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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Prof Dr H. Ercument Erdem
I. INTRODUCTION
It has been on the agenda of the International Chamber of Commerce ("ICC") Commission on Commercial Law and Practice (the "CLP Commission") since 2016 to draft a short and simplified version of the ICC Force Majeure Clause 2003 (the "2003 FM Clause") for easier use, especially, by small and medium-sized enterprises (the "SME"s).
The reason that led to such drafting is the fact that the 2003 FM Clause is currently preferred to be included in contracts by way of reference, instead of full incorporation, due to its rather long and complex nature. This issue becomes more important when shorter contracts of less sophisticated companies are taken into consideration. The CLP Commission considered that the 2003 FM Clause is not user-friendly for such companies, since reference to a clause outside of a contract is complicated. The CLP Commission, accordingly, formed a working group (the "Working Group"), which created the short form of the 2003 FM Clause (the "Short Form") for such situations, to be directly incorporated into contracts. During this process, the Working Group had to find the right length, as a too short or general clause would not be helpful to judges or arbitrators. In any event, any perceived gaps in the Short Form are to be interpreted by reference to the long form.
After the first draft of the Short Form was prepared, the CLP Commission agreed to a proposal suggesting that the 2003 FM Clause should be revised, as well as the ICC Hardship Clause 2003 (the "2003 Hardship Clause") (the 2003 FM Clause and the 2003 Hardship Clause, collectively, the "Clauses"), to accompany the Short Form. In the revised 2003 FM Clause (the "New FM Clause") and the revised 2003 Hardship Clause (the "New Hardship Clause") (the New FM Clause and the New Hardship Clause, collectively, the "New Clauses"), the language and mechanism of the Clauses are to be simplified.
II. NEW FM CLAUSE
II.A. In General
In principle, the New FM Clause follows the structure of the 2003 FM Clause, but aims to simplify and render it more user-friendly. This being said, the New FM Clause also comes with some novelties in terms of its structure, as it now includes definitions of "Force Majeure" and "Affected Party," as well as paragraph headings.
The 2003 FM Clause does not define ‘force majeure,’ but describes it in its first paragraph. The Working Group of the New FM Clause adopts a different approach, and defines ‘force majeure.’ In accordance with the first paragraph of the New FM Clause,
"Force Majeure" means the occurrence of an event or circumstance ("Force Majeure Event") that prevents or impedes a party from performing one or more of its contractual obligations under the contract, if and to the extent that the party affected by the impediment ("the Affected Party") proves:
a. That such impediment is beyond its reasonable control; and
b. That it could not reasonably have been foreseen at the time of the conclusion of the contract; and
c. That the effects of the impediment could not reasonably have been avoided or overcome by the Affected Party."
Feedback from some of the National Committees was that the Notes of the 2003 FM Clause render the Clause less comprehensible and difficult to use since the SMEs are confusing to distinguish the main text of the 2003 FM Clause from the Notes. The Working Group of the New FM Clause took into consideration this feedback and deleted the Notes, although they are very useful to better understand the provisions of the Clause. Instead of the Notes that are intended to comment on the provisions, the Working Group has elected to insert explanation boxes, if needed, after certain paragraphs to highlight various important points of that paragraph.
All of these structural changes are aimed to create a user-friendly and easy-to-understand text, not only for lawyers, but for the parties, as well.
II.B. Main Conditions
The 2003 FM Clause has not gone through fundamental changes. The New FM Clause retains the following conditions for the occurrence of a force majeure event, the same as in the 2003 FM Clause, while bringing some changes to the wording, as follows:
a. The impediment is beyond the affected party’s reasonable control;
b. It could not reasonably have been foreseen at the time of the conclusion of the contract; and
c. The effects of the impediment could not reasonably have been avoided, nor overcome, by the affected party.
