In the absence of a force majeure clause, the parties may consider invoking the common law doctrine of frustration. Frustration terminates a contract when an event occurs that makes performance physically or commercially impossible or transforms the obligation of performance into an obligation radically different from that envisaged at the time of conclusion of the contract. The date of conclusion of the contract is also relevant for predictability. Whether the impact of Covid-19 was foreseeable or not depends on when the parties entered into contracts. Parties who signed a contract after Covid-19 attracted media attention will not be able to rely on the doctrine of frustration. For example, a commitment may have been met by the time covid-19 was declared a pandemic, but may be impossible due to government restrictions on public gatherings. In this case, was the triggering event triggered when the World Health Organization declared COVID-19 a pandemic, or was it when the Australian government announced restrictions on public gatherings? The trigger point depends on the contract and the obligations that are affected. Sometimes it is useful to «agree» with a counterparty (if possible) on the specific date or event that must be notified in order to trigger the force majeure clause. This is particularly important if the party wishing to invoke the force majeure clause bears the burden of proof. Further developments took place in Krell v Henry, a case that resulted from the coronation of King Edward VII. The defendant has here contractually agreed to rent an apartment in the Pall Mall to the plaintiff in order to observe the procession of the coronation of Edward VII scheduled for 26 and 27 June.
 Although the coronation ceremony was not mentioned in any of the parties` written correspondence, the court found that the contract was thwarted by the annulment of the coronation. From the parties` cases, it could be concluded that the main purpose of the framework was to attend the coronation.  This result can be compared to that of Herne Bay Steamboat Co v. Hutton, another coronation case. In this case, a person rented a steamboat to go to Spithead to bypass an assembled fleet and attend the naval examination of King Edward`s coronation. The courts later concluded that after the coronation was lifted, the entire purpose of the contract had not been thwarted, as cruising was still possible.  If a contract contains a force majeure clause, it is unlikely that the parties will be able to invoke frustration. The parties have already expressly regulated the consequences of a particular ancillary event in the contract itself.18 A contract may be impossible if personnel, equipment, transport, deliveries, premises or anything else essential to the performance of the contract are not available. For example, service contracts may require employees` personal performance, raising questions about the «impossibility» of locking people up in their homes and the extent to which technology-supported remote service is sufficient to meet contact conditions. The COVID-19 outbreak has caused significant disruption for businesses around the world, as it is difficult, if not impossible, for many to meet their contractual obligations due to the pandemic and the response to it.
As a result, force majeure and frustration are seen as increasingly attractive options for parties seeking redress when they are unable to meet their obligations through no fault of their own. This article provides an in-depth analysis of the key legal principles of force majeure and frustration and how they can be applied to contracts affected by covid-19. All relevant factors, including the broader contract and factual circumstances, will be considered by the court when assessing whether a frustrating event has occurred. In Fibrosa Spolka Akcyjna v Fairburn Lawson Combe Barbour Ltd  AC 32, the House of Lords ruled that a party who had paid £1000 in advance could claim it after the contract had been frustrated because the other party had not performed the contract. Originally, the concept that defined the principle of frustration in contract law was the idea that the contract exception could only be used as an excuse if the change in circumstances at the beginning of the contract was not reasonably foreseeable, so that a provision or contingency could be foreseen for the occurrence of such a circumstance. A frustrated contract is a contract that cannot be performed after its creation and through no fault of either party due to an unforeseen event (or unforeseen events), so that the obligations arising from the contract are fundamentally different from those envisaged by the contracting parties. Various situations may require the application of contract frustration, but case law shows that there are different circumstances in which the doctrine is applied. Even if the parties did not explicitly foresee an event, it can be assumed that they had planned it, which generally prevents them from relying on frustration. The courts consider all factors when considering the parties` knowledge, expectations and assumptions about the risk that a particular event could occur at the time of the conclusion of the agreement.16 In contrast, the CEC has supported with frustration its assertion that government restrictions related to the pandemic are decimating the value of its leases because it can no longer effectively operate its business from these leases.
premises – and therefore the CEC`s JUSTIFICATION for the payment of the rent thwarted. The sharp depreciation of CEC leases due to government restrictions is a risk other than the inability to pay rent and has not been assigned by force majeure clauses. Therefore, the CEC should have reserved the right to make an allegation of common law frustration based on unusual state restrictions. The same applies to the other cases that have followed this path with respect to the CEC. If it is determined that a contact has become frustrated, damages can only be claimed for breaches before the frustration of the contract, which can significantly limit the amount of recovery. In addition, frustration may mean that there is no compensation under a relevant insurance policy. To understand the frustration of the contract definition, you must first understand what the concept of freedom of contract is. Freedom of contract is the cornerstone of liberal libertarianism. This is a concept that requires contracts to be based on mutual agreement and free choice.
Due to unforeseen circumstances that prevent the parties from achieving or achieving their goals, such as accidents, illness, change in the law or so on, the frustration of the contract excuses non-performance and legally terminates the contract. It also releases the parties from their obligations. However, this verdict was not a complete solution to the problem.  A problem remains in Whincup v. Hughes, in which a watchmaker died after fulfilling his contractual obligations for a year. None of the £25 paid could be recovered, although only a small part of the contractual obligations were fulfilled. This can lead to problems with supply contracts when a company has encountered financial difficulties before the COVID-19 outbreak. Reporting force majeure in oil purchase contracts can be particularly challenging, as careful consideration is required to determine whether a party is unable to meet its obligations due to the impact of COVID-19 or lower oil prices.
Frustration should usually be the last resort, especially in cases where the parties want to pursue a business relationship, want to continue the contract in the future, or when it may be difficult to find another buyer or supplier. Frustration puts an end to the treaty. The effect is automatic and does not depend on any action by one of the parties. Therefore, it is not recommended that the parties try to invoke the doctrine lightly, especially at the beginning of a long-term contract. In many cases, it will make more economic sense for the parties to negotiate another way to resolve the problem – for example, in the Canary Wharf case, the EMA agreed to a sublease agreement. Whether you are a supplier or a customer, review your existing supply contracts, check the effects of force majeure clauses and whether these clauses can and should be activated in the current circumstances. Especially with the introduction of far-reaching government restrictions in the wake of the pandemic, it can be said that some contracts are frustrated because the service would no longer be legal. Frustration is a common law concept and occurs when, through no fault of one of the parties, circumstances have arisen that cause the obligations under the contract to no longer be fulfilled «because the circumstances in which the service is required would make it radically different from those undertaken by the contract» (Davis Contractors Ltd v Fareham Urban District Council  AC 696, p. 729). Some risks are considered inherent in contracting.
For example, it was found that the delay in a construction contract due to a lack of skilled labour did not frustrate the contract, as the delay did not result in a new situation that the parties could not reasonably have foreseen (see Davis Contractors Limited v. Fareham Urban District Council  AC 969). The parties must also consider whether the outbreak of COVID-19 is in fact a case of force majeure under the contract, i.e. whether the pandemic has resulted in actual restrictions that prevent the affected party from fulfilling its contractual obligations, or whether a party has simply suffered inconvenience or financial loss. .