Judicial Termination of Contracts in Chinese Law: Balancing Sanctity of Contract and Good Faith in Contract Performance

Abstract

The Chinese Civil Code has introduced a mechanism of judicial termination, empowering courts to terminate contracts, yet this mechanism remains elusive. Through doctrinal analysis, this thesis seeks to shed light on the distinctive yet controversial regime with a view to assessing whether judicial termination is justified and, if so, in which situations it should be granted by courts within Chinese law.

The thesis first critically examines whether it is theoretically plausible to introduce this unique judicial termination into Chinese contract law. It contends that the rationale of such a regime lies in striking a balance between the sanctity of contract and good faith in contract performance. The thesis further argues that contracting parties have a procedural right to seek judicial termination, and courts exercise their discretion to decide whether to terminate a contract in this regime. It contends that courts grant judicial termination when they determine the protection of good faith outweighs the sanctity of contract. The key to making this determination is to assess the reasonableness of performance.

This thesis further explores judicial termination in ‘change of circumstances’ scenarios. Chinese law adopts a binary model of force majeure and change of circumstances to reconcile the sanctity of contract with good faith in performance. Remedies under this binary model should align with the dichotomy test of manifest fairness and contract purpose. Examining this dichotomy in Chinese courts, this thesis reveals that the manifest unfairness test, which focuses on the imbalanced interests of contracting parties, intertwines with the contract purpose test. This thesis argues that the court’s approach causes uncertainty and unpredictable remedies. It therefore proposes rebuilding a distinctive yet coordinated dichotomy of contract purpose and manifest unfairness, under which judicial termination should align with the impacts on contract performance and reconcile with termination in force majeure.

Furthermore, this thesis assesses judicial termination in ‘contract deadlock’ scenarios. It illustrates that the problem of contract deadlock highlights the tension between good faith and sanctity of contract in contract performance. Article 580 was introduced to address this problem by allowing judicial termination in the event that contract performance encounters ‘any of three exceptions to specific performance’ and the contract purpose test is satisfied. This thesis examines the operation of this new provision in Chinese courts and finds that the current law fails to provide a satisfactory approach. To assess whether the protection of good faith outweighs sanctity of contract, this thesis suggests Chinese courts conduct a cost-benefit analysis in light of the particular situations of individual cases.

Contracts are established with the expectation of promised performance. The sanctity of contracts ought to be upheld. However, exceptions should be allowed in extraordinary circumstances. This thesis takes the view that, exceptionally, the courts have the discretionary power to bring contracts to an end when the protection of good faith outweighs the sanctity of contract in contract performance in light of the particular circumstances of individual cases. This study contributes to clarifying judicial practice and advancing the theoretical understanding of the Chinese judicial termination regime.

Date of Award	4 May 2026
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Lei CHEN (Supervisor) & Qiao LIU (Supervisor)