Demystifying the Doctrine of Change of Circumstances under Chinese Law—A Comparative Perspective from Singapore and English Common Law

Abstract

In the wake of the coronavirus (COVID-19) pandemic, global businesses have witnessed unforeseen supply chain issues, losses of business and the inability to complete certain contractual obligations. For foreign businesses involved in cross-border transactions with China, it is paramount to understand the implications and remedies of the doctrine of change of circumstances (DCC) under Chinese Contract Law. The DCC is a creature of judicial interpretation by the Supreme People’s Court in China, the requirements and functions of which bear some similarities to the doctrine of frustration under common law. The main difference between the doctrines is that unlike the doctrine of frustration which brings about an automatic discharge of the contract, the Chinese courts retain a discretion to modify the parties’ contract in light of the changes in circumstances. This led many opponents to criticise the DCC for blatantly disregarding the principles of certainty of contract and party autonomy. However, a comparative analysis of the cases from China, UK and Singapore to show that there is a practical convergence between the two differing theoretical frameworks. The DCC has not been abused by the Chinese judiciary like an unriddled horse, but rather, tightly controlled by procedural and substantive requirements. In the exceptional situations where the remedy is granted, the remedies under the DCC can prove to be a more commercially sensible solution than termination because it preserves long-standing business relationships.