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What is a frustrated contract?


Commercial law expert Donal Bannon explains the importance of carefully written terms and conditions. 

A recent case referred to us concerned a supplier who was unable to supply goods to its customers due to difficulties it faced in sourcing raw materials from overseas.

The problem arose due to an unexpected weather event which hampered the overseas supplier from supplying our client.

The difficulty was likely to be resolved within two months, but our client’s customer was not prepared to wait that long and threatened to end the agreement with our client and to source goods from an alternative supplier. The customer argued that the contract was frustrated and it was entitled to walk away from the contract without any liability.

What is a frustrated contact?

A contract is frustrated when it becomes impossible to perform due to a “supervening event” – one that isn’t the fault of any of the parties, and that they couldn’t reasonably have predicted. Our client stood to lose a major contract and incur substantial losses as a result.

Fortunately, the terms and conditions we had drafted for our client some years ago came to the rescue in that they contained a “Force Majeure” clause. A force majeure clause states that if an extreme, unforeseeable event occurs that prevents or delays a party from performing their contractual obligations, that party will not be in breach of contract as a result of the delay/non-performance.

The terms gave our client a three-month grace period to honour the contract if faced with difficulties caused by extreme weather events. This clause was brought to their customer‘s attention and it relented, allowing our client more time to continue with supplies.

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