Frustration of Contracts in Ireland
By Thomas O’Dwyer, Beauchamps
Contracts often contain a Force Majeure clause which provides what should happen if it cannot be performed due to intervening external circumstances. However, where no such clause is included, the contract may be deemed to be frustrated if it cannot be performed due to unforeseen circumstances beyond the control of either party.
Test for Frustration
The principles to apply when a claim of frustration is made were set out in McGuill v Aer Lingus Teo. and United Airlines Inc. (1983):
- The parties may agree that the contract must be performed regardless of any intervening circumstances which may arise.
- Frustration occurs when, without default of either party, a contractual obligation has become incapable of being performed.
- The event leading to alleged frustration and all the circumstances of the contract should be strictly scrutinised and the doctrine is not to be lightly applied.
- Where the event arises from the act or default of one of the parties, that party cannot rely on the doctrine.
- The event should be unexpected and if one party anticipated or should have anticipated the possibility of the event and did not incorporate a clause in the contract to deal with it, he should not be permitted to rely on the happening of the event as causing frustration.
Effect of Frustration
Where a contract is deemed to be frustrated, it comes to an end and each party is released from their future contractual obligations from the date of termination. However, each party will remain liable for their obligations up to that date.
The likelihood of a successful claim that a contract has been frustrated will depend on the factual matrix surrounding each case, and the length of the delays imposed by Covid-19 restrictions will be of significant importance in any consideration. It is of course open to the parties to negotiate a mutually acceptable alternative solution to having a contract terminated.
Thomas O’DwyerGGI member firm
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Thomas O’Dwyer is a Partner in Beauchamps’ Litigation and Dispute Resolution team and leads the Crisis Management and White-Collar Crime units. He specialises in commercial disputes and claims for professional negligence, breach of contract, security enforcement, and judicial review.
Published: Litigation & Dispute Resolution Newsletter, No. 14, Spring 2021 l Photo: SomethingIrish - stock.adobe.com