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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Fabio Bortolotti and Dorothy Ufot, SAN
Force majeure and hardship are commonly invoked in international trade in case of occurrence of unforeseen events which make performance impossible or impracticable (force majeure) or which substantially upset the equilibrium of the contract (hardship). In the first case the party successfully invoking force majeure will be relieved from performance, while in the second case the party subject to hardship will be entitled to renegotiate the contract and in certain cases to obtain its adaptation to the changed circumstances.
While in the past the events to be considered in this context were mainly "acts of god" (fire, flood, earthquake, etc.), in recent years the growing complexity of trade in a globalized world has substantially increased the number of situations where a party can invoke force majeure and hardship, and consequently put into discussion the basic principle of pacta sunt servanda.
Most national legislators provide rules dealing with these issues, but the specific solutions adopted in domestic laws substantially vary from one country to the other, and consequently offer little certainty to negotiators, who are looking for precise and foreseeable rules governing these crucial issues.
This is why traders who are aware of the risks arising out of unforeseen events tend as far as possible to prepare for their occurrence by negotiating appropriate force majeure and/or hardship clauses. Parties frequently include in their contracts standard clauses, which, however, do not necessarily correspond to their actual needs (especially when copied from other contracts, without verifying their quality).
To deal with the impact of unforeseen circumstances which make performance impossible or excessively burdensome, parties need not only analyse the nature and characteristics of force majeure and hardship, as regulated in domestic laws and soft law instruments, but must also look for contractual clauses which can regulate these issues in conformity with their actual needs.
Most of the cases decided by courts and arbitrators imply (at least with respect to force majeure) the application and interpretation of contractual clauses governing these issues. This is why it is particularly appropriate to include the topic of the revision of the ICC 2003 force majeure and hardship clauses.
This Dossier XVII of the ICC Institute of World Business Law, which is edited in view of the 38th Institute Annual Conference on Hardship and Force Majeure in International Commercial Contracts, contains only the presentations provided by the key speakers of the conference, which could be provided by their authors before the conference, in order to make it possible to have the dossier ready to be distributed at the conference. We have made a choice of the presentations in order to cover most of the crucial issues and to provide an updated view of recent trends in this field.
In the first presentation Marcel Fontaine describes the evolution of the rules on hardship, from their "discovery" in 1976 to the enactment, in recent years, of a growing number of international soft law instruments and domestic laws regulating this issue. When the study group on international contracts, chaired by Marcel Fontaine, published its study on hardship clauses, such clauses were almost unknown outside some very specific trades. Thereafter the subject matter became an actual issue which was included in the UNIDROIT Principles and in several domestic laws.
At present many domestic laws contain rules on hardship, which, however, follow different types of approach, especially regarding the crucial issues regarding the obligation to renegotiate the contract and the right to request its adaptation by a judge or arbitrator.
In order to overcome the uncertainty due to the non-uniformity of domestic rules, parties are inclined to replace such rules with specific clauses, adapted to their actual needs, which specify the prerequisites of hardship in relation to their business, as well as the solutions to be applied: renegotiation, adaptation, etc. Regarding the option of contract adaptation, the point of view of business is divided. Some businessmen consider the possibility of having the contract conditions modified by a third party (judge, arbitrator) as an unacceptable risk; others, on the contrary believe this is to be considered as an indispensable tool for overcoming certain situations, particularly in long term contracts.
Concerning the role of arbitrators in adapting contracts in case of hardship, the presentation by Pascale Accaoui Lorfing examines a number of interesting issues, such as in particular the extent of contract adaptation, the methodology to be applied, as well as possible limits to the arbitrators’ power.
The section on force majeure opens with the presentation of Christoph Brunner, who gives an overview of recent arbitral case law regarding the various aspects of force majeure (impediment beyond sphere of control and risk of the obligor; foreseeability; insurmountable and temporary impediments, causation; notice requirement). Christoph Brunner concludes that in the context of international commercial contracts the impact of force majeure events is mostly regulated by the terms of a force majeure clause and that notwithstanding the different applicable laws and the different wording of the clauses, arbitral case law shows a rather uniform approach to their interpretation and application.
Considering the importance of a well drafted force majeure clause, the following two presentations deal with the ICC model clause. Filip De Ly, member of the task force which drafted the ICC 2003 Force Majeure Clause, analyses the main aspects of the clause and the approach followed by the working party when drafting the clause. Ercüment Erdem gives a short overview of the present stage of the revision of the ICC force majeure and hardship clauses, which should be approved and published in 2019. Readers will have the opportunity to consult the annexed text of the clauses as they are in the present stage of discussion
The Dossier concludes with two important contributions regarding other topical aspects of force majeure.
The first issue, examined by Klaus Peter Berger, looks at the relationship between force majeure and applicable law, general principles of law and trade usages. Are force majeure clauses self-sufficient or should they be interpreted in view of the applicable rules of law? What is the role of the applicable law with respect to unclear or insufficiently precise force majeure clauses?
Finally, Mercédeh Azeredo da Silveira, concludes with a theme of growing importance: the impact of economic sanctions on contracts as force majeure and/or hardship.