Force majeure, the principle of change of circumstances, and the doctrine of frustration during the COVID-19 pandemic: the case of commercial leases and judicial responses in China and New Zealand

ABSTRACT

This paper analyses the application of force majeure, the principle of change of circumstances, and the doctrine of frustration in the context of the COVID-19 pandemic in New Zealand and China. The paper will first outline the general legal test and legal consequences of the three doctrines. Secondly, the paper will discuss the legal tests and legal consequences of the three doctrines specifically in New Zealand and China and in the context of COVID-19. Thirdly, the paper will discuss the similarities and differences between the three doctrines. In the second part of this paper, the paper will discuss how the three doctrines apply to commercial lease cases in the context of COVID-19. The paper will select two commercial lease cases in New Zealand and China to analyse the robustness of all three legal doctrines in providing practical workable solutions for tenants and landlords during government-imposed lockdowns and enforced closures of leased premises. The paper illustrates how the differences in the legal tests, legal consequences and underlying rationales of the doctrines result in different outcomes of a case. The paper concludes that the doctrines each have their strengths and weaknesses and other civil and common law countries can learn from the experiences of China and New Zealand. Furthermore, the paper suggests that courts should carefully consider the relevant facts and circumstances of a case when applying legal doctrines. Moreover, courts need to strike the right balance between doing the victims of unforeseen circumstances and upholding the principle of the sanctity of contract. The analysis of the three doctrines is particularly useful in this day and age where there is a high likelihood of the occurrence of another pandemic-level event and causing unprecedented disruptions to the commercial world. Moreover, the research has provided tenants and landlords with a good starting point as to how to protect themselves in the event of an unforeseen event.

KEYWORDS:

• Force majeure
• principle of change of circumstances
• doctrine of frustration
• COVID-19
• commercial leases

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 [2021] NZHC 1535.

2 (2022) 沪02民终881号.

3 Black's Law Dictionary (10th edn, Thomson Reuters 2014).

4 Paul M Bagger, ‘Force Majeure Clauses in Contracts and COVID-19’ (American Bar Association, 22 October 2022) <www.americanbar.org/groups/litigation/committees/commercial-business/boilerplate-contracts/force-majeure-clauses-contracts-covid-19/> accessed 2 October 2022.

5 Mimi Zou, Chinese Contract Law and the 2020 Civil Code (1st edn, Lexis Nexis 2020).

6 Bradford Olson, ‘Force Majeure in China’ (2020) 33(2) Columbia Journal of Asian Law <https://journals.library.columbia.edu/index.php/cjal/article/view/6601> accessed 15 February 2023.

7 China News Network, ‘The National People's Congress Standing Committee: Inability to Fulfil the Contract due to Epidemic Prevention and Control Falls into Force Majeure’ <www.chinanews.com.cn/m/gn/2020/02-10/9086203.shtml?ivk_sa=1023197a> accessed 10 February 2023.

8 Dentons, ‘The Impact of COVID-19 on Contract Performance and Force Majeure in China’ (9 July 2020) <www.dentons.com/en/insights/articles/2020/july/9/the-impact-of-covid19-on-contract-performance-and-force-majeure-in-china> accessed 18 January 2023.

9 Taft Law, ‘China Weighs In: Does COVID-19 Constitute a Force Majeure Event?’ (2020) <www.taftlaw.com/news-events/law-bulletins/china-weighs-in-does-covid-19-constitute-a-force-majeure-event#:~:text=The%20Commission%20of%20Legislative%20Affairs,event%20under%20Chinese%20contract%20law> accessed 9 January 2023.

10 Lei Chen and Qiyu Wang, ‘Demystifying the Doctrine of Change of Circumstances under Chinese Law – A Comparative Perspective from Singapore and English Common Law’ (2020) Journal of Business Law <www.researchgate.net/publication/343229378_Demystifying_the_Doctrine_of_Change_of_Circumstances_under_Chinese_Law_-_A_Comparative_Perspective_from_Singapore_and_English_Common_Law> accessed 4 March 2023.

11 Shuqi Li and others, ‘Force Majeure and Changed Circumstances During the COVID-19 Pandemic: The Case of Sports Service Contracts and Judicial Responses in China’ (2022) 22 The International Sports Law Journal <https://link.springer.com/article/10.1007/s40318-021-00206-x#citeas> accessed 28 January 2023.

12 [1863] EWHC QB J1.

13 Gibsons, ‘Frustrated Contracts’ <www.gibsonsheat.com/Articles/Corporate++Commercial/Frustrated+Contracts.html> accessed 21 December 2022.

14 John Burrows, Jeremy Finn, and Stephen Todd, The Law of Contracts in New Zealand (4th edn, LexisNexis 2012).

15 Carey Blake, ‘Is a Judicial Discretion Needed to Soften the all or Nothing Nature of the Doctrine of Frustration?’ (2018) 2(75) PILJNZ <www.nzlii.org/nz/journals/NZPubIntLawJl/2015/4.html> accessed 20 November 2022.

16 [2013] NZSC 147.

17 [2007] EWCA Civ 547, [2007] 2 Lloyd's Rep 517.

18 Planet Kids (n 7) 139.

19 [1956] AC 14 at 728.

20 Planet Kids (n 7) 164.

21 Guenter Treitel, Frustration and Force Majeure (4th edn, Sweet & Maxwell 2021).

22 Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd [2001] 2 NZLR 219 at [95].

23 Harald Sippel and Kabir Duggal, Force Majeure and Hardship in the Asia-Pacific Region (Juris Net 2022).

24 [2016] NZHC 2642.

25 ibid 18.

26 Commerce Commission of New Zealand, ‘COVID-19: Disrupted Travel, Events and Trade’ <https://comcom.govt.nz/__data/assets/pdf_file/0019/214750/COVID-19-Disrupted-travel-events-and-trade-guidance-15-April-2020.pdf> accessed 10 December 2022.

27 Lei Chen, ‘The Historical Development of the Civil Law Tradition in China’ (2010) 78(1) Legal History Review <www.researchgate.net/publication/228164499_The_Historical_Development_of_the_Civil_Law_Tradition_in_China_A_Private_Law_Perspective> accessed 10 January 2023.

28 Lauren Lindsay, ‘Frustrated by Coronavirus? Part 1: A Brief Comparison Between Frustration and Force Majeure’ Bankside Chambers (12 March 2020) <www.bankside.co.nz/post/frustrated-by-coronavirus-part-1-a-brief-comparison-between-frustration-and-force-majeure> accessed 9 January 2023.

29 Perrie Weiner, Aaron Goodman, and others, ‘Commercial Lease Defenses During COVID-19’ (Bloomberg Law Professional Perspective July 2020) <www.bakermckenzie.com/-/media/files/people/goodman-aaron/bloomberg--commercial-lease-defenses-during-covid19.pdf?sc_lang=en&hash=6A20BC51078C0E3F8626010457ECC65C> accessed 8 February 2023.

30 Toni Leah Collins, ‘The Doctrine of Frustration, Commercial Leases and the Canterbury Earthquakes’ (DPhil thesis, University of Canterbury 2016).

31 [2021] NZHC 1535.

32 ibid 54.

33 Mountfort (n 14).

34 Mountfort (n14) 50.

35 ibid 52.

36 Baker and Mckenzie, ‘COVID-19 Global Real Estate Guide’ (2020) <https://www.bakermckenzie.com/-/media/files/insight/publications/2020/04/global_real_estate_guide.pdf?la=en> accessed 19 February 2023.