Blog written by Maxy Augustine.

When COVID-19 hit the world in early 2020, businesses faced serious challenges in fulfilling their part of contractual agreements. Some sought to investigate if and how they can avoid their obligations without being liable for damages. This meant a lot of sifting through contractual agreements and seeking in-house counsel for advice, but what was asked on numerous occasions was: can I claim that my contract has been frustrated? Our commercial team has compiled some interesting facts to answer this question.

What is a frustrated contract?

A frustrated contract is automatically discharged under exceptional circumstances when a non-performing party is unable to fulfil their obligations made in a contract. Generally, the non-performing party is liable for damages when a breach has occurred, however, the doctrine of frustration makes it possible to avoid liability. The contract becomes automatically discharged when a frustrating event takes place and neither party is bound to perform their obligations.

Apparently, the Courts have moved towards taking a broader approach when deciding on whether a breach of contract has occurred. Typically, a frustrating event can be granted when the event:

However, very few circumstances can be considered a frustrating event. In April 2021, the High Court granted judgement in favour of the landlords of commercial properties which meant that the tenants had to pay rent despite restrictions imposed by the Government following the coronavirus pandemic.

The tenants claimed that their leases had been “temporarily frustrated” because they were forced to close.

The decision was based on the fact that the concept of “temporary frustration” does not exist in English Law, and that a contract is either frustrated in its entirety or not at all. The Court did accept that the coronavirus pandemic was supervening and unpredictable, however is not frustrating the terms of the contract due to the terms of duration. Even where the commercial site had been closed for an 18-month period, still left the tenant with the majority of the lease to benefit from.

So, what does constitute a frustrating event?

It’s important to carefully consider the technical terms of what a frustrating event means. Firstly, the event will need to have occurred after the contract was entered and that event will need to be unforeseen. Secondly, the event will need to transform the performance of the contract into something illegal, or impossible. The keyword here is ‘impossible’ and this, in previous cases has been pivotal. Alternatively, the event could change the performance so much that it defeats the purpose of what was originally intended under the agreement. Lastly, the event cannot be caused by either party.

It is not enough that the performance is made more costly or more difficult; the event should be so fundamental that it strikes the heart of the contract and is entirely beyond what was contemplated by the parties when entering into the contract.

Some examples of frustration are as follows:

Frustration will not be available where:

What is force majeure?

Force majeure is a clause that can be found in contracts, covering unforeseeable events that prevent someone from fulfilling a contract, which essentially frees both parties from liability and/or obligation.

Force majeure events are normally defined as acts, events, or circumstances that go beyond the reasonable control of either party.

Although force majeure may appear to be a straightforward ‘get out clause’, is not automatically recognised by the Courts in England and Wales. Both parties will need to have expressly agreed that it applies in the terms of business.

Whether you are relying on the doctrine of frustration or a force majeure clause to get out of your contractual obligations, you should always seek professional legal advice from a Commercial Solicitor. Terms can be interpreted in many ways; therefore, it is important to carefully consider what it is that you are signing up for. If you have a question in relation to this article, please feel free to contact us using our online contact form below. You can find out more about our services in commercial contracts here.

Cases used in this article:
Bank of New York Mellon (International) Ltd v Cine-UK Ltd [2021] EWHC 1013 (QB)

Please be aware that nothing in this article constitutes legal advice on which you should rely. This article is published for general information only and professional legal advice should always be sought before taking any action related to or relying on the content of this article. Our Terms apply to this article.