Contract performance failure would normally be considered a breach of contract, regardless of circumstance, unless one of the following exceptions applies:
1. The contract contains a force majeure clause (sometimes known as an “act of god” clause). The force majeure clause will set out specific circumstances where, on their occurrence, one or both parties to a contract are released from their obligations under the contract. If “pandemic” or “epidemic” is listed as a force majeure event, then the parties will likely be able to rely on it for coronavirus related non-performance. For contracts with vaguer force majeure clauses, litigation is inevitable!
2. Where there is no (or an inadequate) force majeure clause, the non-performer may be able to rely on the legal doctrine of frustration. This is where a contract is discharged as an event has occurred which makes its performance physically or commercially impossible. A court will review all the facts and circumstances of the case when deciding whether a contract has been frustrated. The bar is set very high when seeking to rely on frustration, with the key word to focus on being “impossible”. This is best demonstrated by examples:
– You are contracted to deliver 10,000 gallons of paint to a customer by the end of this week, a delivery that would normally require 8 delivery drivers, and, due to the coronavirus, you only have 5 drivers available. A court is not likely to allow you to rely on frustration to discharge the contract as you could hire 3 temporary drivers or employ the services of a delivery company. Delivery is possible with a few reasonable adjustments.
– You permit the use of your music hall for concerts on 4 successive nights in a week. At the end of the 1st night, your music hall burns down. As it would be impossible to perform the remainder of the contract, it would be frustrated. This example is actually the real case of Taylor v Caldwell (1863), the case that first gave rise to the doctrine of frustration.
– You are required to deliver 500 punnets of strawberries to a customer based in China. Travel restrictions caused by the coronavirus prevent the delivery. You will almost certainly be able to discharge the contract by reason of frustration.
If you are party to a commercial contract and require advice on your contract performance obligations, a member of our Commercial & Corporate Team can be contacted on 0207 228 0017 or info@hanne.co.uk
This article does not constitute legal or other professional advice or a professional opinion of any kind nor does it give rise to a solicitor/client relationship. If you require specific legal advice on the matters contemplated by this article, please contact a member of our Commercial Team.
Alex O’Leary is a Solicitor in Hanne & Co’s Corporate & Commercial Team