In order for an event to be considered as a force majeure under the New FM Clause, all of these three conditions must be established, together. There is no difference between the 2003 FM Clause and the New FM Clause in establishing these conditions. In fact, this system was already established in the 1985 ICC Force Majeure Clause (the "1985 FM Clause"). The 2003 FM Clause amalgamated the 1985 FM Clause with the well-established and accepted elements introduced by international documents, such as Article 79 of the United Nations Convention on Contracts for the International Sale of Goods ("CISG"), Section 8:108 of the Principles of European Contract Law ("PECL"), and Article 7.1.7 of the UNIDROIT Principles of International Commercial Contracts 1994.
The New FM Clause maintains the system introduced through the 2003 FM Clause for the non-performance by third parties. It is generally understood that these third parties are the sub-contractors. This provision establishes its basis in Article 79(2) of the CISG. The party invoking the Force Majeure must prove that the conditions set forth in the first paragraph of the FM Clause are established with respect to itself, and with respect to the third party.
II.C. Presumption
The 2003 FM Clause contains a list of events that are presumed to fulfil the conditions of being beyond the relevant party’s reasonable control, and reasonably unforeseeable. If any event listed is realized, the affected party is released from the obligation to prove that this event is beyond its reasonable control, and could not be reasonably foreseen at the time of conclusion of the contract. Therefore, the affected party must prove only that the effects of this event could not have been reasonably avoided, nor overcome. If an event is not listed, the party invoking this event as a Force Majeure must establish all three conditions set forth in the first paragraph of the New FM Clause.
The Working Group carefully considered whether to retain this presumption and the events listed. Some members of the Working Group argued that the list of events should be illustrative only, and should not create a presumption, as was the case in the 1985 FM Clause. The others maintained to retain the existing structure of presumption, but proposed to simplify the list. As the purpose of the New FM Clause is to be more user-friendly and less complicated for SMEs, the Working Group decided to keep the presumption as it is in the 2003 FM Clause. In doing so, the Working Group believed to provide predictability for users who are not customizing the drafting of this type of clause into their contracts.
While adding to or removing from the list of such presumptions, the Working Group has consulted with those who have overseen the development of various ICC model contracts, including other working groups of ICC and National Committees, and obtained their sector-specific opinions. Dozens of court decisions and arbitral awards have been reviewed in order to determine the most common force majeure events that have led to disputes between contracting parties in the past.
In the New FM Clause, the following events are not listed, contrary to the 2003 FM Clause: armed conflict or serious threat of the same (including but not limited to hostile attack, blockade, military embargo), civil commotion or disorder, mob violence, act of civil disobedience, curfew restriction, and compulsory acquisition.
On the other hand, taking the recent global developments into account, currency and trade restrictions, as well as embargos and sanctions, are now included in the list. Certain other changes have also been made, such as the rewording of "act of God, plague, epidemic, natural disaster, such as, but not limited to, violent storm, cyclone, typhoon, hurricane, tornado, blizzard, earthquake, volcanic activity, landslide, tidal wave, tsunami, flood, damage or destruction by lightning, drought" as "plague, epidemic, natural disaster or extreme natural event" for simplification purposes.
For the sake of the principles of party autonomy and freedom of contract, the parties are, again, allowed to add or delete events to and from the list, taking into account particular situations, e.g. by excluding acts of authority or export restrictions, or by including labour disturbances affecting only their own enterprise, provided that adding new events to the list does not relieve them from proving that the effects of the impediment could not reasonably have been avoided, nor overcome.
II.D. Notification
Another novelty of the New FM Clause is the inclusion of an explicit paragraph regarding the notification requirement. According to the newly added paragraph 4, the party affected by the impediment shall give notice of the event without delay to the other party. In the 2003 FM Clause, the notice requirement is not structured independently, but is found within paragraphs 4, 5, 6 and 8 of the 2003 FM Clause. The Working Group considered that a separate paragraph for the notice requirement would be more appropriate in light of the very important consequences attached to the notice.
