Covid 19: Frustration of Contracts and Careful Considerations.

July 16th, 2020

The impact of Covid 19 on human lives across the world is very much unprecedented. Every life lost is a tragedy.

This disease has not only impacted upon our heath but  has also led to alarming and worrying financial concerns for many families, individuals, businesses, companies etc. On 14 July 2020, the BBC confirmed that the UK, along with much of the rest of the world, is thought to be heading into the worst recession for decades.

Many companies, businesses, partnerships and/or individuals would have engaged in contracts prior to lockdown which, due to the current health crisis, may not have been completed and/or fulfilled or could have been delayed or hindered.

In these uncertain times would it be fair and/or reasonable for one contracting party to enforce upon the other party and/or insist upon the performance of strict contractual obligations/terms ?

The law/doctrine of frustration in the past has been used as tool to prevent injustice between contracting parties when there has been an unforeseen supervening event.

In the case of J Lauritzen AS v Wijsmuller BV, The Super Servant Two [1990] 1 Lloyds Rep 1 Lord Justice Bingham stated  the object of the doctrine of frustration “was evolved to mitigate the rigour of the common law’s insistence on literal performance of absolute promises.. to give effect to the demands of justice, to achieve a just and equitable result, to do what is reasonable and fair, … to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances”.

Lord Justice Bingham went on to state “since the effect of frustration is to kill the contract and discharge the parties from further liability under it, the doctrine must not be lightly invoked and must be kept within very narrow limits”

In the case of  Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 Mr Justice Smith referred to a multi factorial approach in determining whether a contract has been frustrated or not.  A number of tests have detailed/identified to assist the parties and/or the Court to determine whether a contract is frustrated and therefore at its end.

In light of Covid 19 it will not be unusual for parties to run arguments of frustration where contractual obligations have not been performed and/or have been hindered by the pandemic.

It is important to note that if a party elects to frustrate a contract and does not meet the frustration tests, that party will be seen to be repudiating the contract and could be at risk of being in breach of contract.

If you require advice and assistance in relation to your contractual obligations and/or any potential contractual disputes then we are more than happy to help. Contact us on 02392 98 1000 or email connect@verisonalaw.com