Course Code and Title Abstract


CourseCode and Title


Internationaltrade and investment occupy important positions in economic activityfor each country formed through an international commercial contractagreement, and at the instance all parties bind themselves to thecontract by signing it, they have bounded to fulfil their duties orobligations as stipulated and laid down by it. Should any of theparties fail to uphold him/herself in accordance to it, this partywill be accountable or stands to be rightfully held responsible forthe non-execution from his/her quarters.1

However,the trading transactions that take place at the global scale arealways prone to a higher or greater element of unpredictability as aresult of the fact that they are subject to contract which exceedsthe geographical boundaries of a single country.2In addition, this contract is prone to last for a very long period oftime, or at least extend for a substantive period. In this light, theparties will restrict by the influences emanating from the politicaland economic arenas in foreign countries. As a result, the coreproblem and difficulties that bound these types of contracts issimply that the grounds or basis under which they were sealed areprone to change or alterations. In this light, the manner in whichthey perform may become more tasking or straing for one or more ofthe parties involved, which will lead them to the force majeure andhardship clause.3

Therehave been number of universal incidents in recent years that havethreatened the execution as well as the performance of the commercialcontracts that operate at the global level. For example, thepolitical and civil disruption in the Middle East amidst continuingdisruption in the region in the form of an ongoing civil war, whichhas exposed the fulfilment of contracts with counterparties in theaffected countries.4

Thistype of risk is considered as one of the biggest concerns that hasfaced the traders. Within this complex integration matrix, theprimary focus of this paper will be on the approach emanating fromthe global level to our core concept of force majeure and Hardshipclauses in line with how it examines some of the build-up elements,which may in one way or the other form a constituent of the forcemajeure event or not.5Also, I will establish the best solutions that might protect theparties in this situation by encouraging renegotiation in forcemajeure and hardship clause, especially in cases when the contractlacking a contractual term allowing for renegotiation. In doing so,first I will give a definition and resources of Hardship and ForceMajeure clauses also, I will explain the effect of force majeureclause in international commercial contract.

Thisresearch draws upon most primary sources, including thecharacteristics of the traditional theory of force majeure at theFrench judiciary as evidence this theory cannot be ignored whendetermining the concept of force majeure. Then, I will provide someexamples from the recent practice of both Hardship and Force Majeureclauses in line with the undertakings of the ICC Court ofArbitration, CISG, UNIDROIT, and English Law.6

Thecommon view is that Force Majeure clauses deal with the frustrationor termination of the contract, but I suggest that Hardship clausescan deal with a renegotiation. I, therefore, argued that although thecommon response was frustration or termination of the contract,another possible response is a renegotiation.7



Thelaw of contracts termed as “pacta sunt servanda is the generalaccepted principle of contract law. The principle means that allparties involved in an agreement are responsible for failure toexecute the agreement. The responsibility held is regardless of thecause of failure or whether the cause is beyond the parties’ power.The responsibility also overrules any from absolving themselves dueto failure even though the cause was not imminent at the time ofsigning the agreement.8

Therefore,Pacta sunt servanda mirrors the economic and natural justicerequirements due to its binding clause. The binding protects theinterests of all parties involved in any particular agreement. Protection of interests portrays the importance of “pacta suntservanda”

However,economic malpractice may lead to a negative outcome from theapplication of the principle. Contracts are time- based. However,markets and economies are dynamic and situations may changecompletely. Parties with reasonable doubt would not make a contractor would do so differently if there was knowledge of the futurechange of the contract.9

However,short term contracts are simplistic and non- reliance or non-performance may be catered for via exchange of monies. The situationis vice versa for the complex international transactions thatinfluenced by geo-political, regional and national economics of aregion.

Variouslegal concepts tackle the issue arising due to changed situations incontracts. Problems are settles via termination of contractsuspension. Adaptation of the contracts yields concepts such ashardship or imprévision. However, force majeure is not a universallyaccepted concept hence concepts such CISG have been formulated.10

Formulatedby the agency, United Nations Convention (UNC), CISG is the Contractsfor the International Sale of Goods the UNC also addresses issuesarising due to changed contracts.