II.E. Consequences of Force Majeure
The consequences of force majeure remain essentially the same as the 2003 FM Clause; however, there are few modifications:
Under the New FM Clause, it is clearly provided that the non-invoking party is entitled to suspend the performance of its obligations, if applicable, from the date of the notice. The Working Group considered that the suspension of the obligations by the non-affected party is a legal and logical consequence when the affected party is prevented from performing its obligations due to force majeure. It is also an application of the well-established principle of exceptio non adimpleti contractus that finds its place in several national laws (see, for example, Article 97 of Turkish Code of Obligations No. 6098 ("TCO"); Article 82 of the Swiss Code of Obligations ("SCO"); for the sale contracts, Article 1612 of the French Civil Code ("FCC"); and Section 320 of the German Civil Code ("BGB")). The principle of exceptio non adimpleti contractus is also regulated in Article 7.1.3 of the UNIDROIT Principles of International Commercial Contracts 2016 (the "UNIDROIT Principles").
During the drafting of the 2003 FM Clause, according to the note accompanying paragraph 8 that deals with contract termination, the previous working group faced two options regarding the moment at which temporary suspension of the contract through force majeure would last long enough to lead to termination: The first was to establish a fixed period; the second was to provide a formula to calculate that period. The working group adopted the latter approach because it was felt that it would be difficult to establish a single period that would be appropriate for all sectors of industry, and in all circumstances.
The New FM Clause derogates from such approach: In order to increase certainty and foreseeability, a maximum duration of 120 (one hundred and twenty) days has been provided, which can be changed by agreement of the parties at any time according to their needs. Accordingly, in addition to the general rule to determine each particular case as to when the duration of the impediment is unsustainable, and entitles the parties to terminate the contract, the New FM Clause suggests that unless otherwise agreed, the contract may be terminated by either party if the duration of the impediment exceeds 120 (one hundred and twenty) days. By fixing a maximum duration, the Working Group added a new option to the formula exercised by Article 25 of the CISG, Section 8:103 of the PECL, and Article 7.3.1 of the UNIDROIT Principles.
II.F. Short Form
The Short Form comprises the main elements of the long form, but attempted to do so in only three paragraphs. In order to prevent any discrepancies between the long form and Short Form, both texts employ the exact wording; however, the Short Form, as its name suggests, is shorter. Therefore, the Short Form does not have paragraph titles and explanatory boxes. Some paragraphs are unified; this is the case for the consequences of force majeure (save for the last sentence that deals with suspension by the non-affected party), temporary impediment and contract termination. Some paragraphs are not addressed in the Short Form, such as non-performance by third parties, notification, duty to mitigate, and unjust enrichment.
Although the Working Group has not yet decided how to present the Clause in general, the Short Form will be in such form and shape so that the parties may copy and paste it directly into their contracts.
III. NEW HARDSHIP CLAUSE
III.A. In General
The main revisions to the Clauses relates to hardship. Several national laws deal with hardship situations and suggest solutions that may substantially differ from country to country. In order to more clearly define hardship situations, the parties may wish to regulate this in their agreement, independent from the governing law of the contract. While the CLP Commission and the Working Group intend to satisfy this need through a standard clause, which can be included in individual contracts, discussions have ensued as to whether or not to include a judge’s or an arbitrator’s authority to adapt a contract in the event of the parties’ failure to agree on alternative contractual terms in a hardship situation.
During the drafting of the 2003 Hardship Clause, the tendency leaned away from a judge’s or arbitrator’s intervention and, therefore, only a termination option was available. Fear that the judge or arbitrator would adapt the contract in such a way that neither party would prefer played a role in shaping this drafting.
The Working Group kept the first and second paragraphs of the 2003 Hardship Clause as is, but provided new options, such as consequences of the hardship.
III.B. New Options
Taking into consideration the global trend towards attempting to maintain the contract where possible ("favor contractus"), i.e. termination being the last resort, the Working Group decided to include three alternatives in the New Hardship Clause: Provided that the parties are unable to agree upon alternative contractual terms: (i) the party invoking this Clause may terminate the contract (Option 3A); (ii) either party may request the judge or arbitrator to adapt or terminate the contract, as appropriate (Option 3B); and (iii) either party may request the judge or arbitrator to declare its termination (Option 3C).
In fact, two remedies are available: Termination or adaptation. According to the Working Group, including an option for adaptation by a judge or arbitrator may act as an incentive for the parties to agree to alternative terms by themselves in order to avoid third party intervention.
