Contractual Frustration: Frustrating is Not Frustrated
Contractual frustration relieves all parties to a contract from the requirement to perform any of their contractual obligations. What does or does not constitute frustration is often not easily discerned. The COVID-19 pandemic has forced many parties to renegotiate their contractual arrangements. Many renegotiations failed resulting in a surge in frustration arguments being made by a party seeking to be relieved from performing a contract that no longer gave them any or sufficient benefit.
A recent case of frustration being claimed when a contract no longer was benefitting one party was Elsser v University of Victoria, 2022 BCSC 580 (CanLII).
In Elsser, the Plaintiff was a proposed representative in a class proceeding (class action). The proposed class was students seeking to get a refund on their parking passes when the University of Victoria effectively closed to in-person learning because of the COVID-19 pandemic. The argument went that that the parking pass contracts were frustrated and so a pro-rated refund was sought.
UVic applied to dismiss the claim and argued, among other things, that the facts did not support the claim of frustration. It followed that if there was no basis for the claim, the claim should be dismissed before the process to certify the proposed class of claimants. This application required UVic to satisfy the court that there was no genuine issue for trial.
The Court firstly held that it was unnecessary to wait for further disclosure before determining UVic’s application. The claim before the Court was simply framed and simply understood. The Court filings of the parties framed the issues and the relevant facts were sufficiently known and notorious.
Moving on to the substance of the application, the Court noted that the Plaintiff’s allegation that the COVID-19 pandemic significantly changed the nature of the rights and obligations between the Plaintiff and UVIC beyond anything reasonably contemplated when they entered their contractual relationship. As summarized by the Court at para. 23:
…[T]he plaintiff… states that he contracted to park at the University to attend classes, argues that when classes went remote due to the pandemic, the parking permit became worthless as there was no reason for him to park on campus, and that the central purpose or basis of the contract no longer existed.
The Court noted UVic’s argument that the contract in question was simply to licence parking on campus rather than securing any or being depending on any in-person instruction or other on-campus services. The parking pass contract served its purpose before and after the COVID-19 pandemic in that the passes continued to permit parking on campus after cessation of in-person classes.
The Court then turned to the law of frustration which it cited from foley v. Trelinski, 1997 CanLII 469:
The event in question must have occurred after the formation of the contract and cannot be self-induced. The contract must, as a result, be totally different from what the parties had intended. This difference must take into account the distinction between complete fruitlessness and mere inconvenience. The disruption must be permanent, not temporary or transient. The change must totally affect the nature, meaning, purpose, effect and consequences of the contract so far as concerns either or both parties. Finally, the act or event that brought about such radical change must not have been foreseeable. [Emphasis added].
The Court summarized the two elements that must be proven to establish frustration include:
- that there was a supervening event which was not contemplated by contract or parties and which was not the fault of any party occurred; and
- that such an event caused a radical change to the nature of the fundamental contractual obligation.
On the first element the Court held that the COVID-19 pandemic did cause a radical shift of circumstances however the pandemic did fall within the more general and foreseeable risk that parking might no longer be desirous to a parking pass holder. There were refunds provisions contemplating when refunds would be issued that simply didn’t provide for a refund in the circumstances of the Plaintiff; being too long after the pass was purchased to permit a refund on the contractual terms in question.
On the second element, the Court noted that whether classes were held in person or online did not relate to the fundamental contractual obligations of the parties. The corresponding contractual obligations were for the pass holder to pay money and for UVic to permit them to park on campus. This arrangement was not contingent on and didn’t refer to any qualification that a parking pass holder must be able to attend in-person classes. The Court could not find that in-person attendance was an implied or express term of the contract. The refund provisions of the parking pass contract would have permitted a refund within the first four months of the contract and, in so doing, the parties had allocated risk for themselves.
While not the subject of this article, it should be noted that the Court went on to consider the implied duty of good faith contractual performance described and detailed in the seminal decision, Bhasin v Hyrnew, 2014 SCC 71. The Court again noted that the refund provisions which did exist contemplated refunds in differing circumstances and represented a contractual allocation of risk. Good faith contractual performance actually supported UVic’s position in that the Plaintiff was obliged to have regard for the legitimate contractual interests of UVic to see the parking pass contract performed in accordance with the explicit terms thereof.
As a result, the Plaintiff’s claim was dismissed.
Elsser v University of Victoria is illustrative of the notion that frustrating circumstances do not constitute contractual frustration. The Plaintiff and other parking pass holders no doubt experience a great deal of consternation and frustration with their parking passes effectively becoming useless to them. Unfortunately between the contractual allocation of risk and that parking continued to be permitted by the parking passes however useless that might be to pass holders, both tests for contractual frustration failed. Frustration is an extraordinary remedy to be applied judiciously. Elsser v University of Victoria demonstrates that the gulf between feeling like a contract has become valueless and when Contractual frustration has occurred may be wide.
The foregoing was provided for information only. It was not intended nor should be construed as legal advice. Unless noted otherwise, this article only reflected the law in the subject case at the time the case was reviewed. As such, the information or caselaw referred to herein may no longer be current.
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