HARDSHIP UNDER THE UNIDROIT PRINCIPLES – Part 3
General /by Guido ImfeldIn the last part of the Hardship under the UNIDROIT principles we will have a look in similar provisions in other nationals laws. In part 2 we discussed the German, Dutch, French and Belgian law.
VIII. Similar provisions in other national laws:
1. Italy
In Italy, the parties may insert a clause defining the circumstances of hardship and, more specifically, what a change in economic circumstances could be. Pursuant to Art. 1467 of the Italian Civil Code, the aggrieved party may demand termination of the contract if its performance is excessively onerous due to extraordinary and unforeseeable events and the burden is beyond the normal risk of the contract. The other party may avert the rescission of the contract by offering an equitable amendment to the terms of the contract. There is no obligation to resume contract negotiations. According to Art. 1468 Codice civile, in the case of unilaterally binding contracts, the obligated party can demand a reduction or change in the manner of performance. While the older case law and doctrine rejected judicial adjustment of the contract without a fair and precise offer of change, a counter-opinion spreading in the more recent case law and literature advocates greater judicial freedom in the adjustment of the contract. However, contract adjustment can be demanded in the case of contracts for work and services due to unforeseen additional burdens on the contractor in accordance with Art. 1664 Codice civile. In the event of misconceptions at the time the contract is concluded, Art. 1427 et seq. Codice civile are relevant.
2. England and Wales
In England and Wales, it is possible to provide for a change in circumstances, which could not have been foreseen and, if those circumstances apply, then the party providing the goods or services is excused from performing the contract. There is little distinction in practice between force majeure, which applies automatically in appropriate cases, and providing for a hardship clause in the contract. The hardship clause simply makes the position clearer and spells out in advance what will happen if an unforeseeable situation arises. In England, a contract can be terminated under the heading of frustration of contract if the circumstances underlying the contract have changed radically, unforeseeably and are not attributable to either party. This also includes frustration of purpose. Compensation claims are regulated by the Law Reform (Frustrated Contracts) Act 1943. Whereas previously the link to the parties’ intentions in the form of an implied condition prevailed, today the focus is on a more objective assessment. The English courts do not consider themselves to be authorized to intervene in a formative way.
3. Poland
Art. 353 of the Polish Civil code introduces contractual freedom regarding all actions taken by the parties, which are allowed to modify the relationships between them as long as the contractual provisions are not against the nature of the contractual relationship, legislation, and the principle of social coexistence. That is why the parties are allowed to introduce a hardship clause in their contract in accordance with the above-mentioned conditions.
4. Mexico
Mexican law provides that, if no agreement is reached by the parties, the affected party may claim before a court of law that compensation should be adjusted in proportion to the hardship event. The Judge will rule after hearing the arguments of both parties. However, the right to terminate the agreement by any of the parties relying on the hardship clause may be challenged by the other party, which may set ground for litigation.
5. Portugal
According to Art. 437 of the Portuguese Civil Code, the plaintiff can also withdraw from the contract or demand an adjustment of the contract if the basis of the contract ceases to exist; the defendant can demand an equitable adjustment of the contract. If the plaintiff withdraws without the defendant claiming adjustment, some consider that the court is not authorized to adjust the contract.
6. Spain
Art. 252 Código civil refers to Art. 437 Código civil for the error of motive, which concerns circumstances relating to the basis of the contract; in most cases, nullity is assumed here. As there is no provision in the Código civil, Spanish doctrine and case law rely either on an implied condition or on good faith in accordance with Art. 1258 Código civil. Only if a continuing obligation is affected or performance is still outstanding, but the performance of the contract has become excessively onerous for one party due to an unforeseeable change in circumstances, without that party having assumed the risk, are contracts adjusted or terminated as a last resort.
7. Austria
In Austria, in addition to the general error provision of Section 871 ABGB, the legal concept expressed in Section 936 ABGB, Section 1052, 2 ABGB, § 1170a para. 2 ABGB, the legal concept of clausula rebus sic stantibus is used to justify the rescission or adjustment of a contract. In addition to a breach of equivalence, it requires the cessation of a condition relevant to the transaction due to an unforeseeable change in circumstances that does not originate from the sphere of the burdened party. While the literature predominantly argues for priority to be given to adjustment, as this takes better account of the principle of contractual fidelity, case law focuses on contract termination.
8. Switzerland
In Switzerland, Art. 373 para. 2 CO provides for the judicial adjustment of the price or the termination of the contract in the event of extraordinary circumstances that hinder or excessively impede completion. In addition, there is (in addition to rescission due to fundamental error under Art. 24 para. 1 no. 4 CO, the applicability of which to errors regarding future developments is disputed, and termination for good cause) an exceptional judicial adjustment of the contract, which is predominantly understood in theory – with reference to Art. 18 CO – as an amendment to the contract, while the Federal Supreme Court relies primarily on the prohibition of abuse of rights under Art. 2 para. 2 CC. The prerequisite is an unforeseeable change in circumstances after the conclusion of the contract that leads to a serious breach of contract, namely a breach of equivalence. “Contract adjustment” as a legal consequence is generally understood and means both the termination of the contract and the adjustment in the narrower sense, without the latter taking precedence over the former. In practice, termination of the contract ex nunc obviously prevails.
9. Greece
According to Art. 388 CC Greece, the court may, at its discretion, adjust or dissolve the contract if circumstances have changed for extraordinary and unforeseeable reasons and performance has become disproportionately onerous for the debtor. Termination is the ultima ratio. The rules of error apply to misconceptions at the time the contract was concluded. In more recent times, the case law on contract adjustment is based on good faith (Art. 288 ZGB) in order to set lower requirements.
10. Standardization Projects
The standardization projects, on the other hand, generally adopt the clausula.
10.1. Principles of European Contract Law
Art. 6:111 PECL imposes an obligation to renegotiate if events occurring after the conclusion of the contract make the performance of the contract excessively onerous, a change in circumstances could not reasonably have been contemplated and the party concerned had not assumed the risk of the change in circumstances. If the renegotiations fail, the court can cancel or amend the contract. In addition, the court can adjust the contract in accordance with Art. 4:105 para. 3 PECL if the parties are jointly in error.
10.2. Draft Common Frame of Reference
Pursuant to Art. III.-1:110 DCFR, the court may adapt the contract in the event of an “exceptional change of circumstances” if the debtor has previously made a serious attempt to renegotiate the contract; in the event of a common mistake, the court may adapt the contract in accordance with Art. II.-7:203 para. 3 DCFR. Without this being expressed in the wording, the explanations of these regulations provide for a priority of adjustment over dissolution as a last resort. However, it is pointed out that a new contract may not be imposed on the parties and that if they cannot agree on an adjustment, the court usually only has the option of terminating the contract.
10.3. US Restatement of the Law of Contracts (2nd)
The US Restatement of the Law of Contracts (2nd) provides for the rescission of performance obligations if performance becomes impracticable through no fault of the parties due to a circumstance whose non-occurrence was a “basic assumption” of the parties (Section 261). A contract can be rescinded by the disadvantaged party if it does not have to bear the risk for the mistake made by both parties when concluding the contract (Section 152).
10.4. Vienna Convention on the Law of Treaties
Art. 62 of the Vienna Convention on the Law of Treaties recognizes the clausula, but apparently does not provide for an adjustment out of respect for the principle of state sovereignty.
Contribution on behalf of the Belgian-German Lawyers’ Association (BDJV)
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