Option 3A is the same as the existing solution of the 2003 Hardship Clause, which provides that the party invoking this Clause is entitled to terminate the contract. The only difference brought to the existing solution is to emphasize that the party who is invoking this Clause and terminating the contract is not entitled to request adaptation without the agreement of the other party. The reason for this emphasis is to make clear that if the the applicable law provides for adaption of the contract, the party invoking the Hardship cannot request adaptation on its own without the agreement of the other party.
Option 3B provides for the party invoking the hardship clause to request the judge or arbitrator to adapt the contract or declare its termination, as appropriate, as allowed for under various national laws, as well as the UNIDROIT Principles. It is important that the Clauses point in the same direction as the UNIDROIT Principles, as many model contracts drafted by the ICC CLP Commission, including, but not limited to, the ICC Model NCND (Non-Circumvention and Non-Disclosure) Agreement, the ICC Model International Consulting Services Contract, and the ICC Model Commercial Agency Contract, regulate that the contract shall be governed by, among others, the UNIDROIT Principles. An approach, similar to that of the UNIDROIT Principles, will prevent any possible discrepancies within the contract in terms of hardship situations.
Pursuant to Article 6.2.3 of the UNIDROIT Principles on the effects of hardship, upon failure to reach agreement within a reasonable time, either party may resort to the court, upon which the court may, if reasonable, (a) terminate the contract on a date, and on such terms to be fixed, or (b) adapt the contract with a view to restoring its equilibrium. The New Hardship Clause does not differ from the UNIDROIT Principles.
The below-examined national laws also provide for adaptation of the contract in the event of hardship:
>> Under Turkish law, Article 138 of the TCO regulates that the party invoking the hardship clause is entitled to ask the judge to adapt the contract and, where this is not possible, to terminate it.
>> German law, under Section 313 of the BGB, allows for adaptation of the contract, and if adaptation of the contract is not possible, or one party cannot reasonably be expected to accept it, the disadvantaged party may terminate the contract.
>> Swiss law does not include a general hardship clause, while the adaptation option is accepted by the courts. This being said, Article 19 of the draft general section of the SCO that is expected in 2020, regulates that the court may adapt or void the contract, if, according to the principle of good faith, the performance of an obligation becomes unreasonable due to an unforeseeable change in circumstances.
>> Despite adaptation was a legal resort, which has been refused by the French courts for many years, Article 1195 of the FCC, introduced by the Law of Obligations Reform of 2016, provides that in the event of refusal, or upon the failure to renegotiate, the parties may agree to terminate the contract from the date, and on the conditions that they so determine, or through common agreement, and request that the court order its adaptation. In the absence of an agreement within a reasonable time, the court may, at the request of a party, adapt the contract or put an end to it, on a date, and subject to such conditions it so determines.
Option 3C is a modified version of the existing solution of the 2003 Hardship Clause and the new Option 3A. The Working Group discussed this solution at length, and decided that termination by the invoking party may be arbitrary and could be misused. Therefore, the Working Group preferred to involve the judge or the arbitrator in the termination. While revising the solution brought by the 2003 Hardship Clause, the Working Group was aware of the potential difficulties that the involvement of a judge or an arbitrator may cause, such as lengthy and costly procedures in some jurisdictions. However, the Working Group prefers that the judge or the arbitrator assess burdensome conditions that may lead to termination of the contract, since termination should be the last resort.
IV. CONCLUSION AND NEXT STEPS
The process that started with the idea of creating the Short Form 2003 FM Clause progressed with updates to the Clauses, as well. The 2003 FM Clause remains largely unchanged, in substance, but the New FM Clause includes certain structural changes to make it more simple and user-friendly. The most significant changes may be summarized, as follows:
>> Simplification of the list of presumed force majeure events;
>> Separate paragraph for the notice requirement;
>> Suspension of the performance by the non-affected party when the affected party invokes force majeure;
>> Fixing a time period of 120 days for the duration of the force majeure after which the contract may be terminated, together with the general formula of depriving the parties of what they were reasonably entitled to expect from the contract.
