Can you plead frustration of sale and purchase contracts?
What is meant by frustration?
The doctrine of frustration allows a contract to be discharged under common law. This doctrine excuses parties from their contractual obligations when an unforeseen event makes the performance of a contract impossible.
A non-performing party who is unable to perform the contract due to the pandemic would argue that the spread of coronavirus is a significant change which has brought the contract to an end and should release both parties from further performance of it.
When will a contract be frustrated?
Frustration of a contract occurs when an event occurs which (without default of either party and which the contract does not provide for) significantly changes the nature of the outstanding contractual rights and obligations into a radically different obligation from what the parties had agreed at the formation, making it physically or commercially impossible to fulfil the contract.
The doctrine of frustration is extremely difficult to establish and can only be invoked in exceptional circumstances. The test applied to establish frustration is very strict. It can be broken down as follows:
the frustrating event occurs after the contract has been formed;
the frustrating event is so fundamental that it is regarded by the law both as striking at the root of the contract and is completely beyond what was anticipated by the parties when they entered the contract;
neither party is at fault; and
the frustrating event renders the performance of the contract impossible, illegal or radically different from the obligations the parties undertook at formation.
Whilst it is arguable that the coronavirus outbreak and the consequential measures imposed by the Government are events that were neither anticipated nor the fault of any party, the high threshold for proving frustration means that the non-performing party would have to demonstrate that it is impossible to perform the contract. Factors that could be taken in to account are the terms of the contract and length of the delay. It is very fact sensitive.
It will be difficult for a party to rely on this doctrine and the courts will be reluctant and unwilling to embrace the doctrine of frustration, even when at the time of entering into a sale and purchase property contract an event was unforeseeable (here the rapid spread of coronavirus).
Consequence of establishing frustration
If the non-performing party is successful in establishing the doctrine of frustration then the future obligations and performance under the contract automatically come to an end and the parties are no longer bound to perform their obligations.
In the absence of an express contractual clause in your contract and due to the high threshold in establishing the doctrine of frustration, a collaborative approach between the parties may be the preferred, perhaps the only sensible, way forward.