CISGrarely refers to existing concepts due to its peculiar system.However, CISG is regarded not to fully tackle the change issue.Therefore, clauses are included to seal loopholes and tackle mattersof force majeure and hardships.11

II.Force Majeure and Hardship – The General Overview of the Concepts

  1. Force Majeure

Theforce majeure concept allows both or a single parties to exit acontract when it is impossible to execute. Force majeure hasprogressed in international trade through assuming majority ofnumerous original and autonomous features unique from similarconcepts.

Withsituations, a party cannot apply force majeure due to change in pricesince the change in price does not signify the sale of the commodity.Therefore, force majeure occurs when exigent circumstances affectingparties renders the parties unable to monitor the performance of thecontract.12

Forcemajeure occurs only when law proves without doubt, that either partywith obligation to the contract becomes unable to perform theircontractual duties due to changes.

  1. Hardship

Hardshipclauses are introduced to allow change or enable parties adapt tochanges in their contracts. However, &quothardship,&quot has beenincorporated in legislations such as the Landlord and Tenantregulations and Amendments. The term hardship in the above lawsadopts the meaning due to each different law. Therefore, the courtsare left to interpret what the term means and its effects. The temmay be interpreted to mean oppression to an individual if used in asecurity context or any issue that is financial, personal ordegrading while dealing with civil matters such as tenancy cases.13

Hardshipclauses may generally use three elements. Hardship clauses areapplicable only if either party has control over the situation.Secondly, the reasons must be fundamental. Thirdly, the reasons mustbe unforeseeable.

  1. Differences between the concepts

Thetwo concepts are relational to each other. Force majeure and hardshipconcepts share traits since they both cater to issues arising due tounchanged circumstances. The difference occurs where hardship iscaused by the inability of a party to perform at par with the rest ofthe parties involved.14The poor performs then becomes a burden to the rest of the partiessince the progress is slowed. However, force majeure basicallyimplies that it will be somewhat impossible to track the manner inwhich each party executes its tasks.

Theoutstanding functional contrast that exists between these concepts isclearly notable. Hardship clearly creates the need for all parties toexecute the contract while force majeure, checks the non-performanceissue whilst dealing with contract suspension or termination.15

III.The Existing Distinguishing Approaches to the Domestic Legal Systems

Municipallegal systems have changed their approach to problems and howcircumstances occur for nation to nation. The relations between theconcepts are fundamental due to the important features they share.Distinguishing between the various concepts is important in theapplication of drafting various clauses that can incorporate forcemajeure or hardships in the contracts.

Gainingknowledge concerning the law is fundamental and significantlyimportant in situations where there exists the chances that the forcemajeure or hardship clause is not a component of contract document.Despite the differences between the two clauses, the doctrines shouldbe complementary while applicable to issues arising as a result ofchanges to the contract. Therefore, determining the scope of thedoctrines is fundamental to applying the two clauses in anycontract.16


Applicationof common law is not devoid of breaching. The English traditionalcommon law attaches impossibility to performance after a contract hasbeen executed. The law states, “When a party by his own contractcreates a charge or duty upon himself, he is bound to make it good,if he may, notwithstanding any accident by inevitable necessity,because he might have provided against it by the contract”.However, the above rule only applied to positive contracts where noexcess conditions were implied. However, through the implication ofconditions, the vital doctrine of impossibility was incorporated intoEnglish law.

Thedoctrine of impossibility also bred the doctrine of frustration whereparties in a contract were liable to sue the creator of acircumstance.17

TheTraditional Theory of Force Majeure at the French Judiciary

Theoccurrence of an impossibility of performance in any given contracttermed, force majeure and issues destabilizing the contract draftedis divided by a fine line that maps out where changes occur and theresultant consequences.

Inthe France, the principle of “pacta sunt servanda” is adopted inthe French civil code and is superior to the principle of “rebussic stantibus” lack of provisions in the contract with respect tothe ever-changing situations, ensures that manner in which thecontract performs is upheld without any necessary alterations to anyof its laid down terms. In case of arbitration or settling ofindustrial disputes, an arbitrator or judge is not suppose to use theeconomic situation of parties involved or rule our equity in judgmentdue to various wordings of the clauses of the contract.

