Coronavirus and Frustration

In my article on Coronavirus and Force Majeure I mentioned a legal concept called “frustration” which might help venues avoid liability for failing to comply with events contracts in the absence of a force majeure clause.

Frustration and force majeure

It is unlikely that frustration could be relied upon where a force majeure clause has been included in a contract. In that situation the Court is likely to take the view that the parties have made express provision for the consequences of the particular event which has occurred.

What is frustration?

Frustration is an old common law principle which means that it is a principle developed over many years by the courts and it does not have any basis in statute.

Generally speaking a frustrating event is an event which:

• occurs after a contract has been formed;
• is so fundamental as to be regarded by the law both as striking at the root of the contract and as entirely beyond what was contemplated by the parties when they entered the contract;
• is not due to the fault of either party; and therefore
• renders further performance of the contract impossible, illegal or makes it radically different from that contemplated by the parties at the time of the contract.

Examples of frustrating events that have been recognised by the Courts are:

• The owners of a music hall were not required to pay a hirer damages when the music hall burned down before the booked event happened.

• The owners of a factory were not required to pay for factory machinery when the factory burned down before the machinery was delivered. In both of these fire cases the owner of the property did not cause the fire and the judge in the second case summarised the principle as follows: “The broad principle is, that where the completion of the work is prevented by the act of God, neither party has a remedy against the other.”

• The hirer of a room on Pall Mall intended to be used to witness the procession of the newly crowned King Edward VII was not required to pay the second instalment of rent when the coronation was postponed.

• A trader was not required to pay a purchaser damages when a particular package of wheat he agreed to sell to the purchaser was requisitioned by the Government.

• A timber merchant was not required to pay a purchaser damages when the Wartime Government outlawed the sale of timber.

Believe it or not but in 2019 the Courts rejected the suggestion that Brexit is a frustrating event (in the legal sense). In 2011 an EU agency entered into a 25 year lease in Canary Wharf and after the EU referendum sought to terminate the lease on the grounds that Brexit was a frustrating event. The Courts disagreed on the basis that whilst Brexit would make the agency’s occupation of Canary Wharf for a further 16 years embarrassing it would not be illegal or impossible for it to continue to occupy the space.

Are the Coronavirus pandemic or the Government’s advice on social distancing frustrating events?

As I mentioned in my article on Coronavirus and Force Majeure the Government’s advice on Social Distancing advises everyone to take measures “to reduce social interaction between people in order to reduce the transmission of coronavirus (COVID-19) [including steps to] avoid large gatherings, and gatherings in smaller public spaces such as pubs, cinemas, restaurants, theatres, bars, clubs”.

It would therefore seem that in almost all conceivable cases it will either be impossible to go ahead with any corporate events whilst remaining compliant with the Government’s advice or that to make events compliant with the Government’s advice they would need to be radically different from that originally contemplated. On that basis I think we have good grounds to argue that the Coronavirus is a frustrating event.

However, whether or not this frustrating event will frustrate your events contracts will depend on when the event in question was supposed to take place and what the Government’s position is/was at the time that the event is/was cancelled:

• If the Government outlaws social gatherings in a manner that makes the event unlawful and the event was supposed to take place after that prohibition comes into effect, then it is almost certain that it would be impossible to go ahead with the event and the contract would be frustrated.

• If the event was supposed to take place in late March and after the Government’s advice on Social Distancing was published, then there are good grounds to argue that (a) it would be impossible to go ahead with the event whilst remaining compliant with the Government’s advice; or (b) that to make the event compliant with the Government’s advice the event would need to be radically different from that originally contemplated and therefore the contract would be frustrated.

• If the event was supposed to take place (a) in or before early March (before the Government’s advice on Social Distancing was published); or (b) at some time in the future when restrictions have been lifted then I think that there is some doubt that a decision to cancel the event can be said to be on the basis that to go ahead with the event would be impossible, illegal or require it to be made radically different from that originally contemplated.

These issues of timing raise some interesting dilemmas. Consider these two examples:

• An event was booked in November 2019 to take place on 25 March 2020 but the hirer cancelled the event in January 2020 when they first heard of the outbreak of the pandemic in China. At the date that the contract was terminated it was not known that the event would be impossible, illegal or would need to be made radically different from that originally contemplated. Can the venue claim damages?

• An event was booked in January 2020 for an event to take place in August 2020 and the hirer cancels the event on 19 March 2020 (after the Government’s advice on Social Distancing was published). At the date that the contract was terminated we do not know that the event will be impossible, illegal or will need to be made radically different from that originally contemplated, but it might. Can the venue claim damages?

I do not have answers to these questions but I suspect that there may be some court cases (hopefully not in the cultural sector) along these lines.

Consequences of frustration

The general rule where contracts under English law are frustrated is that:

• the contract is automatically discharged and the parties are excused from their future obligations;
• neither party can claim damages in consequence of the discharge of the contract;
• the venue must refund any deposit paid by the hirer but is entitled (if the Court thinks fit) to deduct from the deposit any costs that it has incurred; and
• the court may require a party who has gained a valuable benefit under the contract before the frustrating event occurred, to pay a “just” sum for it. For example, if either party had generated significant sales by publicising the existence of the frustrated event, the Court may require them to share that windfall with the other party.

Other Contracts

Whilst this article has focussed on event contracts the principles discussed can be applied to any contractual relations which are impacted by the Coronavirus pandemic, including:

• Outsourced catering contracts where the parties might have agreed with each other to keep the doors open during fixed hours of the day;
• Sponsorship contracts where a venue might have agreed to keep an exhibition open to the public for a fixed number of weeks; or
• Exhibition build and installation contracts where the Coronavirus pandemic might result in those exhibitions being delayed, foreshortened or cancelled.