Frustration of contract is a concept has been the subject of much debate since the start of the Covid-19 crisis. Matt Gatenby, Senior Partner and Nick Parkinson, Associate, Travlaw LLP explain the law of frustration and whether it is a useful tool for travel companies involved contractual disputes.
The legal concept of “frustration” does not arise that much in travel law but it has been raised recently in light of the Covid-19 outbreak. It is worth noting that for regulated package holidays, the concept is largely irrelevant as the 2018 Regulations deal with situations in consumer contracts. However, there is still plenty to consider in a non-package situation (where even the Consumer Rights Act 2015 will have something to say), and, particularly, in respect of supplier contracts.
Well, it all comes down, in the end, to money. Frustration might be the legal solution to resolve a dispute about what, if any, refunds are due when a contract cannot proceed. It should be noted that this is a classic “double edged sword” in that frustration may be used by you, or against you. So, knowing how it works is crucial.
The law of frustration only applies where:
Looking at each of these in turn:
The law of frustration has its root in English law. That is not to say that a similar concept may not be applicable in other countries, but if a contract is subject to a different law, investigations with a lawyer in that jurisdiction will be required. However, even that might not be necessary if the position is essentially clear from the T&Cs.
A contract can only be cancelled, or frustrated, once. We need to consider:
The order of events is critical. If, for example, a tour operator cancelled a contract with a hotel in Italy on, say, 1 February 2020, it doesn’t matter if the hotel was later closed down by the Italian authorities on 2 February 2020. The contract cannot be ‘frustrated’ on 2 February 2020 if it was already cancelled on 1 February 2020. In this situation, the tour operator may have been in a better position if they waited one day longer.
The courts will only apply frustration as a remedy of last resort, and only then pursuant to the rules (far too detailed to cover here) of the Law Reform (Frustrated Contracts) Act 1943. Contracts are a serious business and an attempt to end them in such circumstances more so.
If the situation is already provided for in the contract, a court will feel no need to consider the application of frustration. However, it can be confusing as to what happens if the contract recognises the situation, eg services cannot be provided due to an epidemic, but it does not provide for all the consequences, eg what happens about refunds? Does frustration apply, or does a different legal remedy such as ‘restitution’ come in to play instead? More importantly, does that put you in a better, or worse, position when it comes to refunds? And does it matter whether that refund is due to a business or a consumer?
For contracts to which English law applies, it is possible for parties to agree (by way of a clause in the contract) that the 1943 Act does not apply. However, does that benefit the supplier or the other party to the contract? And, again, would that be enforceable against consumers? Albeit, the key point to take away here is that we only need to look at the law of frustration as a ‘last resort’ when all other solutions fail. If the contract deals with what happens in a situation like, for instance, Covid-19, then frustration never arises.
However, if frustration is in play, we can turn our attention to what that might look like.
We know that the law of frustration might help to resolve the details of a dispute. English law applies, neither party cancelled the contract before the ‘frustrating event’ arose and the T&Cs do not cover the situation. We now have to consider whether any of the three categories of frustration apply to our given scenario:
Assuming one of the above can be shown, the effect of frustration is to:
We are finding that frustration arguments are there to be used, especially in supplier contract situations. Similarly, after many years of us never having to look at the effect of frustration in contracts, we are now all looking ahead to make sure that if there are similar events in the future, they are provided for. Drafting implements at the ready…
Matt Gatenby, Senior Partner, Travlaw LLP
Matt brings his experience in all areas of law to the firm’s tour operator, agent, airline, insurer and travel-tech clients. Be it in respect of litigation, regulatory, commercial, employment or any other area, Travlaw are longstanding, trusted advisors to the industry.
Nick Parkinson, Associate, Travlaw LLP
Nick has a broad range of experience with over 13 years experience in civil litigation with considerable expertise in the travel & leisure industry, regularly advising clients and handling claims in relation to a variety of travel-law related issues.
The views expressed by the contributors are personal and do not necessarily represent the views of ABTA. This document is intended as a general guide only and can’t be a substitute for specific advice. This document may not be reproduced without permission. Copyright ABTA Ltd 2020