FRUSTRATED YET? COURT DECIDES WHETHER CONTRACT FRUSTRATED DUE TO COVID-19

COVID-19 has wreaked havoc on almost every industry, none more so than the hospitality industry.

But can the impact of COVID-19 result in your contract being frustrated?

The Queensland District Court recently considered whether the outbreak of COVID-19 frustrated a contract for the purchase of a restaurant/bar in Brisbane’s Fortitude Valley.

The answer? No.

In this case, the buyer sought to terminate the contract after the Queensland Government’s directive on 23 March 2020 requiring the closure of all ‘non-essential businesses’, which included restaurants and bars.

The buyer sought a refund of the deposit whilst the seller sought specific performance or damages.

Notably, the contract did not contain a force majeure clause which would allow either party to terminate the contract for the occurrence of an event beyond the control of either party.

This meant that the buyer had to rely upon the common law doctrine of frustration.

A contract will only be frustrated at common law if an event or events occur which create a radically or fundamentally different situation to that which was contemplated by the parties when the contract was made.

Whilst acknowledging that the Queensland Government’s directive would have had an impact on the business, the Court was ultimately not persuaded that the directive destroyed the commercial purpose of the contract.

Luckily for the buyer, however, the Court was persuaded that the buyer had validly terminated the contract on the basis that the seller was unable to observe its pre-settlement obligations due to its inability to operate the business as a going concern. The buyer was entitled to a full refund.

The key point here is that whether a contract has been frustrated will be case dependant. It requires a value judgment and the Court will have to consider multiple factors and give weight to multiple and often competing considerations.

In such circumstances, parties will need to seek sound legal advice before attempting to terminate on the basis that the contract has been frustrated. This case shows how reluctant the Courts are to determine that a contract has been frustrated due to COVID-19 and the importance of ensuring that your future contracts contain a well-drafted force majeure clause.

If you need advice about a similar situation, reach out to the experts at Axia Litigation Lawyers without delay – because Every Move Matters!

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