. The Doctrine of Frustration and Whether COVID 19 is a Frustrating Event. However, COVID-19 has put these types of clauses in the forefront as the construction industry begins to feel the effects of the global pandemic. Hence, the World Health Organization declared Coronavirus an Act of God and parties to a contract can use Coronavirus as a defense or protection from legal consequences. Much thought has turned of late to the legal doctrine of frustration and its applicability to COVID-19, as . . if an agreement does not have a force majeure or "act of god" clause, an analysis under the doctrine of impossibility or commercial impracticability, depending on the jurisdiction, may be warranted." Last week's article triggered some healthy discussions amongst readers and myself. [9] . Force Majeure and the doctrine of frustration : "Frustration is an English contract law doctrine that acts as a device to set aside contracts where an unforeseen event either renders contractual obligations impossible, or radically changes the party's principal purpose for entering into the contract."2 So if COVID-19 raises the situations of impossibility and commercial impracticality, look to enforcing the entirety clauses where you have to write to the other party to draw their attention to . Yet despite the numerous (and creative) Covid-19-related arguments propounded by litigants in recent months, this emerging body of law remains largely undeveloped. Performance impossibility or impracticality: The doctrine of impossibility or impracticability may also allow a party to avoid the performance of its obligation. under the defense of impossibility (sometimes referred to as impracticability or commercial impracticability), a party's obligation to perform under a contract is discharged if: (i) after entering into the contract, an unexpected intervening event occurs, (ii) the non-occurrence of the intervening event was a basic assumption underlying the . A defence of impossibility is rarely successful. The event must be beyond the reasonable control of the affected party. The rapidly evolving public health crisis caused by the novel coronavirus, also known as COVID-19, has dominated recent headlines. The COVID-19 pandemic and the measures taken by governments to deal with it continue to impact businesses substantially. Where impossibility is occasioned only by financial difficulty or economic hardship, even to the extent of insolvency or bankruptcy, performance will not be excused. DLA Piper attorneys look at contract issues beyond "force majeure" and say Covid-19 creates opportunity to consider strategies for mitigating risks associated with ever-increasing global outbreaks in pending contract negotiations. The doctrines of impossibility and impracticability have been applied to excuse performance permanently or temporarily in contexts where governmental action has rendered performance permanently or temporarily impossible, but not where governmental action simply makes it more difficult or more costly to perform. Accordingly, successful use of this doctrine will depend on the particular facts of each case. We address those doctrines, and their potential relevance in the context of the COVID-19 crisis, below. The doctrine of impossibility is available where performance of a contract is rendered objectively impossible. The doctrine of impossibility is available where performance of a contract is rendered objectively impossible. A party that has issued the undertaking could argue that the undertaking has been frustrated by impossibility of . [1] One Massachusetts court, however, has gone the other way and expressly held that a force majeure clause has no effect on a frustration claim. Pursuant to this doctrine, a court may fully excuse both parties from their obligations where performance . Temporary impossibility or delay is not by itself a ground for frustration. Force majeure will require parties, lawyers and ultimately courts to construe contracts to ascertain whether there is an exclusion clause that covers the consequences of an epidemic such as COVID-19. With the onset of the COVID-19 pandemic, and its attendant "stay at home" orders shutting down large swaths of the economy, many are looking to "force majeure" as a defense to contractual . The doctrine of impossibility allows a party to be excused from contractual obligations when an unexpected event occurs that renders its performance under the contract temporarily or permanently impossible. New York law concepts such as force majeure, impossibility, and frustration of purpose have traditionally been employed when large-scale, unforeseeable events disrupt parties' expectations about or ability to perform commercial contracts. 367, 372, 382 S.E.2d 842, 845 (1989). Likewise, individuals who purchased tickets to watch sporting events or attend conventions during the COVID-19 outbreak want to get out of their contracts for cancelled events. This article studies the same phenomenon. Contracts and COVID-19 73 S TAN. 17 The COVID-19 pandemic and a series of government shutdown orders have negatively impacted many contracts and commercial leases, either preventing or slowing performance and upending the expectations of contracting parties. Section 56 of the Indian Contract Act 1872 states that "an agreement to do an act impossible in itself is void". to COVID-19 are adhered to." 19. If a contract reference a 'pandemic,' it will be . The doctrine of impossibility may apply to contracts entered into by service members due to the recent travel restrictions issued by the DoD. The defendants did not plead which regulations prevented the parties from performing their respective obligations under the lease agreements. In the wake of Covid-19, litigants have increasingly sought to excuse contractual performance by invoking force majeure clauses or the doctrine of impossibility. The same rule applies if performance has suddenly become so much more difficult and dangerous than expected as to be "impracticable" (meaning effectively impossible). However, in some circumstances the doctrine of frustration . [21] As with both force majeure and Frustration, courts very narrowly apply the impossibility doctrine, reserving it for extreme circumstances. Generally speaking, there are three criteria for a force majeure clause: 1. 