The 2003 Hardship Clause has gone through a fundamental change through the introduction of the adaptation option, aside from termination. The Working Group took into consideration the UNIDROIT Principles, as well as the recent developments in national laws, and agreed that including an option for adaptation or termination by a judge or arbitrator could be an incentive for the parties to agree to alternative terms by themselves.
The New Clauses have not yet taken their final shapes, awaiting comments and approvals from the National Committees. The Working Group discussed the draft attached to this paper in its meeting of 24 October 2018, the day prior to the CLP Commission meeting. The conference planned to be organized by ICC Italy in May of 2019, to be held in Rome, will also focus on the New Clauses, perhaps with the participation of UNIDROIT. The Working Group will take into account the views to be brought forward at such events to produce the final versions of the New Clauses, with the aim to benefit the business world in the most efficient manner possible.
Once approved by the National Committees and the CLP Commission, the New FM Clause will enter into force. However, it will not abrogate the 2003 FM Clause. The parties may continue to use the 2003 FM Clause, and will be able to do so by making clear reference to that Clause.
Attachment
DRAFT ICC FORCE MAJEURE CLAUSE ("Clause")
(Long Form)
The concept of force majeure is known by most national laws but a force majeure clause nevertheless generally forms part of the contracts. Force majeure may be construed differently depending on the jurisdiction and the bargaining powers of the parties. That is why the ICC has created two balanced Force Majeure Clauses, the "Long Form" and the "Short Form".
The ICC Force Majeure Clause (Long Form) can be included in the contract or incorporated by reference by stating "The ICC Force Majeure Clause (Long Form) is incorporated in the present contract". Parties may also use the Clause as the basis for drafting a "tailor-made" clause, which takes into account their specific needs.
Should the parties prefer a shorter clause, they can include in their contract the "Short Form" of the ICC Force Majeure Clause. The Long Form nevertheless gives guidance on issues in which the Short Form is silent.
As regards the question of what constitutes force majeure, the ICC Force Majeure Clause intends to achieve a compromise between the general requirements of force majeure, which need to be met in all cases and the indication of events presumed to be beyond the control of the parties and not foreseeable at the time of the conclusion of the contract. For that purpose, the ICC Force Majeure Clause provides a general definition (paragraph 1) and a list of force majeure events (paragraph 3) which are presumed to qualify for force majeure (Paragraph 3). Parties are invited to check the list and verify if some events should be deleted from or added to it, in accordance with their specific needs.
The main consequence of successfully invoking force majeure is that the Affected Party is relieved from its duty to perform and from responsibility or damages from the date of occurrence of the event (provided that the other party has been notified timely) and, in case of a temporary impediment, until the impediment ceases to prevent the performance.
a. that such impediment is beyond its reasonable control; and
b. that it could not reasonably have been foreseen at the time of the conclusion of the contract; and
c. that the effects of the impediment could not reasonably have been avoided or overcome by the Affected Party.
The definition of Force Majeure provides a lower threshold for invoking the clause than impossibility of performance. This is expressed by the reference to reasonableness in conditions (a) to (c) of the clause.
Where a contracting party fails to perform one or more of its contractual obligations because of default by a third party whom it has engaged to perform the whole or part of the contract, the contracting party may invoke Force Majeure only to the extent that the requirements under paragraph 1 of this Clause are established both for the contracting party and for the third party.
This paragraph intends to exclude that non-performance by a third party or sub-contractor can be considered as such as Force Majeure. The Affected Party must prove that the Force Majeure conditions are as well met for the non-performance of the third party, to which also the presumption of paragraph 3 of this Clause will apply.
