What Is the Common Law Doctrine of Frustration

In the context of COVID-19, given recent restrictions on international/domestic travel and « non-essential » gatherings, a party may no longer be able to fulfill its contractual obligations without violating the restrictions imposed. However, the amendment of the law may not be sufficient to result in the thwarting or exemption from the contract in all circumstances due to a preponderant illegality, especially if (for example) the facts are caused by the failure of the party who wishes to invoke frustration. This is not an exhaustive list, but gives an overview of the type of circumstances that can represent frustration. Frustration of purpose: This is another common law doctrine that may excuse enforcement, but only in certain circumstances. It applies if a change in circumstances after the conclusion of a contract renders the performance of one party worthless to the other and defeats its purpose at the time of conclusion of the contract. To excuse non-performance, the frustrated objective must be so fundamental and essential to the contract that the parties would never have completed their transaction without it. The objective intent of the parties, as reflected in the wording of the contract itself, is usually the key to determining whether the frustration serves the essential purpose of the contract. The event giving rise to the frustration also had to be unpredictable, since the non-occurrence of the frustrating event had to be a basic assumption on which the contract was concluded. As a general rule, a contract is not considered frustrated until the appeal of the doctrine, if the event only makes the contract more expensive or more difficult, if another mode of performance is available or if the event is due to the fault of one of the contracting parties. While the burden of proof to invoke the frustration doctrine is high, the unprecedented nature of the COVID-19 pandemic and the consequent government restrictions on businesses may raise circumstances that support its application in some cases. Frustration is a doctrine of English contract law that serves as a means of terminating contracts when an unforeseen event makes contractual obligations impossible or radically alters the party`s primary purpose for entering into a contract. Historically, there was no way to set aside an impossible treaty after its creation; It was not until 1863 and in Taylor v. Caldwell[1], that the beginnings of the doctrine of frustration have been established.

Although education has expanded from the beginning[2], it is still closely applied; [3] Lord Roskill stated that « it should not be imputed lightly in order to free the contracting parties from the normal consequences of negligence ». [4] The frustrating event may not be foreseeable If the event in question was foreseen by the parties or addressed in the contract in the form of a force majeure clause, the parties will be deprived of availing themselves of this doctrine.3 Therefore, the timing of the conclusion of the contract may be important at the relevant time, depending on the level of knowledge of the effects of COVID-19. In the absence of a force majeure clause in a contract, a party may remedy its contractual obligations by claiming that the performance of the contract has been thwarted. The common law doctrine of frustration may apply when, through no fault of the parties, an unforeseen event causes the performance of the contract to be radically different from what the parties had negotiated. A party that claims to be frustrated faces a high bar to prove that the treaty has become frustrated. However, the unique circumstances of the COVID-19 pandemic may meet this bar in some cases. Ultimately, whether a contract has been frustrated depends on the nature of the contractual obligations of the parties and the factual circumstances involved. Whether you rely on the force majeure clause or the doctrine of frustration, COVID-19 will have a significant impact on contractual relationships in the short, medium and long term. However, the parties may find it useful to examine some of the contractual and customary assistance available to them to determine their responsibilities and obligations and to help flatten the liability curve. Like force majeure clauses, the doctrine of frustration is often narrowly applied by Canadian courts. Therefore, the doctrine of frustration will not work if the overall event was not outside the opinion of the parties – even if the performance would be unreasonably harsh or cumbersome in the modified circumstances.

While there is certainly a strong argument that the rapid spread of COVID-19 and a pandemic of this magnitude could not be contemplated by any party, contracts entered into recently or after the declaration of the pandemic are unlikely to be able to rely on the doctrine of frustration. When an event occurs that results in an undue delay in the performance of the contract, frustration may arise. [30] However, it must be a significant delay affecting the subject matter of the contract. Whether the delay is sufficient to thwart the contract depends on when the event that led to the delay occurred. see Bank Line Ltd v. Arthur Capel and Co [1919] AC 435. Impossibility of performance: The doctrine of impossibility may excuse the performance of a party`s contract if an unforeseen event makes performance objectively impossible. As with force majeure, the doctrine of impossibility is applied narrowly. Remarkably, New York law is more restrictive than the law of many other states because it requires performance to be objectively impossible. Proving an objective impossibility due to the COVID-19 pandemic will likely be easier for « non-essential » New York businesses required by Governor Cuomo Executive Order 202.8 to reduce their personal workforce by 100%. But while proving objective impossibility can be relatively easy for a manufacturer forced to stop production because of this employment restriction, it can be a much more difficult burden of proof for a service-oriented company whose employees can work from home. Other factors also affect the analysis, including the temporary nature of current employment restrictions, the ability or inability of a party to perform its obligations, whether the performance of a party is made impossible in whole or in part, and whether performance is made permanently or only temporarily impossible.

Considering that the doctrine of impossibility has traditionally been applied narrowly, companies that want to use it to excuse their contractual performance must gather all the relevant facts to present convincing arguments. However, if a contract does not provide for « specific » property, as is necessary for the operation of the law, it falls under the provisions of the common law. A contract will not be thwarted if generic products are destroyed or made commercially unprofitable. It is assumed that the risk is transferred to the seller. [2] This practical note summarizes how the common law doctrine of frustration can work to fulfill an agreement and the legal consequences of contract failure, including issues of partial frustration, culpable party (self-induced frustration) and examples of types of frustrating events. See also Practical Notes: What is the Doctrine of Frustration? Frustration is a common law doctrine that recognizes that an event can occur through no fault of either party, making it impossible to perform obligations under a contract or radically altering the nature of obligations under a contract.1 Even if a contract does not contain a provision on force majeure, a party may be released from the performance of certain contractual obligations if it can prove that the contract in question has been thwarted. Early cases, such as Paradine v. Jane[5], show the historical line that the courts have taken in this sense of frustration with the object of the contract; In this case, the courts concluded that if land leased to the defendant had been searched by royalist forces, he was still required to pay rent to the landowner.

[6] This is only in Taylor v. Caldwell that a doctrine of frustration was officially recognized that mitigated the potential harshness of previous decisions. [7] Here, two parties have entered into a contract to rent a music hall for the performance of concerts. After the contract was awarded, but before the rental dates, the music room burned down. .