16 High Court of Andhra Pradesh in the case of Alluri Narayana Murthy Raju vs. Dist. This note supplements our March 12, 2020 analysis and recommendations with a short assessment of force majeure and the doctrine of imprvision under French law. COVID-19 has caused attorneys, units of government, . This doctrine, however, cannot be invoked as a defense if a party assumed the risk caused by the event. The doctrine of impossibility or impracticability . 'Doctrine of Frustration' under Section 56 of the Indian Contract Act, 1852, (ICA) is a provision much-used by commercial tenants to justify the intention to stop rental payments to commercial landlords. The ongoing Covid-19 pandemic meets the first situation, making doctrine of frustration a defense against the obligations to fulfill a contract. Unlike force majeure and the doctrine of impossibility, this doctrine analyzes . Many contracts will contain a list of specific force majeure events. . You will also need to consider the law governing contract interpretation and commercial relationships. [1] The rapid spread of the COVID-19 pandemic, and stringent government orders regulating the movement and gathering of people issued in response, continues to raise concerns about parties' abilities to comply with contractual terms across a variety of industries. in exceptional circumstances New York courts have been willing to excuse non-performance on the basis of the doctrine of impossibility of performance even in the absence of a force majeure provision. In our Country also various judicial forum has appreciated this maxim from time to time and provided relief. In 1902, the contractual defense of impossibility was available, but this was not enough to help people get out of paying for their rooms. In many ways, COVID-19 is a game changer; whether it will upend the current notions of force majeure and doctrine of frustration of contract due to "impossibility" remains to be seen. This has re when such relationship is tainted by an intervening impossibility like COVID-19 and also about any right he had over any . Before COVID-19, force majeure provisions were often afterthoughts in construction contracts. A year after the Covid-19 pandemic came to the U.S., more and more courts are showing a willingness to accept force majeure, impossibility or impracticability, and other defenses to excuse contract obligations in situations caused by the pandemic. In my article on COVID-19 & Force Majeure last week, we quoted the Gibson Dunn Law Firm as stating, "Whether or not the contract contains a force majeure clause, the common law doctrines of impossibility or commercial impracticability may be available and legal analysis of such a claim should be conducted The starting point is, therefore, that COVID-19 is no excuse for failure to meet existing contractual obligations. contract. Earlier Defenses. Section 56 of the Act, lays down the legal principle of 'Doctrine of Principle' wherein it has been mentioned that an agreement to do an impossible act would be held to be void. (MANU/AP/0514/2008). The doctrine of impossibility is available where performance of a contract is . The doctrine of impossibility should be considered when an outside event makes performance . The doctrine of frustration can be found in section 57 (2) of the Contracts Act 1950 ("CA 1950"): "A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.". In responding to a business disruption caused by the COVID-19 pandemic, it is not enough to read and rely on the language of the contract. It is important for CFOs to note that force majeure is a creature of contract, not a legal doctrine. As parties consider invoking the common law doctrine of impossibility to defend contract nonperformance during the pandemic, two recent New York federal and state court decisions Lantino v . . The doctrine of impossibility of performance excuses a tenant's performance "only when the destruction of the subject matter of the contract or the means of performance makes performance. The doctrine of impossibility excuses a party's contract performance when an unforeseen and unanticipated event makes performance objectively impossible. When the UP government pointed to suggestions in the May 17 order on vaccine manufacture, the bench stated that when the Supreme Court hears matters with national and transnational ramifications, High Courts should avoid passing orders on them. To help our clients navigate their way through the coronavirus (COVID-19) crisis, Arnold & Porter has established a Coronavirus Task Force. The normal position in law is that the courts uphold contracts and if one party fails to honour their side of a contract, then the other party is entitled to damages for the loss caused by the breach. Contract law is intended to allocate risks, and thus courts are reluctant to excuse performance based on the doctrine of impossibility. . The COVID-19 pandemic and the measures taken by governments to deal with it continue to impact businesses substantially. This note supplements our March 12, 2020 analysis and recommendations with a short assessment of force majeure and the doctrine of imprvision under French law. In recent weeks, this unforeseen global event has grown into significant health crisis, one that is already disrupting business operations and affecting trade