Mechanisms for Relief from Contractual Obligations in the Realm of COVID-19.

AuthorMcTague, James

September 1, 2020By James McTague

The novel coronavirus ("COVID-19") has directly impacted society as a whole. But what really is COVID-19? It is a member of the coronavirus family of viruses. When virologists first studied this class of viruses, they used microscopy to view these viruses. The viruses appeared to have a faint halo, which advanced microscopy techniques later determined to be small spike-like protrusions from the virus' surface. Due to these characteristics, coronaviruses take their namesake from the halo - reminiscent of the sun's atmosphere, also known as the corona. The "19" represents the year this particular virus strain emerged.

After several months of this global pandemic, the number of infections and deaths continue to persist and the chance of a second wave in Canada remains probable. Add to that the global economy has been devastated. The expectation is that these adverse impacts will continue.

The economy is built on contracts. The continued disruptions in the supply chain, increasing unemployment rates, business solvency issues, and travel restrictions means many individuals and businesses are in difficult positions. They no longer require the services or goods they contracted for, they are financially unable to pay to fulfill some contractual obligations, or they can no longer perform the terms of the contract. How can an individual or business seek relief from their agreed upon contractual obligations in these circumstances?

Doctrine of Frustration

The doctrine of frustration is a longstanding common law legal principle. It allows a party to a contract to no longer be bound by their contractual obligations due to a notable change in circumstances - through no fault of their own - which makes performance of the contract impossible. Unlike force majeure clauses (discussed below), frustration could potentially be available to any contract.

Frustration is relied upon when the contract does not say how to deal with a supervening event - an event which causes the contract to become something radically different from what the parties contemplated when they agreed on the exchange of promises. The Supreme Court of Canada has confirmed that the threshold for finding a contract to be frustrated is very high. The event must not merely cause hardship to a party. The event must be more in line with a party being completely unable to perform the contract.

In order to rely on frustration, the supervening event must be:

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