In view of the global crisis surrounding Corona Virus and countries and companies going into lockdown and many sales of goods and services providers are cancelling their contracts with immediate effect and refusing refunds on goods and services paid for but not provided.
Parties may have the common law defence of “Frustration” or the express contract ground to terminate the contract due to a “Force Majeure” Event (“FMR”).
A contract may be discharged on the grounds of Frustration when something occurs after the formation of the contract, which was not within the parties’ reasonable contemplation when the contract was formed, rendering it physically or commercially impossible for one or both parties to fulfil their contractual obligations.
FMEs are expressly stated in written contracts and generally include events such as natural disasters, disease-epidemics, war and other “Acts of God”.
A party to a contract may be entitled to argue that the current global Corona Virus crisis has Frustrated the contract and is an FME meaning that it is impossible for them to perform their obligations as originally anticipated making performance of the contract impossible.
The result of Frustration and FME is that the contract is immediately terminated, and the parties are discharged from their further obligations under it. There is no automatic right of damages for breach of contract to place the buyer in the position they would have been in had the contract been fulfilled, nor to return the parties to their respective positions before the contract was formed, such as refund and replacement.
However, the parties are not released from obligations that should have been performed before the frustrating event, which they can remain liable.
In relation to sums already paid under a frustrated contract, the Law Reform (Frustrated Contracts) Act 1943 may entitle you to receive a refund on monies paid, subject to an allowance for the expenses that the seller incurred for the purpose of performing their side of the deal.
Similarly, if the seller was owed money under an obligation that fell due before the contract was discharged via frustration, the buyer does not have to pay the full price, but only sufficient monies in respect of expenses that they have incurred capped at the total amount that the buyer had owed.
Therefore, a good result in the circumstances would be a partial refund, or holding the contract open for performance at a later date when the global crisis is over.