SARS - a 'frustrating' event?

The damaging effect of SARS on Hong Kong's economy has been well documented in the local and worldwide media. Consumer spending and tourism have been particularly badly affected, against a background of anxiety and uncertainty. Many events due to be held in Hong Kong, and in other parts of the world, have been cancelled due to concerns about SARS. In this context, affected parties and their legal advisers are having to consider the possible impact of SARS on a variety of contractual situations. Two issues, in particular, require consideration. First, the possible application of the common law doctrine of frustration. Second, the operation of contractual "force majeure" clauses.

Frustration

The common law doctrine of frustration generally operates to discharge a contract where a supervening event occurs (without the default of the parties concerned and for which the contract does not make sufficient provision) which results in performance of the contract being physically or commercially impossible, or the obligations under the contract being radically different to those originally undertaken. The doctrine normally operates within relatively narrow confines. It cannot usually be invoked merely to relieve a party from an imprudent commercial bargain, nor where the parties have foreseen the relevant event and provided for it in the contract. A contract is unlikely to be frustrated merely because performance has become more onerous or less profitable than the parties had hoped would be the case. In addition, the purported supervening event should not be explicable by reason of the conduct of the party seeking to rely on it.

Unfortunately, there appears to be a dearth of Hong Kong or English case law that specifically addresses the situation where an alleged frustrating event arises out of, or in connection with, an epidemic (such as SARS). However, the doctrine of frustration is generally capable of applying to different types of situations. Therefore, general principles gleaned from existing case law will have to be applied to possible contractual situations where SARS may have an impact.

For example, the doctrine of frustration may possibly be relied upon where an exhibition or event is cancelled, as a result of SARS. The cancellation of the exhibition or event may "frustrate" the contract, if it can be said to have destroyed the "commercial purpose" of the contract.

A party might also seek to rely on the doctrine of frustration if...