COVID-19 & Commercial Leases: Rethinking Frustration and Contractual Discharge in the Canadian Common Law

Abstract

COVID-19 has launched a flurry of contractual questions. Commercial leases during the pandemic present a unique challenge to the existing Canadian common law, renewing the doctrinal debate on the differences between hardship and frustration. This paper will argue that the doctrine of frustration, in its current form, might be an inadequate legal tool to deal with COVID-19 contractual challenges in Canada. I will begin by defining key terms. Next, I consider the law of frustration and its limited but powerful remedial effect to discharge a contract. I then survey complementary changed circumstance regimes in the United States, Germany, the United Nations Convention on Contracts for the International Sale of Goods (CISG) and the UNIDROIT Principles of International Commercial Contracts (UPICC). In the last section, we will see that UPICC has influenced Quebec civil law’s approach to changed circumstances by incorporating the principle of good faith. Although not authoritative in Canadian common law, the final section will show that these alternative regimes may prove persuasive in expanding the doctrine of frustration's remedial effects to include renegotiation. This may enable Canadian contract law to better respond to issues emerging from the current global pandemic.

Keywords: Contract law, Frustration, Hardship, Comparative Law, Transsystemia, Transnational Law, Good Faith, Renegotiation, COVID-19

JEL Classification: K12