19.4 DEFINITIONS OF force majeure AND HARDSHIP

Generally, changes in circumstances may have two different effects on a contract: they can render the contractual performance either impossible or (only) more burdensome for a party so as to create a "hardship" for it.  ¹⁰⁶¹  This leads us to the important and crucial question as to the concepts of hardship and force majeure. However, a clear distinction of the meaning of both terms in commercial practice is not always easy. There are indeed borderline cases, which cannot be labelled as falling in one or the other basket exclusively. Practitioners of international arbitration will also agree that there is a great confusion as to the use of these two terms. Even in important international contracts, they are often inserted as synonyms.  ¹⁰⁶²  Nonetheless, the following paragraphs attempt to review the two concepts on a general and theoretical basis.

19.4.1 Force Majeure

The concept of force majeure, providing for the discharge of one or both parties when a contract has become impossible to perform, "has evolved progressively in international trade practice by assuming many original and autonomous features distinct from similar legal concepts."  ¹⁰⁶³  It is said that the roots of force majeure are in the Roman concept of vis maior, which serves as a limit to liability not based on fault.  ¹⁰⁶⁴  Others submit that the roots of the classic concept lie in the Code Napoléon, from which the words force majeure (an irresistible compulsion or coercion) are taken.  ¹⁰⁶⁵ 

The term force majeure does not have an authoritative definition. As outlined above, the approach of municipal legal systems to situations of force majeure varies from country to country. In the practice of the European Court of Justice, force majeure has been defined to be an event unusual, unforeseeable and beyond the trader's control, the consequences of which could not have been avoided even if all due care had been exercised.  ¹⁰⁶⁶  On the other hand, the Court has emphasized that the concept of force majeure differs in content in different areas of law and in its various spheres of application and that the precise meaning of the concept therefore has to be decided by reference to the legal context in which it is intended to operate.  ¹⁰⁶⁷ 

Generally, the term may be used as a general term referring to some kind of event that serves as a basis for an exemption from liability, and therefore certain general characteristics of the conception of force majeure can be determined: "The legal elements for the qualification of an event as force majeure (vis maior, act of God, etc.) are essentially the same in most legislations, and court decisions show a universal trend to a comparable restrictive interpretation. These elements are (i) that the event is of an external nature, (ii) that it could not be foreseen or prevented and (iii) that it renders performance of a contractual obligation impossible at all or for a certain time."  ¹⁰⁶⁸  This is confirmed by Art. 7.1.7 of the UNIDROIT Principles where, under the headline of "force majeure", it is stated that a party's non-performance is excused if that party proves that the non-performance was due to an impediment beyond its control, and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome the impediment or its consequences.

In most cases the term force majeure refers to an external event that is unforeseeable and irresistible which makes the performance of the contract at least practically impossible. If we accept this definition we can also say that the relation of impossibility to force majeure is that force majeure can be defined as qualified impossibility: it is impossibility restricted by the type of cause and foreseeability.  ¹⁰⁶⁹  In more general terms, it can be said that force majeure occurs when the performance of a contract is impossible due to unforeseeable events beyond the control of the parties.  ¹⁰⁷⁰ 

19.4.2 Hardship

As discussed above, force majeure, which is aimed to settle the problems resulting from non-performance either by suspension or termination, is a fundamental change in the circumstances beyond the control of the parties that affects the existing contractual obligations and is ground for relief from some or all contractual duties. But in many cases where either or both parties maintain an economic interest in continued contractual cooperation as is typical for long-term contracts interrupted halfway in their execution, there is a sort of consensus that other solutions must be found. Such solutions are usually found in the context of "hardship clauses", which are frequently introduced into contracts in international trade.

Hardship can be understood as a situation, which does not quite amount to being a force majeure. It means that the performance of a contract has become more onerous for the performing party. A typical example of hardship would be a steep rise in the prices of raw materials after the conclusion of the contract.  ¹⁰⁷¹  Although most modern legislations have rules to cope with such hardship situations (which roughly fall under the so-called clausula rebus sic stantibus), accepted solutions by national laws as well as court decisions and legal doctrine show a remarkable degree of variation. Nonetheless, the circumstances in which hardship generally exists (as usually set out in hardship clauses) normally incorporate three elements. First, the circumstances must have arisen beyond the control of either party; self-induced hardship is irrelevant. Second, they must be of fundamental character. Third, they must be entirely uncontemplated and unforeseeable.  ¹⁰⁷² 

A clear descriptive definition of hardship is contained in Art. 6.2.2 of the UNIDROIT Principles. This article defines hardship as a situation where the occurrence of events fundamentally alters the equilibrium of the contract, provided that those events meet the requirements laid down therein.  ¹⁰⁷³  According to this definition, hardship can also occur in situations where the value of what the performing party is to receive in return for his performance has diminished, whether or not this has affected his ability to perform. This definition of hardship would seem to include force majeure (qualified impossibility) and some cases of impossibility outside force majeure as well as other types of events that fundamentally affect the balance of the contract. Impossibility of performance is not necessarily required and there is no reference to not being able to avoid or overcome the situation.  ¹⁰⁷⁴  The concept of hardship contained in the UNIDROIT Principles intends to solve problems of such fundamentally altered circumstances by adapting the contract to the new situation. It appears justifiable to speak today, with respect to complex long-term contracts, of a duty on the parties, to renegotiate in good faith on the needed adjustment.  ¹⁰⁷⁵ 

19.4.3 Comparison

The concepts of hardship and force majeure seem to be related to each other, particularly since they share some features: they both cater to situations of changed circumstances. The concepts of hardship and force majeure constitute exceptions to the principle pacta sunt servanda; they apply in situations where the circumstances existing at the conclusion of the contract have subsequently changed so drastically that the parties would not have made the contract, or would have made it differently had they known what was going to happen. This impression is intensified by the fact that contractual hardship clauses on the one hand and force majeure clauses on the other hand have developed a certain parallelism. To some extent, the concepts of force majeure and hardship overlap.

Nevertheless, these conceptions also differ from each other and no specific overall trend may be traced.  ¹⁰⁷⁶  They are implemented in different ways. The difference between the two concepts is most aptly described in such a way: hardship is at stake where the performance of the disadvantaged party has become much more burdensome, but not impossible, while force majeure means that the performance has become impossible for the party concerned, at least temporarily. Moreover, there seems to be a functional difference between the two concepts. Hardship constitutes a reason for a change in the contractual program of the parties and has a deeper influence on the implementation of the contract than normal variants which come up in this process, however hardship is nevertheless related to the fulfillment of the contract. The aim of the parties remains to implement the contract. force majeure, however, is situated in the context of non-performance, and deals with the suspension or termination of the contract.  ¹⁰⁷⁷  In other words, hardship occurs where the performance of the disadvantaged party has become much more burdensome, but not impossible. On the other hand, force majeure, means that the performance of the party concerned has, at least temporarily, become impossible. The classical concept of force majeure is primarily directed at settling the problems resulting from non-performance, either by suspension or by termination. The concept of hardship, however, is mainly directed at the adaptation of the contract.  ¹⁰⁷⁸ 

The comparison of force majeure and hardship stated above may give a primary insight into the structure and functioning of these concepts in general. With the international contractual practice, measures oriented towards uniform general concepts of force majeure and hardship have been developed. In order to understand the two major concepts, a particular regard will be had below to the deliberations on force majeure and hardship in the three studied instruments, which are useful for the interpretation of force majeure or hardship clauses and even relevant to tackling contracts affected by changed circumstances in the absence of such clauses.