Contract law in the time of Corona
This is not legal advice for your situation, it is a note of some legal concepts that may assist you during this unique period.
Some contracts include a force majeure (“act of God” or “national emergency or disaster” for the secular) clause suspending or terminating that agreement when an event outside the control of the parties - such as a WHO declared global pandemic leading to a Government-imposed nationwide lockdown - prevents the contract from being performed.
These clauses may permit parties to suspend performance of the contract (and therefore not to pay) during this period. It is important that these clauses be carefully reviewed to ensure they apply to the lockdown and are applied fairly.
If your contract does not contain a force majeure provision, it may be possible to rely on the doctrine of frustration to discharge the contract from the date of the lockdown if it has become impossible to perform. In Planet Kids Ltd v Auckland Council the Supreme Court identified three features of the doctrine of frustration:
(a) For policy reasons related to the principle of sanctity of contract, the threshold for frustration is high.
(b) It occurs automatically, by operation of law, to discharge the contract “forthwith, without more and automatically.” It does not depend on application or election by the parties.
(c) It operates to bring the contract to an end at the time of the frustrating event.
In the event that the contract is frustrated sections 60–69 of the Contract and Commercial Law Act 2017 permits the Court to determine the benefits exchanged prior to the frustrating event and make an order for payment between the parties.
There may also be other provisions in your contract that could help you find some relief over the lockdown period, such as Material Adverse Change/Event clauses.
Incorrectly acting to cancel a contract can lead to a damages or specific performance claim being made against you. Before acting, a thorough analysis of whether performance has become impossible needs to be done: taking into account the full factual context, the words of the contract and the high legal threshold.
If you’d like to talk with me about your specific situation, send me an email via my contact page to arrange a complimentary 30 minute consultation.