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Document information Chapter 6 — Performance

(Selected excerpts only)
Publication
UNIDROIT Principles of Section 2 Hardship
International
Commercial Contracts: Article 6.2.1 (Contract to be observed)
An Article-by-Article
Where the performance of a contract becomes more onerous for one of the parties, that
Commentary
party is nevertheless bound to perform its obligations subject to the following provisions
on hardship.
Organization A Inspired by International Contract Practice
International Institute for
the Unification of 1 With its roots in large international contracts, (1) e.g. in some of the ‘price adaptation clauses’ or in
‘economical clauses’ (for example in contracts relating to raw materials such as oil and gas
Private Law
whereby the exact ‘demarcation lines’ for a change of circumstances triggering a right to
renegotiation varies), and inspired by the possibility of adaptation in case of a ‘fundamental change
Promulgation of the basis of the contract’ in some civil law jurisdictions, (2) Arts. 6.2.1-6.2.3 transfer to all
2016 international contracts (3) (with a choice of UNIDROIT Principles-clause, → Preamble, para. 2) an
innovative (4)
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Link(s) to general (default) concept (which may be subject to more specific contractual provisions, (5) Arts.
Related 1.1, 1.3, 1.5, usually inspired by Arts. 6.2.1-6.2.3) (6) . It copes in a way of ‘fair trading’ (Art. 1.7)
with extreme cases of destruction of the economic equilibrium which permits to uphold the
Legislation contract according to the favor contractus principle (→ Introduction no. 8). In negotiations, if one of
UNIDROIT Principles of the parties does not know the concept of ‘hardship’, the equitable solution in Art. 6.2.3 (which
International includes cooperation of both parties by renegotiation) makes it acceptable. ‘Hardship’ (aiming for
Commercial Contracts ‘performance’) (7) is distinct from force majeure (Art. 7.1.7(1), mainly concerned with ‘non-
2016 performance’), (8) because performance is still (technically) ‘possible’ (9) under changed
circumstances (10) , although not at all any more on the basis of the initially intended and/or
Bibliographic negotiated economic equilibrium of the parties. In some situations (e.g. outbreak of a war) a party
might have a choice between reliance on force majeure or hardship. (11) As an example from the
reference myriad of creative legal practice, when once the concept of hardship was unknown to the other party
'Chapter 6 — Performance', in a contract negotiation in Algeria, and hardship was discussed on the basis of the UNIDROIT
in Eckart Brödermann , Principles, it has been integrated into the contract as a subcase of ‘force majeure’, combined with a
UNIDROIT Principles of clause on renegotiation. From a doctrinal perspective this was doubtful, from a practical
International Commercial perspective the clause opened the door for renegotiation when needed.
Contracts: An Article-by-
Article Commentary, (Kluwer
Law International 2018)
2 Arts. 6.2.1-6.2.3 have inspired at least the Russian local legislators (12) and caused the Belgian
Cour de Cassation to apply the concept of hardship as a supplement to Art. 79 CISG (a debated
decision) on the basis of Art. 7(2) CISG. (13) In contrast, common law lawyers trained with cases like
the jurisprudence following the closure of the Suez Canal in mind (‘no frustration of contract’) (14)
may be more reluctant to open up for the ‘new’ international concept (How ‘new’ is 1994? →
Introduction no. 11), but they may do so bearing in mind that common law lawyers have been part of
the drafting team of the UNIDROIT Principles which, in its entirety, provides a compromise towards
international ‘best practices’ and a ‘better law’ based on throrough comparative research (15) (→
Introduction no. 10-11).
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B A Reminder to Pacta Sunt Servanda as a ‘Mission Statement’

3 Helpful for any negotiation about a ‘hardship’ clause, Art. 6.2.1 starts with a reminder of Art. 1.3
(16) which has inspired several arbitral tribunals to stick to the rule of pacta sunt servanda and not to
permit hardship (17) where hardship as defined in Art. 6.2.2 could not be established.

