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COVID-19: Frustration of Contracts

The impact of COVID-19/Coronavirus has shaken society all across the world, both personally and professionally. 

For businesses, many may have engaged in contracts prior to the pandemic that has not been completed or fulfilled, or have been delayed or hindered due to the lockdown that followed the outbreak.  In these uncertain times would it be fair for one contracting party to hold the other party to the performance of strict contractual obligations/terms? 

In the past, the law of frustration has been used as a tool to prevent injustice between contracting parties when there has been an unforeseen supervening event.

What does frustrating a contract mean?

A frustration of contract is a legal method that allows parties to be relieved of their legal obligation if they have become impossible to perform. This occurs only when an event changes the circumstances so significantly that the parties can no longer perform the contract; meaning the event ultimately terminates the contracts. There are numerous tests that should be completed to inform the parties or the court whether a contract is frustrated and, therefore, at its end.

COVID-19 & frustrated contracts

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

It is important to note that legally binding contracts are taken incredibly seriously, meaning it can be difficult to get out of contracts and escape liability for non-performance. Even when a situation arises that makes fulfilling the contractual obligation impossible, such as the current pandemic, it is not guaranteed that a frustrated contract will be granted. 

If a party elects to frustrate a contract and does not meet the frustration tests, it will be seen as denying the contract, which can put you at risk of being in breach of contract. Therefore, despite the clear issues that COVID-19 has brought to many businesses and their operations, it does not bring guarantee that you will be legally granted a frustration of contract. 

Each circumstance is measured by its own situation, and the impact the pandemic and subsequent lockdown have had on each party. These measures will then be assessed against the tests to determine whether the contract has been frustrated. 

Next steps

If you require advice and assistance in relation to your contractual obligations, and whether or not you can apply for a frustration of contract, please contact us today. Our Commercial Litigation team are experts in their field and understand the stress and worry that an unfulfilled contract can bring. For more information, contact us on 0800 042 0700 or email enquiries@lindermyers.co.uk

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