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Essay: Difference between force majeure and hardship in international contracts

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This essay ilustrates the difference between force majeure and hardship in international contracts, with particular emphasis on the Romanian legal system.
1. Definitions and examples
Firstly, hardship regards events the occurrence of which fundamentally alter 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 diminished1. A hypothesis of hardship: a buyer is prohibited from export by the laws of the country to which he intends to export and, at the same time, he is unable to sell the bought goods in another market.2
Secondly, for the non-performing party, force majeure is an impediment beyond its control and that it could not reasonably be expected to have taken ‘ into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences3. An example of force majeure would be: a debtor is denied by the Central Bank the transfer of money owed to the creditor, even though the former took all appropriate steps to execute his obligation.4
2. Conceptual differences between the two:
2.1. Performance of contract:
Performance of contract is not impossible when hardship occurs. It becomes more onerous for the debtor5. Conversely, force majeure renders performance impossible6, even temporarily7.
1UNIDROIT, Article 6.2.2
2 Girsberger, Zapolskis, p. 125
3 UNIDROIT, Article 7.1.7
4 UNIDROIT, Article 6.1.17, comment 2(b), p. 210
5 Konarski, p. 405
2.2. Functional aspects:
In hardship cases, the parties still seek to perform the contract8, eventually amending it9. Conversely, force majeure leads to a temporary suspension of obligations or to termination of the contract.10 This functional difference is reflected in the UNIDROIT Principles and the PECL. Each contains a hardship provision in its respective chapter on performance, while the force majeure provision is included in the chapter on non-performance.11
2.3. Types of contracts which can be affected by one of the two:
Another difference between the two concepts is their sphere of application. Hardship applies primarily to long-term contracts12. Contrariwise, force majeure applies both to long-term and short-term contracts13. This is because hardship concerns an economic imbalance ‘ which can be forseen and prevented in the short-term ‘, while force majeure deals with situations which render performance impossible.
2.4. Objective nature versus subjective nature:
It is easier to assess force majeure ‘ which is objective ‘ than hardship ‘ which is subjective. The former concerns uncontrollable events14. The latter cannot be determined by reference to a predetermined threshold, but must be assessed individually15. There was a case
6 Konarski, p. 407
7 Rimke, p. 201
8 Ibidem
9 Konarski, p. 407
10 Ibidem
11 Kessedjian. pp. 422-423
12 Konarski, p. 419
13 Ibidem
14 Black’s Law Dictionary, p. 718
15 UNIDROIT, Article 6.2.2, comment 2, p. 214
where a 300% rise in market price was not considered a hardship situation because of the highly speculative nature of the contract16. A different approach would be taken if the debtor ran the risk of financial ruin.17
3. Romanian regulations concerning hardship and force majeure:
Romania is a party to the CISG18, that applies when the law of a state-party applies19 and which covers force majeure, within Art. 79.20 Article 79 is almost identical to the provisions of the UNIDROIT principles on hardship, analyzed above21. Moreover, the Romanian Civil Code contains a provision on force majeure, in Art. 1.351. It provides that force majeure precludes wrongfulness and causality and liability.22
However, there is no consensus regarding application of Art. 79 CISG to ardship occurances. If hardship is covered by the CISG23, then a contract governed by Romanian law would be judged under the CISG. However, if hardship is not covered by the CISG24, Art. 7
(2) of the Convention provides for subsidiary recourse to general principles of international trade law or, in the absence of such principles, ‘ to the law applicable by virtue of the rules of private international law. Again, there is no consensus whether hardship is a principle of international trade law. If it is25, the UNIDROIT Principles ‘ which are believed to reflect
16 Schwenzer, pp. 715-716
17 Schwenzer, p. 716
18 http://www.cisg.law.pace.edu/cisg/countries/cntries.html; last accessed on 31/01/2017 at 04:30
19 CISG, Art. 1 (1) (b)
20 Rimke, p. 215
21 Kessaidjian, p. 422
22 Pop, Popa, Vidu, p. 255
23 Rimke, p. 226
24 Lookofsky, footnote 79, p. 443
25 Kessedjian, p. 420
trade law principles26 ‘ can apply.27 If, however, hardship is not considered to be such a principle28, Romanian regulations should apply. Art. 1.271 of the Romanian Civil Code ‘ which covers situations of unforseen circumstances ‘ is similar to the UNIDROIT provisions on hardship29, analyzed above. It provides that the parties should negotiate to adapt the contract. If negotiations fail, the judge can adapt or terminate the contract.30
Changes of circumstances must be understood and dealt with beforehand if contractual stability is desired. A clear delimitation between hardship and force majeure is necessary, therefore. This essay has attempted to present such a delimitation and the solution of a legal system to this problem, which is based on uniform contractual instruments.
‘ UNIDROIT Principles of International Commercial Contracts; cited as UNIDROIT
‘ United Nations Convention on Contracts for the International Sale of Goods, cited as
‘ Principles of European Contract Law, cited as PECL
‘ Bryan A. Garner (ed.), Black’s Law Dictionary, Ninth Edition, cited as Black’s Law
Dictionary, West
‘ Liviu Pop, Ionu’-Florin Popa, Stelian Ioan Vidu, Curs de Drept Civil. Obliga’iile,
Universul Juridic, Bucure’ti – 2015; cited as Pop, Popa, Vidu
26 Rimke, p. 234
27 CISG, Art. 7 (2)
28 Kessedjian, p. 421
29 Pop, Popa, Vidu, footnote 1, p. 124
30 Pop, Popa, Vidu, p. 131
‘ Joern Rimke, Force majeure and hardship: Application in international trade practice with specific regard to the CISG and the UNIDROIT Principles of International Commercial Contracts, reproduced with permission of Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer (1999-2000) 197-243, on http://www.cisg.law.pace.edu/cisg/biblio/rimke.html#*, last accessed on 31/01/2017, at 04:29; cited as Rimke.
‘ Daniel Girsberger, Paulius Zapolskis, Fundamental Alteration of the Contractual Equilibrium under Hardship Exemption, Jurisprudence, 2012, 19(1): 121-141; cited as Girsberger, Zapolskis
‘ Catherine Kessedjian, ‘Competing Approaches to Force Majeure and Hardship’,
International Review of Law and Economics 25 (2005), cited as Kessedjian
‘ Joseph Lookofsky, Impediments and Hardship in International Sales: A Commentary on Catherine Kessedjian’s ‘Competing Approaches to Force Majeure and Hardsip’, International Review of Law and Economics 25 (2005); cited as Lookofsky
‘ Hubert Konarski, Force Majeure and Hardship Clauses in International Contractual Practice, 2003 Int’l Bus. L.J. 405 2003; cited as Konarski
‘ Ingeborg Schwenzer, Force Majeure and Hardship in International Sales Contracts, 39 Victoria U Wellington L. Rev. 709 2008-2009; cited as Schwenzer
‘ Joseph M. Perillo, Force Majeure and Hardship under the UNIDROIT Principles of International Commercial Contracts, Contrataci’n internacional. Comentarios a los Principios sobre los Contratos Comerciales Internacionales del Unidroit, Universidad Nacional Aut’noma de M’xico – Universidad Panamericana (1998) 111-113, p. 119. Reproduced with permission from Universidad Panamericana on http://www.cisg.law.pace.edu/cisg/biblio/perillo3.html#p68, last accessed on 31/01/2017, at 04:29; cited as Perillo

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