We have had quite a few of our customers get into financial problems due to their clients asking for refunds of deposits for upcoming hires or events due to the coronavirus, so we want to give you advice when it comes to the law in the UK.
The information herein appertains to UK law regarding deposits taken and any refunds due to the coronavirus, and may appertain to other countries, including commonwealth countries, etc.
Frustrated Contract, What Is It?
According to UK law, a contract can be discharged as being frustrated when an unforeseen event occurs that renders the performance of the contract impossible, like the coronavirus lockdown, social distancing, etc. In law, this is known as a frustrated contract. The purpose of frustration is to avoid injustice where there has been a significant change in circumstance and neither party is at fault. Where a frustrating event occurs, the contract is automatically terminated without requiring any action of either party.
A contract becomes frustrated if:
- the event occurs after the contract has been formed;
- the event will have to be fundamentally different to what was envisioned when the contract was agreed;
- neither party is at fault;
- the event renders performance of the contract impossible, illegal or radically different from what was contemplated by the parties at the time.
If you have taken a deposit and the contract/event has had to be cancelled due to the coronavirus, under UK law you must refund the client, less any expense already incurred and less charges for any work you have already done.
As an example, if you were hired to supply a conference set, you could keep the costs and the profit for building the set (assuming you already built it and it couldn’t be used again). If you had to pay other cancellation charges where you are not entitled to be refunded, you can keep those costs as well. If you have paid a deposit to another party and they went bust, you can keep that expense as well.
If your contract contains a force majeure clause that specifically mentions the issues raised by the coronavirus COVID-19 outbreak that are said to give rise to frustration, frustration will not apply and you can keep the deposit, but it still might be possible for your client to raise the frustrated contract issue.
This is governed by the The Frustrated Contracts Act 1943 (https://www.lawteacher.net/acts/law-reform-frustrated-contracts-act-1943.php).
It’s not all good news, but many of HireHop’s customers have clients that are demanding refunds of their deposits, so maybe this can help.
This is only UK law and only applies to the UK. It might be similar in some commonwealth countries as well as ex-British colonies like Jordan, Israel, India, Pakistan, Myanmar, Malaysia, Cyprus, etc. as the relevant law was brought in prior to their independence.
Waiver: This is only general legal advice and may well not appertain to yours or any other particular situation or agreement, therefore we recommend that you obtain further legal advice before taking any action.