What is the difference between Force Majeure and Frustration of Contract?
What is the difference between Force Majeure and Frustration of Contract?
With the imposition of the COVID-19 pandemic on every aspect of our lives, we are often called upon, as lawyers, to advise in relation to the legal ramifications for contractual arrangements which have been impacted or compromised.
For the purpose of advising a client as to what, if any, obligations under a contract have been impacted upon by reason of the pandemic, we first consider the contract itself. Many contracts will include a provision that deal with unforeseen circumstances. Such a provision is a Force Majeure clause.
Force Majeure literally translates to “superior strength”. However, for the purpose of a contract, a Force Majeure provision will generally concern an act of God, natural disaster, act of war or Government action. That is, an extraneous event which impacts upon the ability of the parties to the agreement to fulfil their contractual obligations.
As to whether COVID-19 is covered by a Force Majeure clause we look to definitions contained in the clause itself. Does it include words such as infectious disease, epidemic or pandemic? If so, then the imposition of the COVID-19 pandemic would serve to activate the Force Majeure clause.
If the agreement does not contain a Force Majeure clause then the common law, relying upon the doctrine of “frustration”, will enable the parties to avoid fulfilment of their contractual obligations in circumstances where performance of same cannot occur by reason of an extraneous event of the kind referred to above.
It should be noted that the imposition of delay or some difficulty on the performance of a party’s obligations will not in itself give rise to a frustration of the agreement. Each and every case is considered on its own merits. Clearly there will be frustration in circumstances where the performance of a party’s contractual obligations has been made impossible. But that is not always the case. The parties will need to consider whether the performance of the contractual obligations, if at all possible, as compromised by the extraneous event, has led to a situation which would be radically different to that provided for by the contract. If so, then the doctrine of frustration would provide that the contract is frustrated and therefore terminated and release the parties to the contract from any further obligations.
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