and profits across multiple sectors. However, the standard to establish If a Nevada business believes that the COVID-19 pandemic or Governor Sisolak's governmental orders have resulted in its or its counterpart's inability to . In this article, we look at what happens if your . performance impossibility Differing stay-at-home orders among varying jurisdictions with differing effects on a party's operations Opportunistic use of force majeure COVID-19 is causing large-scale economic hardship for many companies Companies are increasingly looking to use force majeure to excuse . The doctrine of impossibility is a concept in the law of contracts used to grant relief to a promisor whose contractual performance be-comes vitally different from what had reasonably been expected of him due to the occurrence of a supervening event.' Generally speak- ing, until 1863 impossibility of performance was not a defense to an . New York law recognizes the common law doctrine of impossibility as an avenue to excuse performance when there have been extraordinary intervening events. Skip to main content. Section 2-615 (a) of the N.Y. U.C.C . Loren Baily-Schiffman, New York Supreme Court, Kings County held that a commercial tenant's rent obligations were excused under the impossibility doctrine and the landlord's attempt to hold the guarantor liable for that tenant's rent payments constituted "commercial tenant harassment" under the New York City . COVID-19: A Supervening Impossibility or Mere Hardship? An outbreak of Covid-19 had first taken place in December 2019 in the Wuhan, Hubei Province of China. A force majeure clause commonly deals with political and/or natural events. As COVID-19 spreads throughout the United States and governors issue "shelter-in-place" orders and mandate the closure of non-essential businesses, landlords and tenants have encountered new and evolving challenges in meeting their leasehold obligations. The impact of the COVID-19 pandemic is increasingly impacting business operations, including the ability of companies to meet their contractual obligations. the law of impossibility of performance. To check whether the magnitudes of the ongoing pandemic will qualify as an impossibility, it is essential to ascertain the threshold set by the Apex Court in this regard. Section 56 is based on a common law principle known as 'Doctrine of . O NLINE 48 (2020) 51 Perhaps the best way to understand the role foreseeability plays in the Impossibility analysis is that it is "a relevant, but not dispositive, factor."14 The rule apparently followed in Florida seems sensible: "The doctrine of [19] For example, in Bush v. When a court interprets the scope of a force majeure provision, the words matter. Force Majeure and the Doctrine of Impossibility | Law.com ANALYSIS Force Majeure and the Doctrine of Impossibility The COVID-19 pandemic is resulting in landlords and tenants closely reviewing a. . Event postponements and cancellations due to the COVID-19 pandemic raise a host of commercial concerns, including whether performance may be excused under a force majeure provision or a common law doctrine, such as impossibility or frustration of purpose; the extent of each party's insurance coverage; and whether the event organizer must . Yet despite the numerous (and creative) Covid-19-related arguments propounded by litigants in recent months, this emerging body of law remains largely undeveloped. 4 . [2] Supply chain concerns are front and center in the wake of the novel coronavirus. Proving objective impossibility due to coronavirus is probably easiest if a government restriction directly prevents performance. A party . This is a problem for a party impacted by the coronavirus, because while a typical force majeure clause will refer to "acts of God," "war," "terrorism . The court relied on "a more modern formulation of the [impossibility] doctrine" found at sections . The legal doctrine of frustration could assist with ending contracts due to Covid-19. . Where the restriction has an indirect effect, a party . In the landmark case of Satyabrata Ghose v. Mugneeram, the Supreme Court held that The impossibility doctrine looks at whether the underlying action to be performed in a contract was possible under the circumstances, while the frustration of purpose doctrine analyzes whether the parties can achieve the stated or implied purpose of the contract. This . The COVID-19 pandemic continues to cause unprecedented disruption for businesses across all regions and industries, with contractual performance significantly challenged in many instances. At common law and under the UCC, which applies in the context of goods, the doctrine of impossibility has been interpreted narrowly and is often limited to the destruction of the means of performance by an act of God ( e.g ., natural disaster) or by law. On March 15, 2021, the Hon. Several frustration claims arising out of COVID-19, including that of Victoria's Secret, have already been rejected on the ground that a force majeure clause displaces the doctrine. Reed Smith partner John McIntyre explains. Similar to the doctrine of frustration, the defense of impossibility is generally applied narrowly. While in a number of cases impossibility is caused by a so-called 'Act of God,' the idea of impossibility and of the act of God are distinct. Of late, this concept has been used extensively in the taxation matters as well. Similar to the impossibility doctrine, under Nevada law, the doctrine of frustration of purpose applies when an unforeseen event has changed the circumstances surrounding the contract. . Whether you are attempting to collect business interruption insurance, rely on a force majeure clause, or rely on the doctrines of impossibility or frustration of purpose, be sure to stay in close. English Law Perspective: Businesses worldwide have been forced to navigate the challenges brought on by the rapid spread of COVID-19 (coronavirus), including interruptions to supply chains and challenges in meeting contractual obligations. This article discusses just some of those cases as they relate to commercial tenants' reliance on impossibility of performance as a defense to paying rent under their leases because of COVID-19 . For example, performance by a HVAC contractor to install a new HVAC system . Under the impossibility doctrine, if a party's contractual performance becomes impossible due to an extraordinary event, she is excused from the contract. . Given the aforementioned government-imposed mandates that several cities and states have already enacted, there is potential that a landlord could assert the doctrine of impossibility in situations where a specific government action has rendered it impossible for the landlord to provide the tenant with access to the leased premises. But can they? When the UP government pointed to suggestions in the May 17 order on vaccine manufacture, the bench stated that when. The doctrine of impossibility is a contract law concept and refers to situations in which it is impossible for a party to a contract to perform its obligations under it. Similar to the doctrine of frustration, the defense of impossibility is generally applied narrowly. The doctrine of impossibility excuses performance where, as the name suggests, a party's performance is rendered "impossible." See Barnes v. Ford Motor Co., 95 N.C. App. "The doctrine of impossibility is equally applicable to courts," the bench said. The doctrine of Force Majeure on Commercial Contracts . That is, whether the contract includes a force majeure clause that anticipates some sort of supervening event beyond the control of the parties that may affect the performance of a contract and provides contractual relief for one or both parties from . Presumably it was regulations such as these that restricted the movement of persons that the defendants had in mind when pleading impossibility of "The doctrine of impossibility is equally applicable to courts," the bench said. A delay in contractual performance as a result of Covid-19 will be temporary and, one would hope, relatively short term. [22] Force Majeure . Caused by COVID-19 . Assuming that the contractual obligations were assumed before December 2019 (when the first cases were reported in mainland China), the foreseeability should not be a bar to this argument as the nature . In the wake of Covid-19, litigants have increasingly sought to excuse contractual performance by invoking force majeure clauses or the doctrine of impossibility. We also note that the Uniform Commercial Code contains a provision that could come into play for contracts of sale that are disrupted by the coronavirus. Collector and Ors. Whether the COVID-19 pandemic would be considered a force majeure event will depend on the drafting and interpretation of an individual contract. Whether your business is having such difficulty or trying to enforce performance under an agreement, it is important to understand the concept of force majeure, material adverse change . The rapid spread of the COVID -19 pandemic, and stringent government orders regulating the movement and gathering of people issued in response, continues to raise concerns about parties' abilities to comply . There are two types of . The most relevant doctrine applied to a situation where a contractual party seeks impossibility of performance to either delay or avoid its immediate performance is the doctrine of . The doctrine of frustration applies in circumstances where the contract does not provide for any exclusions covering COVID-19. The doctrine of 'Lex non Cogit Ad impossibilia' is an age-old maxim used globally as a measure of defense in various legal matters. The current legal standards, as well as the Indian legal doctrine surrounding them, appear to be sufficient to meet the vast and far-reaching legal . As such, both parties would be absolved from having to perform for so long as performance remains impossible and the counterparty could eventually have the right to cancel the agreement if performance is suspended for an unreasonably long period; where the length or the extent of the delay amounts to . However, there are some options that may give relief to parties from obligations which they are unable to perform. Insurance Coverage Businesses should consider whether there is insurance coverage available for COVID-19-related business disruption to mitigate losses, and whether notice should be provided under these policies at this time. On March 11, 2020, the World Health Organization officially designated the outbreak of COVID-19, otherwise known as coronavirus, as a global pandemic. performance impossibility Differing stay-at-home orders among varying jurisdictions with differing effects on a party's operations Opportunistic use of force majeure COVID-19 is causing large-scale economic hardship for many companies Companies are increasingly looking to use force majeure to excuse The impossibility doctrine looks at whether the underlying action to be performed in a contract was possible under the circumstances, while the frustration of purpose doctrine analyzes whether the parties can achieve the stated or implied purpose of the contract. COVID-19 would most likely result in temporary or partial impossibility of performance. The notion of the act of God was taken over from the law of common carriers, where, for the purpose of avoiding the danger of fraud and collusion, the Insurance Coverage Businesses should consider whether there is insurance coverage available for COVID-19-related business disruption to mitigate losses, and whether notice should be provided under these policies at this time.