Therefore,it is prudent to note that imprévision has not been adopted, neitheris it being rejected. However, damages may not occur in the case ofdissolution due to force majeure. The traditional theory of forcemajeure in the French judiciary is then applied using Article 1148 oftheir civil code as a basis. The four facets of the article resultsin the following applications:

Whenthe event fundamentally differentiates imprévision from forcemajeure, it must be unforeseeable. The event should be external sinceno excuse for lack of performance will shift blame unto the suppliersor subcontractors. Any event involving a debtor should be preventedor avoided since it is unavoidable and beyond his control.18

Discharginga contract due to force majeure is optional to the court and notmandatory. Therefore, it is significant to note that force majeure inthe French judiciary system is based upon the code of Napoleon andthat imprévision is complimentary to the concept of hardship.

TheLibyan Civil Code

TheLibyan civil code system is influenced by a limited extent by theIslamic Shari`a law. Major and significant pieces of legislation inthe civil code are similar to those of most countries such as Egyptand other countries in the Arabian Peninsula.19

TheCivil Code clearly follows and adapts a hierarchy of legal sourcesuch as fundamentals of and legislation Islamic Shari`a law that isbased on the customs and the principles pertaining the natural law aswell as equity. The fundamental legislation includes the Civil Codeof the year 1954, Code of Civil and Commercial Procedures of the year1953, as well as the Commercial Code, that was ramended in the year2010 and covers economical matters ranging from matters of companylaw to issues or cases of insolvency. Additionally, the Ghaddafi eracreated various decrees that aided in regulation different aspects ofthe economy. However, the decrees have created barriers for foreigninvestment due to the stringent processes followed by the Libyanlegal system. Revision of the economic legislation will aid inimproving the Libyan economy.20

Thecivil and administrative codes of conduct and contract regulationhave force majeure clauses provisions for impossibility.International investors investing in Libya relied on the aboveprovisions to prevent legal barriers to operations. Amendments anddetailed contracts are drafted. However, force majeure may be invokedbased on the continuous presence and persistence of circumstances.

CasesLaw: National Oil Corporation (Libya) v. Libyan Sun Oil Company(USA), Nuova Fucinati S.p.A. v. Fondmetall Int`l A.B

Thetwo cases above try to show how hardship is depicted in Article 79.The decision made by Italian Tribunale Civile di Monza in the caseNuova Fucinati S.p.A. v. Fondmetall International A.B. the Italiandealer of metals wanted to exit from his binding contract thatencompassed a buyer from the Swedish origin based on hardship. Due toprice changes and lack of a clause to cater for extreme price changesand poor performance in a force majeure clause, the seller arguedthat the contract be terminated due to high cost of business. Thehigh cost was caused by onerous market price increments.21

Thecourt ruled in favor of the buyer and voided the contract duenon-performance although rejecting the seller’s request to dissolvethe contract. Even if Article 79 had applied, it would be due tosupervening market price barrier. The clarity between lack ofpossibility and excess onerous occurrences is fundamental for thecourt to make its decision. Adoption of Article 79 CISG was used withbasis on the Italian domestic law hence creating an impediment toperformance.

Thecase excludes hardship situations from the application of Article 79despite referring to concepts in the base law.

Inthe case of National Oil Corporation (Libya), Petitioner, v. LibyanSun Oil Company Respondent, the court has been asked to evaluate thecurrent relations between Libya and the United States of America. Thepetitioner seeks to have arbitration rule awarded in its favoragainst the respondent, Libya Sun Oil Company. The respondent wasfund oil exploration activities In Libya starting in 1981. However,prohibition of United States passports to travel to Libya led to thecalling of a force majeure by Sun Oil that NOC, rejected.

However,after lifting of the ban, Sun Oil could not commence operations dueexport regulations that it also called for force majeure. NOC wasthen forced to file for arbitration. However, the court denied SunOils’ call to have the petition dismissed and have arbitral awardto NOC.

IV.Force Majeure and Hardship Clauses

Draftingof the CISG was done in the general laid out terms to reduce excessdetail as well as any controversies that may arise with reference toArticle 79. The key focus to the relevant details of the binding isfundamental and all parties draft the contract, execute and concludeit according the themes laid down by the CISG.

