1. General

With the coming of globalization and the increased risk in international commerce, it is not rare for a party to a medium or long-term contract to find itself in a condition of economic or commercial hardship due to events that were not foreseeable when it entered into the contract. According to the UNIDROIT Principles of International Commercial Contracts ('UNIDROIT Principles'), 1 '[t]here is hardship where the occurrence of events fundamentally alters the equilibrium of the contract' (Art. 6.2.2). 2

A party affected by hardship will normally want to either terminate the contract or have the terms of the original bargain renegotiated. The renegotiation of a contract, however, is an exception to the binding nature of the agreement (pacta sunt servanda). The study of hardship focuses on the possibility of allowing-. [Page677:]

under special and exceptional circumstances-the contract to be reviewed. The civil law expressions rebus sic stantibus, imprevisión, 3 'unforeseen difficulty' and 'change of circumstances' all refer to hardship.

The right to claim hardship is not widely recognized in most civil or common law countries. Under both civil and common law, parties are bound to perform the obligations arising out of their contract even if the performance has become more onerous (UNIDROIT Principles, Art 6.2.1). In other words, they are bound by the terms of their bargain. The binding nature of contracts is also recognized in international arbitration. 4Despite this, some civil law countries have adopted rules on hardship, including Italy, 5Argentina, 6Colombia,7Portugal,8The Netherlands, 9Switzerland10and Peru.11Although most civil law countries do not recognize hardship for private contracts, 12some writers and courts have recently recognized the entitlement to claim hardship in exceptional circumstances. In France, since the Craponne Channel case decided by the Court of Cassation in 1876, 13the courts have not been allowed to change the parties'. [Page678:]

agreement, and even less to allow new clauses to be included whose content differs from what the parties originally agreed. In some recent decisions, however, the Court of Cassation has recognized that in certain circumstances it may be necessary to modify the contract, especially for events induced by the government. 14In Spain, legal writers consider that hardship can be applied when circumstances beyond the parties' control have destroyed the basic balance between the mutual promises made in their contract. 15In Venezuela, hardship in the form of imprevisión was recently recognized in a dictum of the Supreme Court. 16

Hardship as such is not a principle of common law. 17In the United States, the Restatement (Second) of Contracts allows a contract to be terminated due to frustration of purpose. 18Similarly, Article 2 of the Uniform Commercial Code (UCC) will excuse a party to a contract if performance has become impracticable. 19However, the right to adapt a contract because of unforeseen events that render one party's performance more onerous is not recognized. In English law, since the case of Taylor v. Caldwel (1863) 20the doctrine of frustration has been used . [Page679:]

to terminate a contract. According to English commentators, a contract is frustrated when 'events make the performance of the contract impossible, illegal or something radically different from that which was in the contemplation of the parties at the time they entered into the contract'. 21Hardship arising from some form of economic or commercial loss is not frustration; 22a court cannot remedy a bad bargain. 23However, since the 'Coronation Cases', frustration of purpose can give a party a right to terminate a contract. 24The remedy for frustration of a contract is termination, as laid down in the Frustration of Contracts Act 1943; the courts do not have powers to amend the contract. 25

Writing hardship clauses into contracts has become more common over the past twenty years or so, 26although in many instances they are not self-sufficient and require a set of rules for their implementation. ICC has published a model hardship clause-ICC Hardship Clause 2003-that can be incorporated into a contract. 27It is said to be based on the Italian Civil Code and Article 6.2.2 of the UNIDROIT Principles. 28The UNIDROIT Principles, adopted in 1994 and enlarged in 2004, includes three articles (6.2.1 to 6.2.3) containing general rules on hardship. The present article is intended as a comment on those rules and the way recent international arbitration cases have been dealing with hardship.

2. Hardship and force majeure

Frustration of purpose, as illustrated by the famous 'Coronation Cases' in English law and as covered by supervening frustration in the Restatement (Second) of Contracts and impracticability under the UCC, is a concept that overlaps with. [Page680:]

the civil law principle of hardship but not with civil law force majeure. 29Only if frustration or impracticability arises from physical impossibility and/or illegality does it resemble the civil law principle of force majeure. Force majeure, in civil law countries, refers to an unforeseen event that renders performance impossible. The consequence of force majeure is to excuse the non-performing party and to give both parties a right to terminate the contract. Hardship does not render the performance impossible. The UNIDROIT Principles to which this study refers follow the civil law approach of separating the concept of force majeure from that of hardship.