In the absence of proof to the contrary, the following events affecting a party shall be presumed to fulfil conditions (a) and (b) under paragraph 1 of this Clause, and the Affected Party only needs to prove that condition (c) of paragraph 1 is satisfied:
The Presumed Force Majeure Events commonly qualify as Force Majeure [if preventing the performance of the contract]. It is therefore presumed that in the presence of one or more of these events the conditions of Force Majeure are fulfilled, and the Affected Party need not prove the conditions (a) and (b) of paragraph 1 of this Clause (i.e. that the event was out of its control and unforeseeable), leaving to the other party the burden of proving the contrary. The party invoking Force Majeure must in any case prove the existence of condition (c), i.e. that the effects of the impediment could not reasonably have been avoided or overcome.
a. war (whether declared or not), hostilities, invasion, act of foreign enemies, extensive military mobilisation;
b. civil war, riot, rebellion and revolution, military or usurped power, insurrection, act of terrorism, sabotage or piracy;
c. currency and trade restriction, embargo, sanction;
d. act of authority whether lawful or unlawful, compliance with any law or governmental order, expropriation, seizure of works, requisition, nationalisation;
e. plague, epidemic, natural disaster or extreme natural event;
f. explosion, fire, destruction of equipment, prolonged break-down of transport, telecommunication, information system or energy;
g. general labour disturbance such as boycott, strike and lock-out, go-slow, occupation of factories and premises.
Parties may add or delete events from the list, according to particular situations, e.g. by excluding acts of authority or export restrictions, or by including labour disturbances affecting only their own enterprise. Parties are reminded that adding new events to the list does not relieve them from proving that condition (c) of paragraph 1 is satisfied.
The Affected Party shall give notice of the event without delay to the other party.
A party successfully invoking this Clause is relieved from its duty to perform its obligations under the Contract and from any liability in damages or from any other contractual remedy for breach of contract, from the time at which the impediment causes inability to perform, provided that the notice thereof is given without delay. If notice thereof is not given without delay, the relief is effective from the time at which notice thereof reaches the other party. The other party may suspend the performance of its obligations, if applicable, from the date of the notice.
The main purpose of this paragraph is to clarify that the Affected Party is relieved from the performance of the obligations subject to Force Majeure from the occurrence of the impediment, provided that a timely notice is given. In order to avoid the Affected Party invoking Force Majeure only at a later stage (e.g. when the other party claims non-performance) where a timely notice is not given, the effects of the Force Majeure are delayed until the receipt of the notice.
The other party may suspend the performance of its obligations upon the receipt of the notice to the extent these obligations result from the obligations impeded by Force Majeure and they are suspendable.
Where the effect of the impediment or event invoked is temporary, the consequences set out under paragraph 5 above shall apply only as long as the impediment invoked prevents performance by the Affected Party of its contractual obligations. The Affected Party must notify the other party as soon as the impediment ceases to impede performance of its contractual obligations.
The Affected Party is under an obligation to take all reasonable means to limit the effect of the event invoked upon performance of the contract.
Where the duration of the impediment invoked has the effect of substantially depriving the contracting parties of what they were reasonably entitled to expect under the contract, either party has the right to terminate the contract by notification within a reasonable period to the other party. Unless otherwise agreed, the parties expressly agree that the contract may be terminated by either party if the duration of the impediment exceeds 120 days.
This paragraph 8 establishes a general rule for determining in each particular case when the duration of the impediment in unsustainable and entitles the parties to terminate the contract. In order to increase certainty and foreseeability, a maximum duration of 120 days has been provided, which can of course be changed by agreement of the parties at any time according to their needs.
Where paragraph 8 above applies and where either contracting party has, by reason of anything done by another contracting party in the performance of the contract, derived a benefit before the termination of the contract, the party deriving such a benefit shall pay to the other party a sum of money equivalent to the value of such benefit.
(Short Form)
This Short Form is a reduced version of the Long Form, which is limited to some essential provision. It is intended to users who wish to incorporate in their contract a balanced and well-drafted standard clause covering the most important issues, which can arise in this context.
Users must be aware that this Short Form, by its very nature, has a limited scope and does not necessarily cover all issues, which may relevant in the specific business context. When this is the case, parties should draft a specific clause on the basis ot the ICC Long Form.
