COVID-19, and the restrictions imposed by the government in an attempt to control it, have deeply affected our lives. However, it’s not just our social lives that have become frustrated. Some businesses and individuals have found themselves party to a contract they can no longer perform due to COVID-19 and the government restrictions. Whether it is an event scheduled during a lockdown that can no longer be held, a customer who you can no longer supply or transport goods to due to travel or border restrictions, or a service you can no longer provide, the ‘doctrine of frustration’ may be able to help.

The courts first recognised the doctrine of frustration in the 1800s case of Taylor v Caldwell where two parties had a contract to lease a music hall that burnt down before any concerts could be held. The court held that the contract was frustrated and the parties were discharged from their obligations under the contract.

‘Frustration’ has a very high threshold. The event causing frustration cannot be caused by either of the parties and must make contractual performance impossible, or radically alter the obligations under the contract. You cannot rely on frustration if the event has become difficult or expensive.

If you can prove frustration then you may be able to recover some or all of the money already paid under the contract. Some, or all, of any money you owed under the contract may also cease to be payable.

Contracts may also have a ‘force majeure’ clause; also with a high threshold. This clause may excuse a party from performing (in whole or in part), allow a delay in, suspend performance of or provide a right to terminate the contract. Where the clause specifically refers to government actions or epidemics it may potentially be used for COVID-19.

If you think either of these situations can give your business some relief, we’re happy to help.

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this article. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2020. Editor: Adrienne Olsen. E-mail: [email protected]. Ph: 029 286 3650 or 04 496 5513.

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