How Can I Get Out of My Contract? Is My Contract Frustrated?

PART 2

One of the most important parts of contract law is the mutual trust and confidence the parties place in each other to perform their promises to each other.

Having said all that, there are certain events or ‘triggers’ that can lead to a contract becoming frustrated, which is often of no fault to either party.

There are different scenarios under which a contract becomes frustrated.

Unforeseeable Events

There are several important criteria that must first be satisfied in order for a Court to consider a contract frustrated and therefore terminated.

One such event, where a contract becomes frustrated and termination of the contract is warranted, occurs when the nature of the contract has shifted due to an unforeseeable, uncontrollable and totally unanticipated event.  The COVID-19 crisis could well be considered this type of event.

This unforeseeable event has to have had such an effect on the contractual duties of both parties, that the primary purpose of entering the contract is no longer obvious or evident.

It is important to remember that the contract becomes frustrated only when neither party had knowledge or contemplation of the event prior to its occurrence.

This is sometimes evidenced by the lack of any provision in the contract aimed at dealing with such an unforeseen event.

Some contracts do contain a clause that contemplates the possibility of unforeseen events occurring, and do not allow a party to terminate the contract on that basis, as they have made provisions relating to such events and protocol for dealing with such events should they occur.

In addition, if either party frustrated the contract by their own (mis)conduct, and as a result, there has been some loss suffered (financial or otherwise) to one of the parties, termination of the contract may not be an available option.  

Lastly, the event must be more than just a passing inconvenience in nature. It must be wholly unfair and unreasonable to uphold the contract given the gravity of the unforeseen event and the impact it has had on the entirety of the contract.

Unable to perform the contract

A contract becomes frustrated when certain conditions/circumstances make it impossible to perform the contract.

This might occur when the law changes, which affects the legality of the contract, or when the subject has become damaged or lost. In addition, a contract becomes frustrated when an event that the contract relied on never happens and, as a result, the contract cannot be performed.

How does frustration impact a contract?

When a contract becomes frustrated during the term of the contract, it is possible for the parties to be discharged from their contractual duties.

It is worth noting that when a contract becomes frustrated and the parties want to terminate the agreement, the termination does not begin from the start date of the contract, but rather from the date on which the frustrating event occurs.

Other examples of when a contract becomes frustrated might be following the death or bankruptcy of either party.

If the contract has been drafted so that it contains provisions that cause the contract to become frustrated because of certain events occurring, this may also be a ground for enlivening the doctrine of frustration.

Conclusion

If you are unsure about whether your contract has become frustrated, contact You Legal on 1300 870 661 for a review of the terms of the contract and advice on how to proceed.

If you get it wrong the counter-party may have the right to sue you for damages for wrongful breach/termination of the contract.

In the meantime, stay well.

Sarah