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 Article 6.2.2 (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.
A A Fundamental Alteration for the Equilibrium of the Contract
1 The opening lines require a ‘fundamental’ alteration of the equilibrium which is a matter of
appreciation to be made with due regard to the circumstances of the case (1) (whereby, in practice,
the choice of the arbitrators – their background and their mental openness – plays an important
role). Contract interpretation (Arts. 4.1, 4.3–4.7), and in particular the criteria in Art. 4.3 help
assessing the intended content of the contract as a benchmark against which fundamental
alteration must occur. This may hold particularly true for the reference to ‘the nature and purpose
of the contract’ (Art. 4.3 lit. d). Further, in some circumstances, ‘economic distress’ as depicted
in the principles against ‘gross disparity’ (2) in Art. 3.2.7(a) (which also operates towards an
‘equilibrium’ of the contract) may be a helpful factor to determine ‘fundamental’ alteration
(argumentum Art. 1.6(2)). (3) In the end, the parties or the arbitration tribunal must determine, with
due regard to the main legal
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consequence of a (mere) duty to renegotiation (Art. 6.2.3(1)) and the general principle of ‘good faith
and fair dealing’ (Arts. 1.7, 1.6(2)), whether – with respect to the parts of the contract yet to be
performed (4) – there is a fundamental alteration of the equilibrium caused by either of the two
criteria set forth in the opening lines of Art. 6.2.2: (i) increase of costs; (5) or (ii) diminished value
of the performance, (6) while these criteria may sometimes supplement each other (whereas the
indirect source, e.g. legal changes to an energy supply system (7) or an extreme crisis in the relevant
market, does not matter). (8)

B Plus Four Factors Relating to the Sphere of the Disadvantaged Party

1 Knowledge After Contract Conclusion (lit. a) (9)
2 Earlier knowledge of the (senior management (10) of the) disadvantaged party (which is alone
relevant) (11) would be an issue of ‘mistake’ (Art. 3.2.2). (12) The determination of the exact moment
of contract conclusion (in particular by application of Arts. 2.1.6-2.1.10) and of the ‘event’ (13)
causing possibly hardship may become relevant. (14)

2 Anticipation Reasonably Impossible (lit. b) (15)

3 The assessment is a ‘question of degree’ with regard to foreseeablity (16) and requires looking at
the circumstances at the time of contract conclusion. (17)

3 Beyond Control (lit. c) (18)

4 4 This is again a matter of assessment of the same kind as in force majeure cases (Art. 7.1.7(1)),
with the same debates for certain causes, e.g. ‘outbreak of a war’ and ‘act of god’ as clear events in
the sense of lit. c, while ‘strike’ (always an issue
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in negotiations of force majeure clauses) is a debatable event (19) with possibly different
assessment depending on the circumstances.

4 No Risk Allocation to the Disadvantaged Party (lit. d)

5 If one party has accepted the risk under the contract, duly interpreted (Arts. 4.1, 4.3-4.7), there is
no reason to consider hardship. (20)

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 Article 6.2.3 (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.

A Renegotiation (1)
1 Art. 6.2.3 provides for a three-prong system of effects of hardship. Para. 1 sentence 1 grants a
right to request renegotiations upon a reasoned (2) notice (Art. 1.10) to be given ‘without
undue delay’ (para. 1 sentence 2), i.e. “as quickly as possible” (3) under the circumstances
(including the nature of the event, its ‘unfolding’ over time, (4) the moment of realisation by the
disadvantaged party and the length of the contract duration). (5) Delay does not forfeit the right
(argumentum Art. 1.7) but ‘may … affect the finding’ (6) of hardship.
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B Continued Performance of the Contract

2 While the notice of hardship as such does not give a right to withhold performance (para. 2),
extreme circumstances underlying the notice may do so (Art. 1.7). (7) A refusal to renegotiate of the
other party would be a violation of the duty to cooperate (Art. 5.1.3). (8) The (allegedly)
disadvantaged party bears the risk of an unfounded notice of hardship (and damages under Art.
7.4.1 are even higher if it also refuses to continue performance). The other party bears the risk of a
refusal to negotiate (whereby Arts. 1.7, 5.1.3 require to at least listen to the (allegedly)
disadvantaged party). (9) In light of the large discretion of the court (Art. 1.11) under para. 4, parties
are generally well advised to seriously negotiate.

