As the COVID-19 pandemic continues to wreak unprecedented havoc in the aviation industry, affected commercial parties will increasingly be looking for escape routes from onerous contractual obligations. Two obvious contenders are the common law doctrine of frustration and any express force majeure provisions. Within these, two specific issues seem ripe for argument in the coming months.
Frustration – Wait and See?
Under the common law of England and Wales, a contract is frustrated – and the parties are discharged from further performance thereunder – if a post-contractual event renders its fulfilment physically or commercially impossible or makes the obligation to perform radically different from that originally undertaken: Davis Contractors v. Fareham [1956] A.C. 696. That test is well established, albeit that its application to specific factual circumstances is often far from straightforward.
But one area that remains underdeveloped is the extent to which there is a principle of 'wait and see', and how long a party must wait before it can rely on frustration. A delay in being able to perform may be within the commercial risk undertaken by a party, or it may be so long as to frustrate the commercial purpose of the contract. This is potentially very important in the aviation context right now. For example, in circumstances where it is unknown for how long airlines and airports may be out of action, how long must a party wait before concluding that a contract dependent on them has been frustrated?
In The Nema [1982] A.C. 724, at 752, Lord Roskill proclaimed that "business men must not be required to await events too long" and proposed a test "based upon all the evidence of what has occurred and what is likely thereafter to occur". This rather vague test opens the door to litigation arising out of operating leases and aircraft charter agreements, ground handling agreements, maintenance contracts and operating agreements. All of these will be affected by the pandemic and susceptible to frustration arguments. In 1982, Lord Roskill recognised that opinions could legitimately differ as to when the point of frustration had been reached in 'wait and see' cases. One may expect bountiful litigation now that many parties to such contracts face financial ruin if held to their original obligations.
Force Majeure – Seriousness of the Event
Some of the aviation contracts identified above – particularly operating leases and aircraft charter agreements – may well contain specific force majeure clauses covering matters brought about by the pandemic. The effects of such events on the contract will then turn upon the specific wording used in the clause. However, in general, a force majeure clause will not bring the contract to an end in the way that frustration will. Thus, a further area of contention is likely to be whether the presence of such a clause ousts reliance on the doctrine of frustration, or whether the seriousness of the event keeps the prospect of frustration alive.
The usual rule is that, if the relevant event is covered by a force majeure clause, frustration cannot apply at all (because the parties have provided for what should happen). However, certain cases open the door to an argument that, even where there is a force majeure clause and the event appears to be within it, the seriousness of the event (or its consequences) means that it actually falls outside the clause and frustrates the contract: see Bank Line v. Arthur Capel [1919] A.C. 435 and The Sea Angel [2007] 2 All E.R. (Comm) 634. This is potentially of significant importance in the aviation context right now. For example, even if a government regulation causing the loss of individual flights is covered by a force majeure clause, the seriousness of the impact may be so great as to justify an argument that the clause no longer applies. Again, given the extraordinary difficulties presently facing many actors in the aviation context, this rather underdeveloped legal issue may well find renewed expression as the pandemic continues to unfold.
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