Force majeure is a temporary or permanent impediment that makes it impossible to perform under the contract. It is explained as follows in Article 7.1.7(1) of the UNIDROIT Principles:

Non-performance by a party is excused if that party proves that the nonperformance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

Hardship arises because of the occurrence of events that alter the economic or commercial equilibrium of the contract. The same or similar fact situations (war, natural disasters, labor disputes, sabotage, etc.) can give rise to either a defense of force majeure or a request for adaptation of the contract under a condition of hardship. 30The same fact situation may either render compliance with the contract impossible (force majeure) or else substantially upset the equilibrium of the contract by making compliance more onerous for one of the contracting parties than was originally bargained for (hardship). In the case of hardship, the party seeks to have the contract either rescinded or adapted, whereas, in the case of force majeure, the party claiming it wants to terminate the contract; the difference lies therefore in the remedy sought. 31. [Page681:]

There are nuances distinguishing a claim for force majeure from one for hardship that have recently been identified in international commercial contracts. The simplest instance is when an event makes it impossible ever to perform the contract, in which case a party cannot claim hardship-for which the remedy could be adaptation of the contract-since logically there is no sense in adapting a contract to allow for economic compensation for a future performance that in fact will never take place. An extreme example is that of a builder who contracts to redevelop an old building that is destroyed by an earthquake after the contract has been entered into but before the work can be done.

If an event makes it more onerous to perform an obligation or frustrates the venture or the purpose, in common law the affected party can claim frustration of purpose as an excuse for non-performance. In the civil law countries that recognize hardship the party must claim hardship and request termination or adaptation of the contract. Under the UNIDROIT Principles the party affected by the event must choose to claim either hardship or force majeure. 32However, it is clear from Article 7.1.7(1) that an event is only a case of force majeure when its consequences generate an impediment preventing compliance with an obligation. If the event alters the equilibrium of the contract (affecting the cost of performance or the value of the performance), then the event is a case of hardship (UNIDROIT Principles, Art. 6.2.2). The same event could cause hardship or force majeure; the consequences of the event determine which of the two is to be claimed.

In addition to a contract being rendered impossible to perform or, alternatively, more onerous for one of the parties, a third possible scenario involves an event that temporarily makes it impossible to perform and which can, in some circumstances, give rise to a claim of both force majeure and hardship. If the event creates a temporary impossibility of performance, the party affected is excused for late performance under the principles of force majeure. When performance starts up again after the temporary impediment has passed, the affected party could claim a right to request an adaptation of the contract into the future. For example, a party that has suspended delivery of certain goods due to a civil war (force majeure) should resume delivery after the force majeure event has passed; if it then finds that it must use a different mode of transportation for the goods-e.g. because railway lines have been destroyed during the war-it might initially claim force majeure and thereafter request renegotiation of the contract to adjust the contract price to take into account the increased transportation costs. . [Page682:]

3. The UNIDROIT Principles and hardship

3.1 The right to claim hardship

The UNIDROIT Principles were adopted in 1994 and amended in 2004. The Principles now appear frequently in international arbitration awards, 33some decisions applying them and others rejecting them. In Latin America, under the terms of the 1994 Inter-American Convention on the Law Applicable to International Contracts (Mexico Convention), the UNIDROIT Principles apply to international commercial contracts, even when the contract is subject to domestic law. 34There are, however, very few international awards that deal with the application of the UNIDROIT Principles regarding hardship, even though awards consistently accept hardship clauses. The conservative approach to the UNIDROIT Principles is to apply these only when they do not contradict the law of the contract. 35

The first question that comes up in the application of the hardship principle is one of entitlement: can a party to an international commercial contract claim hardship before an international arbitral tribunal? There is no question that, irrespective of the rules in the law of the contract, hardship can be claimed in one of the following cases: (i) when there is a hardship clause in the contract;

(ii) when the law of the contract recognizes hardship; (iii) when the law of the contract is that of a country that has adopted the UNIDROIT Principles, as is. [Page683:]

the case with Venezuela; 36 (iv) in contracts that are subject, by agreement among the parties, to the UNIDROIT Principles or when the parties have agreed that the contract shall be governed by general principles of law or by lex mercatoria. 37In the well-known arbitration of Andersen Consulting v. Arthur Andersen, 38there was no choice of substantive law. The tribunal applied the UNIDROIT Principles. Quoting an earlier ICC case, 39it decided that the UNIDROIT Principles 'contain in essence the restatement of those principes directeurs that have enjoyed universal acceptance and moreover, are at the heart of those most fundamental notions which have consistently been applied in arbitral practice'.

