This post was contributed by James Devenney, Module Convenor for International Commercial law.
In a previous blog on this site (‘Frustration of Contract and COVID-19’) the potential application, under the Law of England and Wales, of the doctrine of frustration to situations where a contract has become impossible to perform as a result of the COVID-19 pandemic was examined. The impact of the pandemic has continued to exercise governments around the world (see, for example, the COVID 19 (Temporary Measures) Act 2020 in Singapore).
In May 2020 the European Law Institute (ELI) published Principles for the COVID-19 Crisis. The European Law Institute (https://www.europeanlawinstitute.eu/) is an independent, non-profit organisation with an aim to improve European Law (which includes, but is not limited to, EU Law). ELI’s Principles for the COVID-19 Crisis are intended to guide European States and other bodies during these exceptional times. They include 15 principles including Fundamental Values (Principle 1), Lawmaking (Principle 3) and Privacy and Data Protection (Principle 6).
For present purposes, Principle 13 (Force Majeure and Hardship) is of particular interest as it deals with situations which in the Law of England and Wales would largely be dealt with under the doctrine of frustration. There are three parts to Principle 13:
- In cases where a contractual performance is directly or indirectly prevented by the COVID-19 pandemic “…States should ensure that existing law on impossibility or force majeure applies in an effective way, and provides reasonable solutions. In particular, the contractual allocation of risk in these instances should be evaluated in the light of existing contracts, background legal regimes and the principle of good faith.”
- Where the COVID-19 pandemic makes contractual performance “…excessively difficult (hardship principle), including where the cost of performance has risen significantly, States should ensure that, in accordance with the principle of good faith, parties enter into renegotiations even if this has not been provided for in a contract or in existing legislation.”
- Moreover “…States should ensure that the consequences of the disruption of contractual relationships, such as the cancellation of travel arrangements, should not be at the sole risk of one party, in particular of a consumer or SME.”
These principles make an interesting contrast with the traditional principles of frustration under the Law of England and Wales in a number of ways:
- A concept of ‘good faith’ appears prominently in Principle 13 whereas traditionally the Law of England and Wales has been hostile to such a concept (see more recently MSC Mediterranean Shipping Co SA v. Cottonex Anstalt [2016] EWCA Civ 789);
- It includes a provision that States ensure the parties enter into renegotiations when the contract becomes excessively difficult to perform. Traditionally under the Law of England and Wales, hardship per se does not frustrate a contract (see, for example, Tsakiroglou & Co v. Noblee and Thorl [1962] AC 93 where a contract to ship groundnuts from Port Sudan to Hamburg was not frustrated by the closure of the Suez Canal which significantly extended the time and cost of the journey);
- It suggests more flexibility in dividing loss as a result of frustration than is perhaps available under the Sale of Goods Act 1979, s.7 or the Law Reform (Frustrated Contracts) Act 1943, s.1.