C Application to the Court

3 Upon ‘failure to reach agreement’ within a ‘reasonable’ time (to be assessed under the
circumstances (10) with regard to Arts. 1.7, 5.1.3), pursuant to para. 3 the (allegedly) disadvantaged
party may apply to the court (Art. 1.11) (11) to either (i) terminate the contract whereby the court
has discretion to determine the date and the terms or (ii) to adapt the contract with a view of
restoring the equilibrium which may include ‘a fair distribution of the losses’ (12) (which may, may
not or may only partially be reflected in a price adaptation). (13) Courts may also decide in some
circumstances to solve a certain impass between the parties and then trigger subsequent
renegotiations by the parties themselves. (14) Again, the choice of the arbitrator may be the most
important choice to make when coping with such a situation.
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References
1)

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 1)
For the practice in commercial contracts governed by common law, see Harmathy, Attila, Hardship,
in: Eppur si muove, The Age of Uniform Law – Essays in honour of Michael Joachim Bonell, to
celebrate his 70th birthday, edited by UNIDROIT (2016), vol. II, pp. 1035, 1041-1042.
2)
§ 313(1) German Civil Code ‘BGB’; see also Bonell, An International Restatement, p. 120 with
numerous comparative examples in Fn. 86.
3)
Vogenauer/McKendrick, Introduction to Section 6.2 of the PICC, no. 10 also underline this potential
of Arts. 6.1.1-3.
4)
See also Paolo Traisci, Francesco, Hardshio e Force Majeure nei contratti del commercio
internationale: un modello innovative da seguire, in: Eppur si muove, The Age of Uniform Law –
Essays in honour of Michael Joachim Bonell, to celebrate his 70th birthday, edited by UNIDROIT
(2016), vol. II, p. 1675, 1684.
5)
Vogenauer/McKendrick, Introduction to Section 6.2 of the PICC, no. 8-9.
6)
Vogenauer/McKendrick, Introduction to Section 6.2 of the PICC, no. 9.
7)
Vogenauer/McKendrick, Introduction to Section 6.2 of the PICC, no. 6.
8)
Again Vogenauer/McKendrick, Introduction to Section 6.2 of the PICC, no. 6.
9)
See e.g. Arbitral Award 30 November 2006, Centro de Arbitraje de México, Unilex, as cited also by
Vogenauer/McKendrick Art. 6.2.2 no. 15, refusing hardship caused by ‘El Nino’ for a producer of
vegetables.
10)
Morán Bovio/Parra Art. 6.2.2 at p. 317 (para. 6).
11)
Morán Bovio/Parra Art. 6.2.2 at p. 317 (para. 6); Vogenauer/McKendrick, Introduction to Section
6.2 of the PICC, no. 7.
12)
The Russian law on hardship is based on Art. 6.2 PICC (Doudko, Hardship in Contract: The
Approach of the UNIDROIT Principles and Legal Developments in Russia, Uniform Law Review
2000 483, 483-484; Vogenauer/McKendrick, Introduction to Section 6.2 of the PICC, no. 7).
13)
Scafom International BV v Lorraine Tubes SAS, 19 June 2009 (C.07.0289.N), at IV., cited by
Vogenauer/McKendrick, Introduction to Section 6.2 of the PICC, no. 4-7 at no. 5 (Art. 79 CISG
leads directly only to an exemption of liability).
14)
Vogenauer/McKendrick, Art. 6.2.2 no. 4.
15)
See e.g. Vogenauer/McKendrick (Oxford), Introduction to Section 6.2 of the PICC, in his positive
assessment at no. 3.
16)
Official Comments, Art. 6.2.1 no. 1 and the Illustration, p. 217 (see the detailed discussion of the
Illustration by Vogenauer/McKendrick, Art. 6.2.1 no. 2-3); Morán Bovio/Parra Art. 6.2.1 at p. 313;
Vogenauer/McKendrick, Art. 6.2.1 no. 4.
17)
E.g. Arbitral Award (Zurich), ICC case no. 8486 (1996), Unilex (not permitting hardship for a
contract on a machine installation despite a market disruption of the relevant sugar market);
Vogenauer/McKendrick, Art. 6.2.1 no. 4.
1)
Official Comments, Art. 6.2.2 no. 2, pp. 218-220; Morán Bovio/Parra Art. 6.2.2 at p. 315;
Vogenauer/McKendrick, Art. 6.2.2 no. 7-9.
2)
Cf. the more general remarks of Vogenauer/McKendrick, Art. 6.2.2 no. 5-6 contemplating the use of
the ‘gross disparity’ criteria.
3)
See however Vogenauer/McKendrick, Art. 6.2.2 no. 9 describing that the expressions ‘excessive
burden’ and ‘substantially more onerous’ in previous drafts have been deleted in the drafting
process.