In all other cases, the UNIDROIT Principles can always be used to supplement domestic law when there seems to be no specific solution in the rules of domestic law. 40This means that, if domestic law is silent about hardship, then, according to the UNIDROIT Principles, the tribunal can apply these to supplement this silence and can therefore consider a claim for hardship. As we have seen, most legal systems do not address the issue of hardship (see section 1, above). To the extent that the law of the contract does not forbid the application of hardship, the tribunal can apply the UNIDROIT Principles' provisions on hardship, as occurred in ICC case 7365,41where the tribunal held that the concept of hardship or clausula rebus sic stantibus 'has been incorporated into so many legal systems that it is widely regarded as a general principle of law; . . . as such, it would be applicable in the instant arbitration, even if did not form part of the Iranian law'. . [Page684:]

An argument against the above conclusion is that if the domestic law has adopted the principle of pacta sunt servanda, then the application of the hardship provisions in the UNIDROIT Principles would be a contradiction of that domestic law. This argument assumes that there is a logical inconsistency between pacta sunt servanda and hardship. The reality, however, is that hardship does not contradict pacta sunt servanda, 42for the latter refers to the binding nature of the agreement whereas the former refers to the rights and duties of the parties. In international contracts, a good number of these rights and duties are the product of commercial practices. Also, many contracts carry with them implied promises and conditions that were not expressly bargained for; 43this is especially true in consumer contracts and international commercial contracts. Further, the concept of a fair exchange and adequacy of consideration is present in modern contract law, affecting not only the validity of the agreement but also the performance. 44Hardship is surely part of international commercial practices. The fact that many international commercial contracts include hardship clauses is proof of this. However, in ICC case 8873, 45the arbitral tribunal held that hardship, as regulated in the UNIDROIT Principles, constitutes a very exceptional principle: it is accepted only when provided for in contract clauses and therefore one cannot consider that the rules on hardship contained in the UNIDROIT Principles constitute commercial usages.

3.2 Events that justify a claim for hardship

Hardship under the UNIDROIT Principles is defined as 'a situation where the occurrence of events fundamentally alters the equilibrium of the contract'. 46There is thus a change of circumstances. The event giving rise to a claim for. [Page685:]

hardship may be the same as that giving rise to a claim for force majeure but its effects are different (see section 3.3, below). According to Article 6.2.2 of the UNIDROIT Principles, in the case of hardship:

(i) the event must occur or become known after the conclusion of the contract;

(ii) the event could not reasonably have been taken into account at the time the contract was entered into;

(iii) the event is beyond the control of the party claiming hardship; and,

(iv) the risk of the event was not assumed by that party.

The first requirement is simple. If the event was known at the time the contract was entered into, it cannot later be claimed. The second requirement is that the party claiming hardship could not reasonably have taken the event into account at the time the contract was concluded. The reference here is to the foreseeability of the event, objectively evaluated. An event is foreseeable if a reasonable person could have foreseen it, taking into account the information available at the time of entering into the contract. Further, the comments to the UNIDROIT Principles indicate that a final unforeseen effect of a gradual change 'may constitute a case of hardship'. 47

The event must be beyond the control of the party that is claiming hardship, which means that the party must take reasonable steps to avoid either the event or its consequences. 48The standard of due diligence required can be found in standard force majeure clauses which also refer to fault or negligence. The UNIDROIT Principles-both for hardship (Art. 6.2.2) and force majeure (Art. 7.1.7(1))-only require that the impediment be beyond the control of the affected party, without defining any standard. 49The Peruvian Civil Code does not allow an action for hardship if there was late performance due to the fault of the affected party. 50This rule is also applicable under the UNIDROIT Principles. Therefore, if the event occurred after the affected party had breached the contract and the event affects the contract in a way it would not have done if the breach had not occurred, then the event is regarded as not being beyond the control of the affected party and, hence, no claim for hardship may be made. . [Page686:]

The notion of risk is tied to the concept of foreseeability. In ICC case 5617, 51foreseeability as an inherent risk was tied to some form of probability that certain new discoveries of a scientific nature could occur, thus the parties could have foreseen that this research could have changed their circumstances.

In ICC case 8486, 52the arbitral tribunal held that 'a dramatic fall in the price of a product as well as currency fluctuations alone are not unforeseen circumstances'. The tribunal further mentioned that the defendant was aware of the commercial risks in the relevant trade. 53This again is an apparent reference to foreseeability: events that could or should reasonably have been taken into account-i.e. were foreseeable or could have been foreseen-form part of the commercial risks of the contract and do not constitute hardship.

The Peruvian Civil Code does not allow a claim for hardship when hardship forms part of the risk of the contract. 54Risk here refers to the cause (causa)- i.e. the parties' purpose when they entered into the contract. Under the UNIDROIT Principles, there is no hardship when the risks of the event were in fact assumed by the disadvantaged party (Art. 6.2.2(d)). To determine if the party has assumed a particular risk, the tribunal could look at the nature and purpose of the contract. 55

3.3 Effects of the event (equilibrium of the contract)

To cause hardship, the event must fundamentally alter the equilibrium of the contract. The equilibrium is altered, according to the UNIDROIT Principles, either because:

(i) the cost of the party's performance has been increased, or

(ii) because the value of the performance it receives has diminished (Art. 6.2.2).

