Will Covid-19 affect performance of your contract?
Issues with Contracts
Given the current unprecedented times it is probable that many contracts, entered into prior to any knowledge of the pandemic and its severe implications, cannot now be performed. There are a variety of reasons for this stemming from the Covid-19 restrictions such as the ban on public gatherings, supply issues or travel bans that could make the performance of a contract impossible.
Force Majeure Clause in Contract
The contract may include a Force Majeure clause. This is a clause that refers to an unanticipated or unforeseen event and if that occurs and prevents performance of the contract, then it will not constitute a breach of that contract. The wording of the clause and the contract must be reviewed before being invoked.
Frustration
If the contract does not contain a Force Majeure clause, then it may be claimed that the contract has been frustrated. Frustration may be relied upon where:
1) A significant supervening event occurs;
2) That neither party is responsible for;
3) That was not envisaged at the time the contract was entered into.
Each application of this doctrine is on a case by case basis and can be difficult to prove. Frustration will not succeed where it is simply more expensive to perform the contract or simply because there is a decline in economic conditions. Also, supply chain issues may not frustrate a contract. However, delay or a supervening illegality may frustrate a contract and this may be particularly relevant given the emergency legislation the Government enacted to deal with the crisis. It is also worth noting that Frustration discharges future obligations and not accrued rights under the contract. Each case must be looked at on a case by case basis and of course the frustration of some contracts may be more obvious than others.
What Should I do?
The first step is to review the contract to determine what clauses it contains that may address the issue. If there are no such clauses, then detailed instructions must be taken to determine if the contract has been frustrated to an extent that may allow non-performance and therefore will not be regarded as a breach of contract.
If you are a party to a contract that has been affected by the Covid-19 pandemic, please do not hesitate to contact Niall MacCarthy or Brendan Dillon on info@dillon.ie or (01) 2960666 for further assistance.
