As governments seek to combat the spread of Covid-19 businesses are forced to adapt to a reality they would never have envisaged. Measures in the UK have left a variety of sectors reeling as shops have shut, operations have been restricted and events have been cancelled.
Many businesses now find themselves left with obligations under contracts entered into before the lockdown which cannot be performed as intended.
The existence of such agreements can place an enormous strain on enterprises. Many will need to renegotiate or perhaps operate force majeure provisions in their agreement to postpone or excuse performance.
But many will be faced with contracts which do not respond to the predicament or unsympathetic counterparties who are unwilling to agree a compromise.
Where does this leave those whose arrangements no longer make sense? Perhaps those who have agreed to sponsor a cancelled event? The Olympics? Cancelled. Wimbledon? Cancelled. What about those who have retained catering services but no longer have a usable venue? Or those who have booked security for a postponed gig?
In such situations the doctrine of frustration may apply. Frustration can result in parties being released from their obligations when the performance being asked of them is substantially different to the deal they signed up for.
Frustration is highly fact specific and as a result, has generally been considered a difficult argument to run. But a specific type of frustration - frustration of purpose - is of particular relevance today, especially when it comes to arrangements concerning cancelled events.
Because of the irregular and far-reaching consequences of Covid-19 there will undoubtedly be more situations where it can be argued frustration of purpose applies.
Whilst it will remain a difficult argument to run, parties can still look to the doctrine to provide the legal leverage desirable when entering commercial negotiations with a difficult counter party. That application may prove the greatest immediate practical benefit to parties, enabling them to obtain revised terms that alleviate the commercial strain imposed by the pandemic.
Mark Lim and I discuss how the doctrine might come to parties' aid in our latest article and explore how the principles might apply to a couple of common examples. See the full piece here.
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