The wording of Article 6.2.2 of the UNIDROIT Principles suggests that the party claiming hardship must show either an increase in the cost of performance or a fall in the value of the performance it will receive. An increase in the cost refers typically to the non-monetary obligation in the contract, as when there is. [Page687:]

a dramatic rise in the cost of raw materials. 56There is no mathematical rule to define by how much the cost must increase57for the hardship claim to be successful. What is important is that this increase must fundamentally alter the equilibrium of the whole contract. Thus, a material increase in the cost of the performance of a section of the contract that only comprises a small part of the contract price cannot constitute hardship. For example, if certain goods still to be delivered under a contract only represent 2 per cent of the total contract price, an increase in the cost of the performance of this part of the contract will normally not constitute hardship. According to the official comment of the UNIDROIT Principles, if performance has been partially rendered, hardship can only be of relevance for those portions of the contract that have not yet been performed. 58However, an increased cost in the part of the contract still to be performed can only constitute hardship if this is the material part of the whole contract.

A fall in the value of the performance covers both substantial and total loss of value, including drastic changes in market conditions or frustration of purpose. 59Frustration, however, 'can only be taken into account when the purpose in question was known or at least ought to have been known to both parties'. 60 In ICC case 8486, 61the defendant is said to have referred to changes in the Turkish market. Rejecting the claim of hardship, the tribunal held that the instability on the Turkish market for the goods to be manufactured only concerned 'the economic frame of the Turkish market and thus, fall[s] within the risk sphere of the defendant'. 62

The alteration of the fundamental equilibrium of the contract is a reference to the severity of the effect of the unforeseen event. In ICC case 7365, the tribunal found that 'as a result of the chaotic events preceding and following the Islamic . [Page688:]

Revolution in February 1979, each party was entitled to unilaterally request termination of the contracts or adaptation of their terms'. 63It did not, however, describe the effect of these chaotic events. The UNIDROIT Principles have been interpreted as requiring the change to be so 'severe and fundamental that the promissor cannot be held to its promise despite the possibility of perform-ance'64. In ICC case 1512, 65the tribunal required that there be compelling reasons to justify the doctrine of rebus sic stantibus (hardship or imprevisión) in regard not only to the fundamental character of the change but also to the particular contract involved, to the requirements of fairness, equity and to all circumstances of the case.

3.4Request for renegotiation

According to Article 6.2.3(1) of the UNIDROIT Principles: 'In case of hardship, the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based.' The request 'must be made as quickly as possible' after the event has occurred. 66UNIDROIT does not define 'as quickly as possible'. Obviously, the circumstances surrounding each claim must be taken into account, including the fact that the affected party might not have immediately been aware, through no fault of its own, of the event (for example, a supplier might have difficulty delivering materials required for the performance of a contract but the affected party does not learn of these difficulties until an order is placed).

The right to request renegotiation is not admissible when there is a hardship clause that provides for a form of automatic adaptation of the contract (such as a price adjustment clause applicable in the case of devaluation), unless the clause 'did not contemplate the events giving rise to adaptation'. 67It is logical that if a hardship clause provides that the contract shall be adapted in the light of certain circumstances, then there is no need to request renegotiation. Further, there is no need to go to a court to determine if it is reasonable to terminate the contract or adapt it, for the automatic adaptation provisions in the contract simply need to be applied. . [Page689:]

3.5 Rights of the parties in case of hardship.

Under the UNIDROIT Principles, in case of hardship the disadvantaged party is entitled to request renegotiations. The request for renegotiation does not entitle the party to withhold performance (Art. 6.2.3). If the parties do not reach an agreement within a reasonable time, either party can resort to a court (or an arbitral tribunal, if there is an arbitration clause) and the court may, 'if reasonable', either terminate the contract or adapt it (Art. 6.2.3(4)).

A party does not lose its rights to renegotiate because it fails to act without undue delay (Art. 6.2.3, comment no. 2). However, prior to resorting to a court to resolve the problem of hardship, the party must have requested renegotiation and there must have been a failure to reach an agreement (Art. 6.2.3(3)). Failure to reach an agreement can result because the renegotiation did not achieve a positive outcome or because the non-disadvantaged party 'completely ignored the request for renegotiations' (Art. 6.2.3, comment no. 6). The ICC Hardship Clause 2003 requires that negotiations must occur 'within a reasonable time of the invocation of this Clause'. The UNIDROIT Principles do not set a time limit for starting the negotiations. It is clear that if the non-disadvantaged party does not engage in renegotiations, then the disadvantaged party can always resort to a court.

