A few weeks ago, we discussed the relevance of force majeure clauses in contracts during the Covid 19 crisis. (A force majeure clause can allow for non-performance on contractual obligations to be excused without penalty.) But what if you don’t have a force majeure contained in your contract, what do you do? Rest assured: you may have options.
Doctrine of Frustration
If there is no force majeure provision in your contract, it may be possible to get some relief under the common law doctrine of frustration. This is available in extreme conditions that force a radical change in performance set out in the contract. The radical change “frustrates” or makes performance impracticable. The onus lies on the non-performing party to demonstrate that the contract has been frustrated by the exceptional circumstances. Please note that this is not am implied common law force majeure.
There are three requirements to satisfy in order to rely on the doctrine of frustration:
Was the situation foreseeable before the time that the contract was negotiated/entered into?
Is there an absence of a contract or a force majeure provision in the contract?
Does the situation in (1) render the performance of the contract substantively different than what was originally contemplated? And to what extent?
If successful, the doctrine of frustration can excuse non-performance for the contract without penalty.
Ontario’s Frustrated Contracts Act
Available to contracts that are governed by Ontario law, there may also be recourse through the provincial legislation, Frustrated Contracts Act. This Act applies to Ontario contracts where the performance has become impossible to perform.
There are exceptions to which this legislation does not apply, including:
1. contracts pertaining to the carriage of goods by sea;
2. insurance contracts; and
3. contracts pertaining to specific goods where the goods have perished at the time the contract was, through no fault of the seller and without the seller’s knowledge.
Invoking this legislation adjusts the rights and responsibilities as it relates to money paid, money owing, expenses incurred, partial performance and the benefits received from partial performance, on a case by case basis.