation and, consequently, uncertain.
What if the contract is “frustrated?”
Frustration affects future performance of obligations which the parties are then excused from. But some of these (such as liability for taxes, confidentiality clauses, patents and others) may remain in force.
There is then some balancing of what each party might be due the other.
Impact of COVID-19
COVID-19 and the various governmental regulations may give rise to frustration of contract (see my director colleague Robin Millar’s helpful blog on the recent legislation) but it may not.
Very careful consideration should be given to the contract before assuming (perhaps rights, perhaps wrongly) that either force majeure or frustration has kicked in.
If you would like to speak to me about any of these matters , please contact me on:
0141 428 3881