According to the UNIDROIT Principles, if the court or the arbitral tribunal finds hardship, 'it may, if reasonable,' terminate or adapt the contract (Art. 6.2.3(4)). According to accompanying comment no. 7, this means that the court (or arbitral tribunal) may only terminate or adapt the contract when the remedy- termination or adaptation-is reasonable. In the example given in the comment, A supplies beer to B in country X. B suddenly finds that country X prohibits the sale of alcohol and claims hardship. If B can resell the beer in a different country at a lower price, the court may decide to uphold the contract but reduce the price that B pays A. Alternatively, if B cannot resell the beer anywhere, it may be reasonable for the court to terminate the contract. In this example, therefore, the remedy for hardship is being implemented, in the first option, by adapting the contract through a price reduction and, in the second option, by terminating the contract. No relief will be granted, however, when a court considers that neither adaptation nor termination is reasonable. In the above example, if a court holds that it is not reasonable either to reduce the price or terminate the contract, then it is saying that there has not been a fundamental alteration in the equilibrium of the contract. In ICC case 9479, 68a company. [Page690:]

was sued for violating its limited rights to use certain trademarks to identify itself as a manufacturer of goods. The defendant, according to the claimant, deliberately created confusion between its own name and the claimant's trademarks. In a subordinate counterclaim, the defendant requested that the arbitral tribunal terminate the agreement due to hardship, which was said to result from a change imposed by the adoption of an EEC directive. The tribunal found that the alleged hardship was insufficient to justify terminating the agreement.

The two alternatives available to an arbitral under the UNIDROIT Principles are either to terminate the contract or adapt it. Terminating the contract seems to be relatively simple. It concerns the future; thus, any performance that has been completed should be paid for. Adapting a contract, on the other hand, is a difficult task. Adaptation is recognized as a remedy in cases of hardship by those civil law countries that have recognized the principle of hardship (see section 1, above). How does the court or tribunal go about reformulating the promises of the parties in an agreement? There have been no reported cases applying the UNIDROIT Principles where a method of contract adaptation has been defined. In 1989, the Italian Court of Cassation held that, when evaluating a request for adaptation under the Italian Civil Code (Art. 1467), the judge must use objective technical criteria, and not only equitable criteria, to reestablish the equilibrium of the contract, 69thereby insinuating that a technical expert should be used.

* * *

There are many open issues regarding claims for hardship under the UNIDROIT Principles. One of the most difficult issues is the need to develop a standard for adapting contracts. Hardship is a recurrent problem in international commercial contracts and, although it should be applied only as an exception to the binding nature of contractual obligations, it cannot be ignored. Hardship clauses are increasingly being incorporated into contracts; they are subject to imperfections and frequently have to be interpreted before application. There is some ambiguity in the way issues are addressed, partly due to the differences between common law and civil law. International contracts increasingly involve parties from both legal systems. Hence, the UNIDROIT Principles, which seek to embrace different legal traditions, could provide a valid framework on which to develop a better understanding of how to deal with these problems. . [Page691:]

1
The UNIDROIT Principles were adopted by the International Institute for the Unification of Private Law (UNIDROIT) in 1994 and revised in 2004, UNIDROIT Principles of International Commercial Contracts 2004 (Rome : UNIDROIT, 2004), <www.unidroit.org>. On the development of these principles see M.J. Bonell, Un Codice Internazionale del Diritto dei Contratti (Milan, 1995). On the UNIDROIT Principles and their application in international arbitration see The UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria?, dossier of the ICC Institute of International Business Law and Practice (Paris: ICC Publishing, 1995 (ICC Publication 490/1)), especially Part II; and UNIDROIT Principles of International Commercial Contracts: Reflections on their Use in International Arbitration, ICC ICArb. Bull. Special Supplement (Paris: ICC Publishing, 2002 (ICC Publication 642)).

2
According to the UNIDROIT Principles, hardship normally applies to long-term contracts, although it may be invoked for other kinds of contracts (Art. 6.2.2, comment 5). In practical terms, since very short-term contracts are performed soon after the parties have entered into them, there is usually no time for an event to occur that might allow a claim for hardship. Hardship issues more commonly arise in medium-term construction contracts, long-term supply contracts, engineering contracts and technical services contracts.

3
Imprevisión in Spanish refers to something not expected because unforeseeable or unforeseen. A similar term is used in French (imprévision) and in Italian (imprevisione).

