Court allows lessee to terminate commercial lease as COVID-19 force majeure

Many are waiting to see how modern courts would apply the principles of force majeure in the context of COVID-19 pandemic. This is one of the court cases from South Korea.

Court allows lessee to terminate commercial lease as COVID-19 force majeure?

Even though the clause in the lease did not specifically refer to “pandemic” or “epidemic” as a ground of force majeure, the key words in the clause were “prevented from operating its business.” The court broadly interpreted this provision in favour of the Plaintiff, even though no regulations were imposed that required the Plaintiff to shut down the business. The court was persuaded that a 90% decrease in sales due to the COVID-19 outbreak, together with the effects of government measures responding to the pandemic, constituted a force majeure event within the meaning of Article 13(4) of the lease. In reaching this conclusion, the court emphasized that:?

(i)?????????????the Plaintiff relied on foreign tourists as a major source of revenue for the shop;

(ii)???????????if the Plaintiff maintained the business with a 90% sales drop, continued losses would be inevitable;?

(iii)?????????neither party was able to foresee the COVID-19 outbreak or the extended restrictions that followed; and?

(iv)??????????this cannot be attributable to any party.

The Court cited earlier court decisions which recognized the doctrine of change in circumstances to apply only when?

(i)?????????????there was a substantial change in the objective factual circumstances that were the basis for the contract;?

(ii)???????????(ii)?the parties did not foresee the change;?

(iii)?????????(iii) the change was not foreseeable when the parties executed the contract;?

(iv)??????????(iv) this change was not attributable to the party seeking to terminate the contract; and?

(v)???????????(v) it would be contrary to fairness and good faith to maintain and force a party to comply with the terms of the contract. The court held that all of these requirements had been satisfied, and it would have been contrary to the principles of fairness and good faith to conclude that the lease terms were still binding on the parties.

The Defendant elected not to appeal the judgment.

The judgment is likely to embolden other litigants to test the limits of force majeure and the doctrine of change in circumstances.

Read the full article from Lee & Ko- Robert Wachter and Saemee Kim.