Hardship clause (ICC) – Community Weagree

Hardship clause (ICC)

Many national laws have a hardship clause for unforeseen, exceptionnaly onerous (imprévision) circumstances in contractual relations

The model hardship clause of the ICC provides a contractual mechanism for unforeseen circumstances where national law would not provide for. Many national laws address hardship (imprévision) circumstances in contractual relations. Such mechanism is typically designed to protect the disadvantaged party when overriding circumstances have rendered due performance exceptionally more onerous than either party could reasonably anticipate when entering into the contract.

The solutions adopted in national laws may differ substantially from jurisdiction to jurisdiction. When national laws require the parties to renegotiate the contract and such renegotiations fail, the consequences of such failure may vary. Sometimes, the disadvantaged party is (only) entitled to terminate the contract altogether, while under other laws it will have the right to request review and amendment of the contract to the changed circumstances by the judge or arbitrator.

To increase certainty, parties often regulate such unforeseen circumstances in their agreement, regardless of the applicable law of the contract. The ICC Hardship Clause intends to satisfy this need through a model clause.

Since one of the most disputed issues is whether it is appropriate to have the contract adapted by a third party (judge, arbitrator) once the parties are unable to agree on a solution, the clause provides two options between which the parties must choose: amendment or termination.

Section 3 of the ICC hardship clause 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 a party, or amendment 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 several 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. In this case the judge or arbitrator may decide which of the two alternatives is more appropriate, in particular where amendment is not reasonably possible.

If the contracting parties consider that option B is inappropriate, for example because they believe a third party (judge or arbitrator) cannot assess a contractual balance, they can choose option A or C. Options A and C do not entail an amendment of the contract by the judge or arbitrator. 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.

If the parties opt for an amendment of the contract, it may be suggested that the judge or arbitrator invites the parties to submit proposals of the required adjustments, which might be taken as starting point for such amendment.

This model hardship clause is the version of the ICC (International Chamber of Commerce) revised and published in May 2020. The PDF-version of the hardship clause can be downloaded from the ICC website.

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