1. "Force Majeure" means the occurrence of an event or circumstance that prevents or impedes a party from performing one or more of its contractual obligations under the contract, if and to the extent that that party proves: [a] that such impediment is beyond its reasonable control; and [b] that it could not reasonably have been foreseen at the time of the conclusion of the contract; and [c] that the effects of the impediment could not reasonably have been avoided or overcome by the affected party.
2. In the absence of proof to the contrary, the following events affecting a party shall be presumed to fulfil conditions (a) and (b) under paragraph 1 of this Clause: (i) war (whether declared or not), hostilities, invasion, act of foreign enemies, extensive military mobilisation; (ii) civil war, riot, rebellion and revolution, military or usurped power, insurrection, act of terrorism, sabotage or piracy; (iii) currency and trade restriction, embargo, sanction; (iv) act of authority whether lawful or unlawful, compliance with any law or governmental order, expropriation, seizure of works, requisition, nationalisation; (v) plague, epidemic, natural disaster or extreme natural event; (vi) explosion, fire, destruction of equipment, prolonged break-down of transport, telecommunication, information system or energy; (vii) general labour disturbance such as boycott, strike and lock-out, go-slow, occupation of factories and premises.
3. A party successfully invoking this Clause is relieved from its duty to perform its obligations under the contract and from any liability in damages or from any other contractual remedy for breach of contract, from the time at which the impediment causes inability to perform, provided that the notice thereof is given without delay. If notice thereof is not given without delay, the relief is effective from the time at which notice thereof reaches the other party. Where the effect of the impediment or event invoked is temporary, the above consequences shall apply only as long as the impediment invoked impedes performance by the affected party. Where the duration of the impediment invoked has the effect of substantially depriving the contracting parties of what they were reasonably entitled to expect under the contract, either party has the right to terminate the contract by notification within a reasonable period to the other party. Unless otherwise agreed, the parties expressly agree that the contract may be terminated by either party if the duration of the impediment exceeds 120 days.
DRAFT ICC HARDSHIP CLAUSE ("Clause")
Several domestic laws deal with hardship situations, through rules intended to protect the disadvantaged party in case events have rendered performance more onerous than could reasonably have been anticipated at the time of the conclusion of the contract. However the solutions adopted by national laws may be substantially different from country to country. When the national laws request the parties to renegotiate the contract, and the renegotiation fails, the consequences of such failure may vary: under some laws the disadvantaged party will only be entitled to terminate the contract, while under others the disadvantaged party will have the right to request adaptation of the contract to the changed circumstances by the judge or arbitrator.
In order to increase certainty, parties may wish to regulate this situation in their agreement, independently from the law governing the contract. The ICC Hardship Clause intends to satisfy this need through a standard clause which can be included in an individual contract.
1. A party to a contract is bound to perform its contractual duties even if events have rendered performance more onerous than could reasonably have been anticipated at the time of the conclusion of the contract.
2. Notwithstanding paragraph 1 of this Clause, where a party to a contract proves that:
a. the continued performance of its contractual duties has become excessively onerous due to an event beyond its reasonable control which it could not reasonably have been expected to have taken into account at the time of the conclusion of the contract; and that
b. it could not reasonably have avoided or overcome the event or its consequences,
the parties are bound, within a reasonable time of the invocation of this Clause, to negotiate alternative contractual terms which reasonably allow to overcome the consequences of the event.
Paragraph 3 deals with the situation where the parties are unable to agree alternative contract terms. In this case, there are mainly two options: contract termination by one of the parties, or adaptation or termination by the judge or arbitrator having jurisdiction under the contract. Under option A, the party invoking hardship will be entitled to terminate the contract on its initiative. Under option B, (which is admitted under a number of national laws as well as under the UNIDROIT Principles, the parties are entitled to request a judge or arbitrator to adapt or terminate the contract. If option B is considered inappropriate by the contractual parties, who fear the adaptation of the contractual balance by a third party (judge or arbitrator), parties can choose option A or C, which do not involve adaptation of the contract. Under option A, the party invoking hardship will be entitled to terminate the contract on its initiative—and the other party may thereafter claim the unlawfulness of such decision—, whereas under option C, either party may request the judge or arbitrator to declare the termination.