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A frustrating time

A frustrating time

I’ve been tearing my hair out with frustration recently. You see, there is a contract law doctrine called “frustration,” which is when a contract becomes impossible to perform or when the performance will be fundamentally different from that which was contracted for. Once it is frustrated, we have in New Zealand a Frustrated Contracts Act 1944 that sets out clearly who has to do what if anything. But first the contract has to be frustrated.

Like many lawyers, I have been dealing with some frustrating Christchurch issues.

What happened there was truly awful. When it takes clever skateboarders to show the extent of the devastation, we begin to understand that what we see in the media is the tip of the iceberg. So please don’t think I’m unsympathetic to the people of Christchurch. I’m just telling you how the law of frustration works. It’s usually quite rare to have a frustrated contract, but with Christchurch there are lots.

The law takes a pretty strong view: if the contract is still capable of performance, even though the performance might be a bit different, the contract is not necessarily frustrated. An example of a contract truly frustrated by the earthquake would be a roofer contracted to reroof a house, but the house was “munted,” to use the phrase of the event. That’s frustration.

A contract to provide catering for a show that was necessary to cancel because of the earthquake would also be frustrated. But note that word “necessary.” If it’s just harder or more expensive but the show can sensibly go ahead – well, that’s where lawyers will be arguing, as we do.

But what about contracts where performance is merely delayed? For instance, suppose I can’t get into my office for a couple of months. No, that’s not frustration, even if I have to pay for alternative accommodation in the meantime. The earthquake and its aftermath didn’t defeat the main purpose of the contract, so the contract rolls on.

Do I have to pay the rent? Court cases usually say that I would have to – so I hope that the contract terms give me some kind of comfort there. Or, more to the point, that I have insurance for events like this. (Have you? Check your insurance policies now).

Then we have the difficult ones - contracts capable of performance on both sides but one party, often a consumer, wants out altogether. It might be a credit contract, though if there is genuine hardship the consumer might be entitled to negotiate terms under the Credit Contracts and Consumer Finance Act 2003. But even that Act doesn’t entitle the consumer to cancel just because it is now too hard. Why?

Because the trader is entitled to certainty too, and as most Christchurch business people will tell you, it’s pretty hard to make a buck down there unless you rent portaloos.

Traders might choose to help consumers that they think have genuine problems, but let’s be clear – when they do so, it’s usually out of the goodness of their hearts, not because the law requires them to – and the best thing they can do for Christchurch is stay in business and provide jobs.

Rae Nield is a solicitor specialising in marketing law. This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae Nield can be contacted at raenield@marketinglaw.co.nz.


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