In light of the COVID-19 pandemic, many businesses and individuals may find themselves in situations where they need to break contracts. This can be due to various reasons such as financial hardship, inability to perform contractual obligations due to government restrictions, or simply because the contract has become impractical or impossible to fulfill. In this article, we will explore the legal implications of breaking a contract due to COVID-19.
Force Majeure Clause
Many contracts include a force majeure clause, which is a legal term that refers to an event or circumstance that is beyond the control of the parties. This clause typically excuses performance under certain circumstances, including acts of God, war, terrorism, and government action. The COVID-19 pandemic has been declared a force majeure event in many jurisdictions, and as such, parties to a contract may be able to rely on this clause to excuse their non-performance.
However, it is important to note that not all force majeure clauses are created equal. Some clauses may specifically include pandemics or epidemics as force majeure events, while others may not. Additionally, the language of the clause itself can affect its interpretation. Courts will generally interpret the language of the clause strictly, so it is important to review the clause carefully and seek legal advice if necessary.
Frustration of Purpose
If a force majeure clause is not available or does not cover the current situation, parties may be able to rely on the legal doctrine of frustration of purpose. Frustration of purpose occurs when an unforeseen event occurs that makes the contract impossible or impractical to fulfill. The COVID-19 pandemic could potentially frustrate the purpose of a contract, for example, if a concert or event cannot be held due to government restrictions on large gatherings.
However, frustration of purpose is a high bar to meet and requires the event to be truly unforeseen and not just a risk that could have been allocated between the parties. As such, it is important to seek legal advice before relying on frustration of purpose to break a contract.
Even if a party is able to rely on a force majeure clause or frustration of purpose, they still have a duty to mitigate their damages. This means that they must take reasonable steps to minimize the harm caused by their non-performance. For example, if a construction project is delayed due to COVID-19, the contractor may need to explore alternative suppliers or methods to minimize the delay and associated costs.
Breaking a contract due to COVID-19 can be complex and fraught with legal risks. It is important to review the contract carefully and seek legal advice before taking any action. Parties should also document their efforts to mitigate their damages and maintain open lines of communication with the other party. By taking these steps, parties can minimize the legal and financial impact of COVID-19 on their contractual obligations.