Friday December 9, 2022
There are several ways in which parties may seek to avoid enforcement of contractual obligations or challenge claims of breach of contract.
If a party is able to argue that a purported contract is invalid, it may have a complete defence to any attempted enforcement of that contract. A party’s challenge to the validity of a contract, if successful, may render that contract void (i.e., immediately ineffective) or voidable (valid and effective, unless and until rescinded).
A contract that lacks any of the key elements required for the formation of a valid contract is void. For example, a party who has not provided any consideration under a contract will be unable to enforce that contract’s terms against another party. Other common instances that render a contract void include when a party lacks capacity or authority to enter that contract (e.g., an individual purporting to contract on behalf of a corporate entity without requisite authorisation).
1. Force majeure and frustration
Contracting parties may choose to include a force majeure clause, which excuses performance of a contract following certain events that are beyond the control of the parties. Force majeure clauses must be certain to be effective and should include reference to specific events (e.g., natural disasters, acts of war and acts of terrorism). Wording equivalent to ‘usual force majeure clauses shall apply’ will likely be considered void, and the Courts have had some difficulty in upholding the validity of force majeure clauses that contain such catch-all language.
If there is not an explicit force majeure clause, parties may be able to rely on the common law principle of frustration, although this is very narrowly construed by the Courts. Frustration is the principle that a contract may be set aside if the performance of the contract becomes impossible, illegal or pointless by virtue of an unexpected event that is beyond the control of the contracting parties. The Courts have been slow to find that contracts have been frustrated and have been clear that changes to market conditions that mean that the performance of the contract is more onerous do not amount to frustration.
An illegal contract is void and will not be enforced by the Courts. As such, in contrast to other defences, Courts may invoke a defence of illegality even when no party has raised it.
Illegality is well established as a defence and reflects the principle that ‘no Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act’.
3. Limitation and exclusion
Even if a contract is valid, a party may seek to avoid enforcement on other grounds. A complete defence is available if the claimant does not commence his or her claim within the relevant limitation period. If a defendant raises this defence, the claimant has the burden of proving that the relevant limitation period has not expired. The limitation period for contract claims is six years. This limitation period commences from the date on which the cause of action occurred.
Commercial parties are also likely to limit their potential liability under a contract when negotiating and drafting its terms. For example, parties may protect themselves by excluding liability in certain respects, imposing financial limits on liability, restricting terms implied into contracts by statute and alleviating the parties’ obligations of performance if prevented by forces outside of their control. English courts will generally uphold such provisions; thus, they will serve as a defence, as long as they are not prohibited by legislation or common law principles such as illegality.
4. Other defences
A party who is induced into entering or varying a contract by threats or other illegitimate means may rely on duress or undue influence, and the contract will be voidable by that party. For instance, a party may be subject to physical duress (e.g., actual or threatened violence against the party or to its property) or economic duress (e.g., threats to terminate the contract).