  1. Force majeure clauses

1.Situations of force majeure

Introductionof force majeure and hardship clauses in international contracts thatencompassed on sales as well as the respective transactions leavesroom for situational changes. The clauses clearly define anybarriers, consequences and excuses that may arise.22

2.Notice requirement

Forcemajeure requires the parties to obligate formally. Parties wishing toexit the contract are required to give notice of their intended moveto all parties involved unless all parties have been duly notified.23Failure to notify attracts legal consequences and the force majeureand hardship clauses become inapplicable at this point. However,parties are liberty of using a express clause in the contract tonotify for lack of provision of notice within the stipulated period.

  1. Force majeure and its Respective Legal effect

Generally,a rule followed due to effects of situations based on force majeureimplies that liability for such an occurrence or delays in mattersconcerning performance or the total failure of a party to perform ordeliver as expected is not the cause of the party. Therefore, theparty is not liable for any damages whether legal or monetary or anyother that may arise as a result.24Consequently, it is prudent to note that the other individual partyto the contract may absorb full responsibility of the consequencesarising due to application of force majeure by the previous party.

Majorityof the laws at the municipal adopt the belief for force majeure.However, trade at the international level, applying the force doesnot always lead to termination of the contract rather, parties aregiven provisions. The first provision occurs through extension of thecontract or via discharge or suspension for period the force majeureis in effect. If the period leads to a permanent stalemate or theperiod expires, either party is a liberty to terminate the contract.25However, the contract may be revived if the force majeure ends beforethe period set.

Modernforce majeure clauses deviate from the traditional mode of draftingsince they provide room for renegotiation. The provisions force theparties to the contract to renegotiate for new terms and adapt to therevised contract.

&nbspAlternatively,failure to renegotiate may also force parties to arbitrate or seekredress at an industrial court to address their disputes. The broaderthe clause the easier the parties adapt to changes provided byhardship clauses.

B.Hardship clauses

1.The hypothesis

Thehardship clause contains two aspects. The first aspect is determinedby the circumstances that determine whether hardship exists. Thesecond aspect describes the resultant effects of the circumstances onthe parties taking part in the making of the contract. The clausesstate that “the circumstances at the time of the conclusion of thecontract have changed”. However, the change of the circumstancemust be fundamental to the party affected.

Thechange must be completely unforeseeable. The words used to drafthardship clauses should allow for a broad reference and meanings todiffering contexts and events.

2.Effect of a hardship clause

Hardshipclauses aid in revising the contract. For instance, &quotto restorebalance between parties as it was to be at the time of concluding thecontract, fairness and equitable distribution is to be observed. Toachieve the effect, sanctions issued by an arbitrator or open courtare essential.

C.Conclusion as to force majeure and hardship clauses

Thescope of applying force majeure and hardship clauses varies with theapplication and their legal consequences. Recent practices ininternational trade have evolved to incorporate both clauses andreduce the differences.26

V.The Use of Standard Forms of Contract

Internationaltrade uses a standardized form of contracts. Provisions due toconsequences arising as a result of barriers to performance areimportant.27The provisions validity depends on the parties’ ability to concludethe contract successfully. For instance, reference is constantly madeto the standards for contracts of the United Nations EconomicCommission for Europe (ECE). Reference is made by European parties orEuropean exporter for purpose of export trade.28

VI.Recommendation as to Force Majeure and Hardship Clauses

Internationalcommercial contracts should have provisions for change of contractscircumstances. The recommendation for provision is due to the UnitedNations CISG.

Itis recommended to obtain uniformity, efficiency and simplicity, theone clause should address issues arising due to contractual change.The scope of a force majeure clause may be widened as far as limitsof the contract permit.


Thecontract concepts of force majeure and hardship include theprinciples of &quotpacta sunt servanda.&quot The concepts occurringat the end of the contract change drastically. Involved parties withprior knowledge to the change would not make the contract. Hardshipsituation occurs when the disadvantaged party presents themselves asa burden to the whole process. However, force majeure makes itimpossible for either concerned parties to perform. Force majeuremain goal is to settle issues due to non-performance. This is donethrough contract suspension or by termination. However, the conceptof hardship aims at aiding the parties to adapt to the changes in thecontract.