4
The binding nature of a contract-also referred to as the sanctity of contract or pacta sunt servanda- is basic in international commerce. The tribunal in ICC case 1512 held in its final award of 1971 that principles such as frustration of contract are an exception to the fundamental principle of the sacrosanct nature of contracts; see Y. Derains & S. Jarvin, Collection of ICC Arbitral Awards 1974-1985 (Kluwer Law International, 1990) [hereinafter Collection of ICC Arbitral Awards I] 209. In ICC case 2291, the tribunal held that unless the parties had expressly provided for a hardship clause (rebus sic stantibus), the principle of pacta sunt servanda, which is enshrined in lex mercatoria, should be applied without restriction; see Collection of ICC Arbitral Awards I, 276.

5
Italian Civil Code, Arts. 1467-69.

6
Argentine Civil Code, Art. 1198.

7
Colombian Commercial Code, Art. 868. In Colombia claims of hardship (change of circumstances) are limited to commercial contracts.

8
Portuguese Civil Code, Art. 437.

9
Dutch Civil Code, Bk 2, Art. 258 (6:258).

10
Swiss Code of Obligations, Art. 373. The provisions of this article are, however, limited to construction contracts.

11
Peruvian Civil Code, Arts. 1440-46.

12
Private contracts cover all contracts except those for the rendering of a public service. In the case of contracts for the rendering of a public service with a government entity (administrative contracts, contratos administrativos), many civil law countries accept the concept of hardship initially developed in France in 1916 in the case of the Gas Company of Bordeaux, according to which the contract price can, under certain circumstances, be adjusted so as to ensure the continuation of the public service. See A. de Laubadère, J.-C. Venezia, & Y. Gaudemet, Traité de droit administrative, vol. I (Paris : LGDJ, 1988) at 636-37, § 1074.

13
Cass. civ., 6 March 1876, Canal de Craponne, D.1876.I.93; decision no. 94 in F. Terré & Y. Lequette, Les grands arrêts de la jurisprudence civile, 10th ed. (Paris : Dalloz, 1994); see also J.-L. Mouralis, L'imprévision in Encyclopédie juridique Dalloz: Répertoire de droit civil.

14
Cass. civ., 18 June 1981, Groupement Interprofessionnelle de Prévoyance v. Chauffeté, Bull civ. 1981.V.No.568, p. 426; see J. Ghestin, C. Janion & M. Billau, Traité de droit civil : Les effets du contrat, 3d ed. (Paris, 2001) at 374, § 311.

15
J.P. Brutau, Fundamentos de derecho civil, t. 2, vol. 1, 'Doctrina general del contrato', 2d ed. (Barcelona, 1978) at 417; L.D. Picazo, Fundamentos de derecho civil patrimonial, vol. 2 (Madrid, 1993) at 271.

16
In Venezuela, the right to claim hardship has been debated over the past thirty years. Against, see J.M.Orsini, La revisión judicial del contrato por excesiva onerosidad, (1999) 54 UCAB Rev. 55. In favor, see L.F.Urbaneja, Concepto sobre la teoría de la imprevisión en los contratos privados (Caracas 1972); A. Morles, Curso de derecho mercantil - los contratos mercantitles, vol. 4 (Caracas, 2004) at 2259; J.O. Rodner, El dinero (Caracas, 1995) c. 12 (second edition forthcoming). This difference was solved in 2002 by the Cassation Chamber of the Venezuelan Supreme Court, which recognized imprevisión (hardship) in the case of Arturo Pacheco et al. v. Inversiones Pancho Villas C.A., TSJ/ SCC, File 02-047, April 2002, JRG vol. 187 (2002), case 660, p. 619.

17
Sir Roy Goode has affirmed that neither force majeure nor hardship are terms known to common law as formulated and used in contractual practice; see ICC Conference Report, Unif. L. Rev. 2001, 100 at 101.

18
Restatement (Second) of Contracts § 265. The Restatement also has rules for discharge by supervening impracticability (§§ 261 to 264), which approaches the concept of impossibility (or force majeure) under civil law. Discharge by supervening frustration is distinct from the problem of impracticability where there is no impediment to performance by either party (Restatement, § 265, comment (a)). Impracticability is covered by § 261, which is applicable to all types of impracticability-not only commercial impracticability-and is broader than commercial impracticability under the Uniform Commercial Code (Restatement, § 261, comment (a)).

19
UCC, Art. 2-615.

20
Taylor v. Caldwel, 1863, 3B.&S.826; see Chitty on Contracts, 29th ed., vol. 1 (London: Sweet & Maxwell, 2004) § 23-4. This case concerned the physical destruction of a music hall. In Jackson v. Ultramarine Insurance Co. Ltd. (1874) L.R.10C.P.125, the concept of frustration of a common venture appears; see Chitty on Contracts, supra note 20).

21
E. McKendrick, Contract Law, 5th ed. (Palgrave McMillan, 2003) at 312, § 14.8.

22
Davis Contractors Limited v. Fareham UDC [1956] A.C. 696 at 729; see Chitty on Contracts, supra note 20 at 1323, § 23-20; E. McKendrick, supra note 21 at 313. The claimant was requesting compensation for increased building costs for seventy-eight houses.

