COVID-19 has no doubt impacted on the way businesses and people work. I have received numerous enquiries from clients regarding situations where there is a potential breach of contract, or that they wish to change the manner the contractual obligations are performed. Is your contract still in place?
合约落空原则 Frustration of contract
The doctrine of frustration may come into play where subsequent to entering into the contract, the contract is unable to be performed due to an unforeseen event or set of events that is not the fault of either party, which results in the contract being radically different from what was initially contemplated by the parties. Ask yourself – if you knew of the event beforehand, would you have entered into the contract?
The result of a frustrated contract is termination. Instead of termination from the beginning, parties are discharged from future obligations under the contract.
Examples of situations where a contract may be frustrated:
Hiring out event venues for gatherings and celebrations which are no longer allowed to go ahead, due to restrictions imposed by the Government.
Supply agreements where the business needs are affected by the pandemic or restrictions imposed by the Government.
Certain short term commercial or retail leases.
合约条款 Terms of the agreement
You should engage a lawyer to review the terms of the agreement. The agreement may contain clauses which provide for suspension of a party’s obligations or termination of the agreement in specific scenarios. One common clause is a “Force Majeure” clause.
A Force Majeure clause may work to excuse a party from part or all of its obligations under the contract. This clause usually applies when there is an event or an “Act of God” that is unforeseeable at the time of entering into the contract, not caused by a party, uncontrollable and inevitable, which results in a party unable to fulfil its obligations under the contract. This clause is commonly used at times of natural disasters, wars or unforeseen government actions or decisions. Depending on the drafting of the clause, if the Force Majeure clause applies, a party’s non-performance may be excused, and its obligations may be suspended.
If you think the above may apply to you, please do your best to mitigate the consequence of non-performance of your obligations under the contract, and seek legal advice immediately. Do not seek to terminate your contract before obtaining legal advice, as wrongful termination could give rights to the other party to terminate the contract and seek damages against you.
This article aims to provide you with very general legal information and cannot constitute legal advice to any tailored circumstance. If you wish to know more, please do not hesitate to contact me.