Frustrated contracts in disaster zones

27 June 2011

Have you bought goods and services that you now can’t get or can’t use because of earthquakes, tornadoes, floods or volcanoes?

Any agreement to buy goods or services is a contract. Normally if you break a contract, you have to pay the other person for damages (or costs). But since it’s not anyone’s fault that a natural disaster occurred, different rules apply.

First check if your contract has a ‘force majeure’ or ‘act of God’ clause. A ‘force majeure’ clause will explain what happens if something like a natural disaster gets in the way of a party performing their side of the contract.

If your contract doesn’t include this clause, or your type of disaster isn’t covered, then the Frustrated Contracts Act may apply. A contract is frustrated if it becomes impossible to carry out or becomes significantly different from what you agreed to. Examples of this are:

• you can’t get your lay-by purchase because it is stuck in a building that is in the red zone.
• you have paid for a log burner to be fitted in your house but your house has been red-stickered.
• your wedding venue has been wiped out by a tornado and the alternative venue offered to you is not as good.

The usual result of a frustrated contract is that the business does not have to provide the goods or services and you don’t have to pay for them. If you have paid in advance you should get a refund.

However, the business can claim for the costs it incurred before the disaster, for example supplies they bought to do the work. The business can also claim for the value of a benefit that you have already received. For example if you were staying at a hotel at the time of the disaster, and had to cut your stay short, you may have to pay for the days you stayed before the disaster.

Each case is different. If your particular case is getting complicated then get some legal advice at a Community Law Centre. If the business you are dealing with doesn’t agree with your view, you can make a claim at the Disputes Tribunal.