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COVID-19 and Contracts: When Force Majeure isn’t an option

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Inicio Perspectivas COVID-19 and Contracts: When Force Majeure isn’t an option
With the COVID-19 situation developing as rapidly in the UK as elsewhere, there has been increasing focus on the rights businesses can rely on in these situations. Much analysis has focused on considering whether the wording of force majeure clauses covers situations arising from COVID-19 responses; however, it is equally important to consider circumstances where no force majeure clause exists.

Frustration

Force majeure will not be implied into contracts under English law, and so cannot be relied on where there is no express force majeure clause included. In such circumstances, a business would need to rely on the doctrine of frustration – which can potentially apply to both business-to-consumer and business-to-business contracts – in order to discharge its contractual obligations.

A range of common law has shaped the test for a frustrating event. Generally, a frustrating event must:

  • occur after the contract has been signed;
  • have been entirely beyond what was contemplated by the parties when they entered into the contract;
  • be the fault of neither party (case law has found fault where a party has, for example, failed to obtain a licence required under law, but not in situations such as a response by an organiser to a pandemic or similar emergency);
  • render further performance impossible or illegal, or make it radically different from that contemplated by the parties at the time of the contract; and
  • be so fundamental as to defeat the sole ‘commercial purpose’ of the contract (contrast Krell v. Henry, where a Pall Mall flat was rented so that the renter could watch the coronation procession of Edward VII, which was frustrated because the sudden cancellation of the coronation was deemed to deprive the contract of its commercial purpose, with Herne Bay v. Hutton, where a contract for the hire of a steamship for “viewing the (subsequently cancelled) naval review and a day’s cruise around the fleet” was not frustrated, because the latter purpose was still achievable).

Therefore, whether frustration is available will depend on the circumstances of each particular contract and is likely to be disputed. Case law has also established that legal changes which make performance of an obligation impossible are also likely to amount to frustration. As such, COVID-19-related emergency legislation and measures may render performance of certain obligations effectively impossible (e.g., if performance requires a ‘mass gathering’).