23
E. McKendrick, supra note 21.

24
The 'Coronation Cases' concerned the termination of contracts for the hire of balconies to view the coronation procession for King Edward VII, which was postponed when he fell ill; the most important of these cases is Krell v. Henry [1903] 2 K.B. 740.

25
Chitty on Contracts, supra note 20 at 1352, § 23-69.

26
There is abundant literature on hardship. Before consulting it, one should determine whether the law of the contract belongs to the common law or civil law, as books and articles generally focus on one or the other. For a recent civil law study, see M.A. Prado, Le hardship dans le droit du commerce international (Brussels, 2003). See also B. Oppetit, 'L'adaptation des contrats internationaux aux changements de circonstances: la clause de « hardship »' J.D.I. 1974.794.

27
Published with the ICC Force Majeure Clause 2003 in ICC Publication 650. ICC originally published model provisions on hardship in 1985.

28
Ibid. at 16. However, the first paragraph of the ICC Model Clause is taken from Article 6.2.1 of the UNIDROIT Principles, not Article 6.2.2. Further, unlike the UNIDROIT Principles and the Italian Civil Code, the ICC clause does not allow an arbitral tribunal to adapt a contract (see part 3.5, below).

29
UNIDROIT Principles, Art. 6.2.2., comment 2.b. Frustration of purpose sometimes also resembles the civil law problem of a supervening destruction of the causa, or purpose for entering into the contract. The purpose must be evaluated not only at the time of entering into the contract but also at the time of performance: 'La fonction de la cause dépasse la formation du contrat pour s'étendre à son exécution.' (J. Ghestin, Traité de droit civil : La formation du contrat, 3d ed. (Paris 1993) at § 830). On the differences and similarities between civil law hardship and force majeure, on the one hand, and common law impracticability and frustration of purpose, on the other, see J.M. Perillo, Hardship and its Impact on Contractual Obligations: A Comparative Analysis (Rome, 1996).

30
See UNIDROIT Principles, Art. 6.2.2, comment 6.

31
M. Fontaine & F. De Ly, Droit des contrats internationaux: analyse et rédaction de clauses, 2d ed. (Brussels: Bruylant, 2003) at 491.

32
See UNIDROIT Principles. Art. 6.2.2, comment 6.

33
See e.g. the extracts from awards in M.J. Bonell, ed., The UNIDROIT Principles in Practice: Caselaw and Bibliography on the Principles of Commercial Contracts (Transnational, 2002) at 349ff. and in the ICC International Court of Arbitration Bulletin, vol. 10/no. 2 (1999) and vol. 12/no. 2 (2001).

34
Article 9 of this Convention states that the tribunal must take into account general principles of international commercial law recognized by international organizations. This is understood as a clear reference, inter alia, to the UNIDROIT Principles. See H. Veitía on Mexico in M.J. Bonell, ed., A New Approach to International Commercial Contracts: The UNIDROIT Principles of International Contracts (Kluwer Law International, 1999) 198. Veitía also refers to J.L. Sisqueiros P., 'Los Principios de Unidroit y la Convención Interamericana sobre Derecho Aplicable a los Contratos Internacionales' in Contratación internacional - Comentarios a los principios sobre los contratos internacionales del UNIDROIT (México, 1998) 228.

35
See F. Dessemontet, 'Use of the UNIDROIT Principles to Interpret and Supplement Domestic Law' in The UNIDROIT Principles of International Commercial Contracts: Reflections on their Use in International Arbitration, ICC ICArb. Bull. Special Supplement 2002, 39, according to whom the UNIDROIT Principles are applied in those cases where national law does not have a rule or is silent about a particular matter.

36
Not only through its ratification of the Mexico Convention, but also through its Private International Law (Ley de Derecho Internacional Privado, Official Gazette No. 36511, 6 August 1998). Article 30 of the Venezuelan Private International Law is copied from Article 9 of the Mexico Convention and requires the tribunal to take into account general principles of international commercial law. Article 31 further provides that the tribunal must apply the principles of international commercial law and uses and practices of general acceptance, in order to solve each case in accordance with justice and equity. This rule also derives from the Mexico Convention (Art. 10). There is no question that under Venezuelan law the UNIDROIT Principles apply in the case of international commercial contracts, irrespective of whatever domestic law might be applicable.

37
The preamble to the UNIDROIT Principles states that they can be applied when the parties have agreed that the contract be governed by general principles of law, lex mercatoria or the like.

