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COVID-19 and Construction Contract Performance: Frustration When you Don't Have a Force Majeure Clause

The ongoing impacts of the COVID-19 pandemic will likely have many parties looking at their ongoing and future contractual obligations. In the construction context, many contracts will include a force majeure provision outlining what happens when contractual performance is impacted by events beyond the control of either party.

But what about situations when no such provision was included in the contract? That is where the common law doctrine of frustration comes into play.

The Supreme Court of Canada explained that frustration occurs when “a situation has arisen for which the parties made no provision in the contract” and the performance becomes a “thing radically different from that which was undertaking by the contract” (Naylor Group, [2001] 2 SCR 943 at para. 53). Frustration allows the court to intervene to “relieve the parties of their bargain because a supervening event […] has occurred without the fault of either party” (Naylor Group, at para. 55).

Frustration does not happen simply because of hardship, inconvenience or material loss. Rather, there must be some supervening event has altered the nature of one or both of the parties’ obligations to such an extent that to compel performance would be order the party to “do something radically different from what the parties agreed to” do in the first place (Naylor Group, at para. 55).

In short, a contract becomes frustrated when the supervening event makes it impossible to perform, such that it would be unjust to hold the parties to their original obligations in light of the new circumstances. When exactly this occurs will be highly fact and context specific. A court will be asked to draw the line between when an activity is possible to perform but at huge expense, and when it becomes practically impossible to perform due to a supervening event.

Whether or not the pandemic will give rise to frustration of any given contract at common law is a question that is certain to be dealt with by the Courts on many occasions in the years to come.  But for now, if you are in a situation when contractual performance is starting to look radically different because of the current COVID-19 crisis, gaining timely legal advice on what options are available to you is something Field Law can assist you with.