Case Summary 2: Mere incidence of expense or delay or onerousness is insufficient to invoke the doctrine of frustration (Vember Lord Ltd v The Swatch Group (Hong Kong) Ltd)

Case Summary 2: Mere incidence of expense or delay or onerousness is insufficient to invoke the doctrine of frustration (Vember Lord Ltd v The Swatch Group (Hong Kong) Ltd)

Case Name: Vember Lord Ltd v The Swatch Group (Hong Kong) Ltd [2022] 2 HKC 349 (CFI)

Subject: Doctrine of frustration

Facts

The defendant was the lessee of certain commercial retail premises in Central under tenancy agreements with the plaintiff (landlord) for a term of 3 years for the sole purpose of operating two watch retail shops.

The landlord claimed against the lessee for arrears of rent.

The lessee contended that at the time of entering into the lease, there was a shared common (commercial) purpose between the parties that the premises would be operated as luxury retail stores for watches.

The lessee then further contended that the wholly unprecedented social unrest from June 2019 to 2020 and the COVID-19 pandemic from January 2020 onward in Hong Kong caused the common purpose and agreements to be frustrated as a matter of law.

Issues

Whether the social unrest and COVID-19 pandemic in Hong Kong caused the agreements to be frustrated as a matter of law.

Rulings and Discussion

The doctrine of frustration can, depending on the facts of each case, be applicable to leases.

In this case, the mere incidence of expense or delay or onerousness was insufficient to engage the doctrine of frustration.

The obligation of the landlord was to make the Shops available for use and the defendant had the obligation as a tenant to pay the rent on or before due date. In this case, there was no evidence that carrying out the alleged common purpose of letting the shops as luxury watch shops being rendered impossible. The lessee was able to and did continue to operate its business despite the social unrest and COVID-19 pandemic in Hong Kong.

Therefore, the landlord’s claim against the lessee for arrears of rent succeeded.

Takeaway

It is important to keep relevant evidence that shows the existence of a shared common purpose in order to invoke the doctrine of frustration.

The doctrine of frustration only applies in extraordinary circumstances that render the obligations ‘radically different’.

Typically, there would be a supervening event transforming the obligation into a radically different obligation from that undertaken at the time of entry into the contract.

Mere incidence of expense or delay or onerousness, e.g. the “profitability” of its business operations being affected, is insufficient to invoke the doctrine of frustration.