What are parties’ rights and obligations where the lockdown prevented both sides from performing their obligations under a contract? For example, A booked a conference venue provided by B pre-lockdown. The lockdown prevented A’s conference from proceeding, and B from making its venue available. That is, both parties were unable to do what they had promised under their contract.
The answer is that the contract was frustrated at common law, because it became impossible to perform from the moment of the lockdown order. That means A and B were discharged from further performance. The parties’ further rights and obligations are set out in part 2, subpart 4 Contract and Commercial Law Act 2017 (CCLA), which used to be the Frustrated Contracts Act 1944. It provides that any money payable at the time of discharge ceases to be payable, and money already paid by A (for example, the deposit) can be recovered by A from B. However, if B has incurred expenses prior to discharge (for example, paying for food for the conference), the CCLA provides that the Court can permit B to retain that money to the extent this is just, and does not exceed the expenses incurred. So, A may get only part of its deposit back. In a similar vein, the CCLA provides that if A has obtained a valuable benefit as a result of something B has done by the time of discharge, B can recover an amount that the Court considers just “in all the circumstances”, but no more than the value of the benefit. So, if for example, B had prepared a conference pack for A, then A may need to credit the value of this in the washup.
The CCLA therefore provides a simple set of principles with the aim of achieving a just outcome when contracts are frustrated. Importantly, the provisions of the CCLA referred to above are subject to any contractual terms that address frustration, or terms intended to apply in the particular circumstances. So, if (presciently) the venue contract contained a provision that A must still pay the full amount in the event of a pandemic preventing either party from performance, it seems A would still be bound to pay. One final point, employment contracts can be frustrated in limited circumstances and subject to the regime under the Employment Relations Act 2000. However, given the ongoing nature of the employment relationship, a temporary inability to work, and provide work, clearly would not frustrate an employment contract to bring it to an end.
This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.