While in lockdown, business still have numerous contractual obligations that they are required to meet. While some of these businesses may be in a position to fulfill their contractual obligations, some may not due to loss of income, lack of required supplies and even restrictions in movement.
Le Pine & Co remains open and committed to providing you the legal advice businesses require during this unprecedented time.
What are your options when your contractual obligations are or may be impacted during and after this current lockdown?
Force Majeure Clauses
Within some contracts there are clauses called force majeure clauses, these clauses can be relied upon by a party when an event or events defined in a contract occur, making performance of the contract impossible. Businesses may be able to rely on these force majeure clauses in their respective contracts, to relieve themselves or both parties of the required obligations and liabilities.
Successful application of force majeure clauses depends on the specific wording of the clause in the contract and the circumstances of its reliance. Currently, clauses would need to include “pandemic”, “disease” or similar wording to that effect. Performance also must be shown to have been made impossible by the event, not just more challenging and/or more costly.
Doctrine of Frustration
If a party is not able to rely on force majeure, the common law doctrine of frustration may apply. Similar to a force majeure clause, the doctrine of frustration allows a party to be discharged from their obligations under a contract because of an event beyond the control of the parties, making performance of the contract impossible.
Examples of when an occurrence or an unexpected event make obligations in the contract impossible are as follows:
- Physical destruction of subject matter;
- Incapacity of a party when the contract involves personal obligations;
- Delay and obstruction of performance; and
- Performance of the contractual obligation rendered impossible by an act of parliament.
Contract and Commercial Law Act 2017
Frustrated contracts are governed in New Zealand by the Contract and Commercial Law Act 2017, which provides ways of redress for parties to a contract that has been deemed frustrated. The Act’s rights of redress include parties being able to claim compensation for work completed, losses incurred and money already paid to parties.
The application of these areas of law require careful consideration and should be done with appropriate legal advice. If you require any legal advice in relation to the above matters in light of Covid-19, please contact us and we would be happy to assist.View more articles