4)

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 4)
Official Comments, Art. 6.2.2 no. 4 and Illustration 5, pp. 221-222; Morán Bovio/Parra Art. 6.2.2 at
p. 317; Vogenauer/McKendrick, Art. 6.2.2 no. 4.
5)
Official Comments, Art. 6.2.2 no. 2a, p. 219; Morán Bovio/Parra Art. 6.2.2 at p. 315 (para. 6).
6)
Official Comments, Art. 6.2.2 no. 2b, pp. 219-220; Morán Bovio/Parra Art. 6.2.2 at p. 315 (para. 6).
7)
An example given by Vogenauer/McKendrick, Art. 6.2.1 no. 3 from an undated arbitral award.
8)
Vogenauer/McKendrick, Art. 6.2.2 no. 3.
9)
Official Comments, Art. 6.2.2 no. 3a, p. 220; Morán Bovio/Parra Art. 6.2.2 at p. 316 (para. 3,
indirectly).
10)
Vogenauer/McKendrick, Art. 6.2.2 no. 11.
11)
Vogenauer/McKendrick, Art. 6.2.2 no. 11.
12)
Vogenauer/McKendrick, Art. 6.2.2 no. 10.
13)
Vogenauer/McKendrick, Art. 6.2.2 no. 10. This was e.g. an issue in the cases following the world
economic crisis after September 11, 2001 (see e.g. OLG– Hamm 41 O 93/09 dated 16 December
2011, at I 1.b.cc, in the context of an ‘economical clause’ of a gas contract).
14)
Vogenauer/McKendrick, Art. 6.2.2 no. 10.
15)
Official Comments, Art. 6.2.2 no. 3b, p. 220.
16)
Vogenauer/McKendrick, Art. 6.2.2 no. 13.
17)
Morán Bovio/Parra Art. 6.2.2 at p. 316 (para. 4); Vogenauer/McKendrick, Art. 6.2.2 no. 12 (with the
example of a contract to be performed in an ecomomically unstable region).
18)
Official Comments, Art. 6.2.2 no. 3c, p. 221.
19)
Vogenauer/McKendrick, Art. 6.2.2 no. 14.
20)
Official Comments, Art. 6.2.2 no. 3d, p. 221; Morán Bovio/Parra Art. 6.2.2 at p. 316 (para. 6 and
para. 3).
1)
Official Comments, Art. 6.2.3 no. 1 and Illustration 1, p. 223; Morán Bovio/Parra Art. 6.2.3 at p. 318
(para. 2 on Art. 6.2.3) and p. 319 (para. 5).
2)
Cf. Official Comments, Art. 6.2.3 no. 3, p. 224.
3)
Official Comments, Art. 6.2.3 no. 2, p. 224; Vogenauer/McKendrick, Art. 6.2.3 no. 3 (‘at the earliest
possible opportunity’).
4)
Vogenauer/McKendrick, Art. 6.2.3 no. 3; see also Morán Bovio/Parra Art. 6.2.3 at p. 319 (para. 2:
‘cuándo se produce un evento’).
5)
Vogenauer/McKendrick, Art. 6.2.3 no. 3.
6)
Official Comments, Art. 6.2.3 no. 2, p. 224; Morán Bovio/Parra Art. 6.2.3 at p. 319 (para. 2).
7)
Official Comments, Art. 6.2.3 no. 4 and Illustration 4, p. 225; Morán Bovio/Parra Art. 6.2.3 at p. 319;
Vogenauer/McKendrick Art. 6.2.3 no. 4 and Art. 7.4.1 no. 6 note 22.
8)
Official Comments, Art. 6.2.3 no. 5, p. 225; Morán Bovio/Parra Art. 6.2.3 at p. 319 (para. 5, referring
also to Art. 1.7 in this context); Vogenauer/McKendrick, Art. 6.2.3 no 1.
9)
See again also Vogenauer/McKendrick, Art. 6.2.3 no.1.
10)
Morán Bovio/Parra Art. 6.2.3 at p. 320 (para. 1); Vogenauer/McKendrick, Art. 6.2.3 no. 5.
11)

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 11)
Morán Bovio/Parra Art. 6.2.3 at p. 320 (para. 2, referring to the correlating previous numbering of
the principle defining courts as Art. 1.10).
12)
Official Comments, Art. 6.2.3 no. 7, p. 226.
13)
Again Official Comments, Art. 6.2.3 no. 7, p. 226.
14)
Vogenauer/McKendrick, Art. 6.2.3 no. 10; Official Comments, Art. 6.2.3 no. 7, p. 226; and Morán
Bovio/Parra Art. 6.2.3 at p. 321 (para. 4) with a critical view (“el tribunal debe resolver … peron
unca devolver el asunto a las partes, sin resolver, para que ellas busquen una solucion”).

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