Best international practices –
the ICC model contracts and
changing circumstances
OPPOSITE CONTRACT LAW APPROACHES
• PACTA SUNT SERVANDA (“AGREEMENTS MUST BE
KEPT” OR “CONTRACT TO BE OBSERVED”)

• REBUS SIC STANTIBUS (“THINGS THUS STANDING”
BUILDS ON THE IDEA OF CIRCUMSTANCES AT THE TIME OF
CONTRACTING)
• CONTRACT LAW GENERALLY BUILDS ON PACTA SUNT
SERVANDA BUT REBUS SIC STANTIBUS HAS GAINED GROUND
IN EXCEPTIONALLY TURBULENT TIMES SUCH AS WARS
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FORCE MAJEURE AND HARDSHIP SITUATIONS
FORCE MAJEURE
HARDSHIP
• PERFORMANCE IMPOSSIBLE
• PERFORMANCE EXCESSIVELY
OR CLOSE TO IMPOSSIBLE
• BORDELINE CASE: ECONOMIC
FORCE MAJEURE
• PERFORMANCE OF ANY
CONTRACT MAY BE IMPEDED
DUE TO CIRCUMSTANCES
BEYOND CONTROL
• NOTICE, RELIEF FROM
LIABILITY
ONEROUS
• LONG-TERM CONTRACTS
ESPECIALLY VULNERABLE TO
CHANGE OF CIRCUSTANCES
• NEGOTIATIONS
• TERMINATION?
• ADAPTATION OF TERMS BY
COURT?
• TERMINATION?
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CHANGE OF CIRCUSTANCES IN LAW
• WHEREAS FORCE MAJEURE IS RECOGNIZED (ALBEIT
DIFFERENTLY) IN MOST NATIONAL CONTRACT LAWS AS WELL
AS IN THE CISG, FEW NATIONAL LAWS RECOGNIZE THE
POSSIBILITY TO TAKE INTO ACCOUNT CHANGING
CIRCUMSTANCES AFTER THE CONTRACT IS CONCLUDED
AND THE CRITERIA AND THEIR IMPACT MAY VARY FROM
COUNTRY TO COUNTRY
 THE MATTER HAS TO BE REGULATED IN THE CONTRACT TO
GAIN THE DESIRED EFFECTS
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REGULATION OF HARDSHIP IN CONTRACTS
• INCORPORATE CONTRACT LAW PRINCIPLES SUCH AS THE
UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL
CONTRACTS INTO THE CONTRACT AS THE RULES OF LAW TO
BE APPLIED
OR
• INCORPORATE THE ICC HARDSHIP CLAUSE AND/OR SPECIFIC
CLAUSES SUCH AS A COST ESCALATION CLAUSE INTO THE
CONTRACT
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HARDSHIP AND CONTRACT LAW PRINCIPLES
• UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL
CONTRACTS (1994 AND 2004)
• PRINCIPLES OF EUROPEAN CONTRACT LAW (1995, 1999 AND
2003)
• EUROPEAN DRAFT COMMON FRAME OF REFERENCE (2008)
• REFERENCE TO THE CISG DOES NOT ENTAIL
INCORPORATION OF HARDSHIP ALTHOUGH ECONOMIC
FORCE MAJEURE COULD BE RECOGNIZED ACCORDING TO
SOME COMMENTATORS UNDER ART 79; BUT WHERE THE
CISG IS APPLIED WITH THE UNIDROIT PRINCIPLES ,
EXPRESSLY OR IMPLIEDLY, HARDSHIP COULD COME IN
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ARTICLE 6.2.1 UNIDROIT PRINCIPLES
(Contract to be observed)
Where the performance of a contract
becomes more onerous for one of the
parties, that party is nevertheless bound to
perform its obligations subject to the
following provisions on hardship.
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ARTICLE 6.2.2 UNIDROIT PRINCIPLES
(Definition of hardship)
There is hardship where the occurrence of events fundamentally
alters the equilibrium of the contract either because the cost of a
party’s performance has increased or because the value of the
performance a party receives has diminished, and
(a) the events occur or become known to the disadvantaged party
after the conclusion of the contract;
(b) the events could not reasonably have been taken into account by
the disadvantaged party at the time of the conclusion of the contract;
(c) the events are beyond the control of the disadvantaged party; and
(d) the risk of the events was not assumed by the disadvantaged
party.
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ARTICLE 6.2.3 UNIDROIT PRINCIPLES
(Effects of hardship)
(1) 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.
(2) The request for renegotiation does not in itself entitle the
disadvantaged party to withhold performance.
(3) Upon failure to reach agreement within a reasonable time either
party may resort to the court.
(4) If the court finds hardship it may, if reasonable,
• a) terminate the contract at a date and on terms to be fixed, or
• b) adapt the contract with a view to restoring its equilibrium.
