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Frustration of the Contract and Covid: A BC case

Covid-19 cases are continuing to work their way through the courts. We are keeping a close eye on frustration of the contract arguments being made as they have important implications in business and employment law.

Parties relying on frustration of the contract (where surrounding circumstances make performance of a contract impossible) continue to be shot down by the courts. We have recently seen a BC court case on frustration New City / Safety Mortgage Fund Inc. v. Pacific Point Holdings Ltd. 2020 BCSC 1792 .

In that case Mortgagors and guarantors who were being foreclosed on tried to use a frustration argument to stop the foreclosure process. They said that Covid 19 caused their refinancing to collapse, and the collapse of financing frustrated the mortgage and other security documentation. The court rejected this argument, saying at paragraph 45:

[45] Frustration occurs when, without default of either party, a contract becomes incapable of being performed because the circumstances would render it “a thing radically different from that which was undertaken by the contract”: Davis Contractors Ltd. v. Fareham Urban District Council, [1956] AC 696, at 729; Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58 (CanLII), [2001] 2 S.C.R. 943, at 967-8.

[46] In Wilkie v. Jeong, 2017 BCSC 2131, Madam Justice Warren described the two elements of the test for frustration as:

a) a qualifying supervening event (one for which the contract makes no provision, which is not the fault of either party, which was not self-induced, and which was not foreseeable), which

b) caused a radical change in the nature of a fundamental contractual obligation.

[47] While the outbreak of Covid 19 may have been an unforeseen event for which there was no provision in the security agreements, it did not fundamentally alter the nature of the parties’ contractual obligations.

[48] PPH and 103 defaulted on the mortgages prior to the outbreak of COVID-19. Neither the pandemic nor any government response to it caused them to default....

If someone is alleging a frustration argument against you, or you believe you might be in a frustration situation, please feel free to contact us.

The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.

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