38
See M.J. Bonell, supra note 33 at 641.

39
ICC case 7375, in which the tribunal found that there was no choice-of-law clause in the contract, which demonstrated that none of the parties accepted the domestic law of the other; see M.J. Bonell, supra note 33 at 425

40
See the preamble to the UNIDROIT Principles and accompanying comment 6.

41
See M.J. Bonell, supra note 33 at, 491. The case involved the sale and installation of military equipment in a contract between a US corporation and the Iranian Air Force. The tribunal decided to be guided by the UNIDROIT Principles.

42
The principle of servanda est fides or pacta sunt servanda was developed in canon law as a reaction against the formal technicalities required under Roman law for there to be a binding agreement to be binding; see J.M. Orsini, Doctrina general del Contrato, 3d ed. (Caracas, 1997) at 36; see also H. Berman, Law and Revolution (Harvard University Press, 1983) at 247. In common law, pacta sunt servanda refers more to the binding nature of the contract: 'promises must be kept though the heavens fall' (L. Corbin, Corbin on Contracts, § 1322, quoted by J.D. Calamari & J. Perillo, The Law of Contracts, 4th ed. (St. Paul, Minnesota, 1998) at § 13.1).

43
On this, from a common law perspective, see P.S. Atiyah, The Rise and Fall of Freedom of Contract (Oxford University Press, 1979) at 734ff.

44
See P.S. Atiyah, 'Contract as a Fair Exchange' in Essays on Contracts (Oxford, 1986) 332: 'where adequacy of consideration is in issue, it might well be thought that a more appropriate way of giving relief-if this is desired-is to adjust the contractual obligations of the parties so that, in the result, the consideration is brought into line with the promise. This can of course be done in one of two ways: adjusting the consideration or adjusting the promise'.

45
(1999) 10:2 ICC ICArb. Bull. 78; M.J. Bonell, supra note 33 at 499 (award in French).

46
Art. 6.2.2, comment 1. The events imply a change of circumstances and include typical force majeure events, such as natural disasters, strikes, wars, civil disorders.

47
Art. 6.2.2, comment 3.b.

48
See M.A Prado, supra note 26 at 134; B. Oppetit, supra note 26 at 801.

49
H. Konarski, 'Force Majeure and Hardship Clauses in International Contractual Practice' IBLJ/RDAI 2003, 405, recommends that the following definition of a force majeure event be used: 'any circumstances not within the reasonable control and without the fault or negligence of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome'.

50
Peruvian Civil Code, Art. 1443.

51
J.-J. Arnaldez, Y. Derains & D. Hascher, Collection of ICC Arbitral Awards 1991-1995 (Kluwer Law International, 1997) 537.

52
J.-J. Arnaldez, Y. Derains & D. Hascher, Collection of ICC Arbitral Awards 1996-2000 (Kluwer Law International, 2003) [Collection of Arbitral Awards IV] 321.

53
Ibid. at 326.

54
Peruvian Civil Code, Art. 1441(2).

55
The UNIDROIT Principles make reference to the nature and purpose of the contract in Article 3.10(1)(a), which deals with the right to avoid a contract where an individual term gives the other party an excessive advantage. In relation to hardship, comment 3.d on Article 6.2.2 states that 'the risks need not have been taken over expressly, but this may follow from the very nature of the contract'.

56
Art. 6.2.2, comment 2.a.

57
In the 1994 version of the UNIDROIT Principles, comment 2 to Article 6.2.2 indicated that an alteration amounting to 50 per cent or more of the cost or the value of the performance is likely to amount to a fundamental alteration. This comment was removed in the 2004 version, so the UNIDROIT Principles now do not quantify the amount of an increase in the costs that would be material.

58
Art. 6.2.2, comment 4.

59
Art. 6.2.2, comment 2.b. Frustration of purpose is apparently a reference to the common law principle of frustration.

60
Ibid.

61
Collection of ICC Arbitral Awards IV, 321. This case concerned a contract between a Dutch manufacturer and a Turkish buyer relating to the sale of a plant for manufacturing products for the Turkish market.

62
Ibid. at 327.

63
See M.J. Bonell, supra note 33 at 491.

64
H. Konarski, supra note 49 at 419, who quotes S.H. Jenkins, 'Exemption for Nonperformance: UCC, CISG, UNIDROIT Principles-A Comparative Assessment' (1998) 72 Tulane Law Review 2015.

65
Collection of ICC Arbitral Awards I, 3.

66
Art. 6.2.3, comment 2.

67
Art. 6.2.3, comment 1.

68
See M.J. Bonell, supra note 33 at 589.

69
Decision of 9 October 1989 in case 4023, followed by decision of 8 September 1998 in case 8857; see G. Pescatore & C. Ruperto, Codice Civile Annotato, 11th ed. (Milan, 2000) at 2615.