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ICC HARDSHIP CLAUSE 2003
ICC FORCE MAJEURE CLAUSE 2003 – ICC HARDSHIP CLAUSE 2003
 ONE ICC PUBLICATION, TWO SEPARATE CLAUSES
 INTEGRATE INDIVIDUALLY
IN THE PREVIOUS PUBLICATION OF 1985, THERE WAS NO
STANDARD HARDSHIP CLAUSE BUT FOUR DRAFTING OPTIONS
INCLUDING A REFERENCE TO A CONTRACT COMMITTEE; THE
CONCEPT ´HARDSHIP´ WAS RELATIVELY NEW IN 1985
BACKGROUND OF THE 2003 HARDSHIP CLAUSE:
• ARTICLE 1467 OF THE ITALIAN CIVIL CODE
• ARTICLE 6.2.2 UNIDROIT PRINCIPLES
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ICC HARDSHIP CLAUSE 2003
• PARAGRAPH 1: CONTRACTUAL DUTIES MUST BE
PERFORMED, EVEN IF MORE ONEROUS THAN
ANTICIPATED AT THE TIME OF THE CONCLUSION OF
THE CONTRACT
• PARAGRAPH 2 (a): RELIEF FROM PERFORMANCE IF
PERFORMANCE EXCESSIVELY ONEROUS
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ICC HARDSHIP CLAUSE 2003
DUTY TO NEGOTIATE
• PARAGRAPH 2:
”…the parties are bound, within a reasonable time of the invocation of
this Clause, to negotiate alternative contractual terms which
reasonably allow for the consequences of the event.”
• PARAGRAPH 3:
”…where alternative contractual terms which reasonably allow for the
consequences of the event are not agreed by the other party to the
contract…, the party invoking this clause is entitled to termination of
the contract.”
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THE ICC HARDSHIP CLAUSE 2003
• THE CLAUSE DOES NOT CONTAIN A SPECIAL REFERENCE TO
COURT IN CASE THE ALTERNATIVE CONTRACTUAL TERMS
ARE NOT AGREED UPON
 THE PARTIES CAN USE THE GENERAL DISPUTE RESOLUTION
MECHANISM APPLICABLE TO THE CONTRACT
 FAILURE TO PROPOSE OR ACCEPT ALTERNATIVE
CONTRACTUAL TERMS MAY AMOUNT TO BREACH OF
CONTRACT (E.G. BREACH OF DUTY OF GOOD FAITH AND FAIR
DEALING)
 THE CLAUSE DOES NOT AS SUCH AUTHORISE THE RELEVANT
COURT OR ARBITRAL TRIBUNAL TO ADAPT THE CONTRACT
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THE ICC HARDSHIP CLAUSE 2003
• THE WORDING IS MORE RESTRICTED THAN IN THE UNIDROIT
PRINCIPLES:
THE PHRASE “…BECAUSE THE VALUE OF THE PERFORMANCE
A PARTY RECEIVES HAS DIMINISHED” IS MISSING
 DOES THE CLAUSE PROVIDE RELIEF MAINLY FOR THE PARTY
RESPONSIBLE FOR SPECIFIC PERFORMANCE?
 IS THERE A NEED FOR SPECIAL CLAUSES (SUCH AS A
CURRENCY CLAUSE) TO PROTECT THE PARTY OBTAINING
PERFORMANCE SUCH AS THE BUYER?
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HARDSHIP AND ICC MODEL CONTRACTS
• THE ICC MODEL FORCE MAJEURE CLAUSE 2003 AND FORCE
MAJEURE CLAUSES IN INDIVIDUAL MODEL CONTRACTS,
WHERE DIFFERENT, ARE NOT WRITTEN WITH ECONOMIC
FORCE MAJEURE IN MIND AND FOCUS ON PHYSICAL
IMPEDIMENTS
 HARDSHIP RULES FOLLOW FROM EXPRESS INCORPORATION
OF THE ICC MODEL HARDSHIP CLAUSE OR THROUGH
SELECTION OF THE RULES OF LAW APPLICABLE
 IN MANY CASES IT IS NECESSARY TO CONSIDER AN EXPRESS
EXCLUSION OF HARDSHIP
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HARDSHIP AND ICC MODEL CONTRACTS
NO UNIFORM APPROACH IN ICC MODEL CONTRACTS AS TO
1) HARDSHIP
2) RULES OF LAW APPLICABLE
 THE DIFFERENT APPROACHES ARE BASED ON THE DRAFTING
HISTORY AND PRIORITIES OF DRAFTERS OF EACH MODEL
 NO PARTICULAR ATTENTION IS NECESSARILY PAID TO THE ISSUE
IN MODEL CONTRACTS USED FOR CONTRACTS OF LONGER
DURATION OR MAJOR PROJECTS ESPECIALLY VULNERABLE
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HARDSHIP AND ICC MODEL CONTRACTS
•
THE ICC MODEL TECHNOLOGY TRANSFER CONTRACT
INCORPORATES EXPRESSLY THE ICC HARDSHIP CLAUSE AND
REFERS TO THE UNIDROIT PRINCIPLES  THE CLAUSE PREVAILS
•
THE ICC MODEL INTERNATIONAL FRANCHISING CONTRACT REFERS
TO “RULES AND PRINCIPLES GENERALLY RECOGNIZED IN
INTERNATIONAL TRADE INCLUDING THE UNIDROIT PRINCIPLES”
WITHOUT POINTING OUT HARDSHIP AS AN EXCLUSION
•
THE ICC MODEL CONTRACT FOR THE TURNKEY SUPPLY OF AN
INDUSTRIAL PLANT REFERS TO PRINCIPLES OF LAW GENERALLY
RECOGNISED, THE CISG, USAGES AND THE UNIDROIT PRINCIPLES
WITH THE EXCLUSION OF CLAUSES 6.2.1- 6.2.3
•
THE ICC MAJOR TURNKEY CONTRACT PRESUPPOSES SELECTION OF
A NATIONAL LAW AND IS SILENT ON HARDSHIP
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THANK YOU VERY MUCH!
Lauri Railas, Attorney-at-Law, LL.D.
Krogerus Attorneys Ltd.
Jaakonkatu 3A, P.O.Box 533, FI-00101 Helsinki
Tel +358 (0)29 000 6200
Fax +358 (0)29 000 6201
lauri.railas@krogerus.com
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