Contractual Obligations and COVID-19

Contracts and COVID-19Many contacts and agreements will have Force Majeure clauses in the contracts. These may allow parties to avoid their contractual performance obligations.

Whilst at this time it is highly unlikely that COVID19 would be included in any contract, the courts will apply the presumption that a force majeure event is restricted to an event that arises without the fault of either party.

A party seeking to invoke a force majeure clause in a contract or agreement is required to demonstrate that there are no alternative means for performing their obligations.  Or that they have taken reasonable steps to avoid the operation of the clause.

Force Majeure is a potential avenue of relief from contracts.

Some of the ways this may benefit a party is by enabling a party to do the following:-

  1. Seek an extension of time to pay;
  2. Terminate the contract;
  3. Seek an adjustment of the price; and
  4. Review the contractual obligations between the parties.

 

FRUSTRATION

A party may also use the legal doctrine of ‘Frustration’.  Frustration operates to bring a contract to an end in circumstances where an intervening, Post-Contract event has occurred through no fault of the parties which makes the following occur:-

  1. Makes a contractual obligation impossible to perform; or
  2. It must be physically impossible for a party to comply with their obligations under the contract to rely on the doctrine of frustration.

What this means is that business owners and residential tenants should obtain legal advice if they have any concerns or doubts.

These are difficult and unusual times for all of us in the community.  Many of us thought we were immune to the effects of Corona Virus and now we are finding that we may all end up being impacted in some way.