Internationaland structurally complicated contracts exist over a significantperiod. The contracts are uncertain since they are affected bypolitical and economic variables. Additionally, trading transactionsthat take place at the global scale are always prone to a higher orgreater element of unpredictability as a result of the fact that theyare subject to contract which exceeds the geographical boundaries ofa single country. In addition, this contract is prone to last for avery long period of time, or at least extend for a substantiveperiod. In this light, the parties will restrict by the influencesemanating from the political and economic arenas in foreigncountries. As a result, the core problem and difficulties that boundthese types of contracts is simply that the grounds or basis underwhich they were sealed are prone to change or alterations. In thislight, the manner in which they perform may become more tasking orstraing for one or more of the parties involved, which will lead themto the force majeure and hardship clause. It is also important tonote that the hardship clause contains two aspects. The first aspectis determined by the circumstances that determine whether hardshipexists. The second aspect describes the resultant effects of thecircumstances on the parties taking part in the making of thecontract. The clauses state that “the circumstances at the time ofthe conclusion of the contract have changed”. However, the changeof the circumstance must be fundamental to the party affected.

Wehavec also noted that Hardship clauses may generally use threeelements. Hardship clauses are applicable only if either party hascontrol over the situation. Secondly, the reasons must befundamental. Thirdly, the reasons must be unforeseeable.

TheCISG addresses uncertainty in Article 79 to create uniformity andsolve the issue posed by changed circumstances at the internationallevel. However, the articles’ vagueness means that it is notpossible to determine the certainty of the article based on CISG.During arbitration, the judge is impartial and does not adopt eitherclause to ensure parties receive fair judgment.

Therefore,international commercial contracts have provision for the insertionof force majeure and hardship clauses. Application of UNIDROITPrinciples may sufficiently explain the widely accepted rules onhardship and force majeure. Due to the need for uniformity, partiesdrafting personal clauses of force majeure and hardship are requiredto use one clause catering for issues arising due to changedcircumstances.


Anon,1989. UnitedNations Convention on Contracts for the International Sale of Goods,New York: United Nations.

Anon,Article 717 (Force majeure) – Unidroit – International Institute forthe Unification of Private Law – Institut International pourl`Unification du droit privè. Article7.1.7 (Force Majeure) – Unidroit – International Institute For TheUnification Of Private Law – Institut International PourL`Unification Du Droit Privè. Availablefrom:[Accessed October 6, 2014].

Anon,Google Scholar.Google Scholar.Available from: Corporation (Libya) v. Libyan Sun Oil Company(usa)&amphl=en&ampas_sdt=6,44 [Accessed October 6, 2014].

Anon,Lexis Advance®.Lexis Advance&ampreg.Available from:[Accessed October 6, 2014].

Cordero-Moss,G., 2011. Boilerplateclauses, international commercial contracts and the applicable law,Cambridge: Cambridge University Press.

Debattista,C., 2003. ICCforce majeure clause 2003 ICC hardship clause 2003,Paris, France: ICC Pub.

McKendrick,E., 1991. Forcemajeure and frustration of contract,London: Lloyd`s of London Press.

1 Anon, 1989. United Nations Convention on Contracts for the International Sale of Goods, New York: United Nations.

2 Ibid

3 Anon, Article 717 (Force majeure) – Unidroit – International Institute for the Unification of Private Law – Institut International pour l`Unification du droit privè. Article 7.1.7 (Force Majeure) – Unidroit – International Institute For The Unification Of Private Law – Institut International Pour L`Unification Du Droit Privè. Available from: [Accessed October 6, 2014].

4 Ibid

5 Anon, Lexis Advance®. Lexis Advance&ampreg. Available from: [Accessed October 6, 2014].

6 Anon, Lexis Advance®. Lexis Advance&ampreg. Available from: [Accessed October 6, 2014].

7 McKendrick, E., 1991. Force majeure and frustration of contract, London: Lloyd`s of London Press.

8 Ibid

9 Ibid

10 Cordero-Moss, G., 2011. Boilerplate clauses, international commercial contracts and the applicable law, Cambridge: Cambridge University Press.

11 Ibid

12 Debattista, C., 2003. ICC force majeure clause 2003 ICC hardship clause 2003, Paris, France: ICC Pub.

13 Debattista, C., 2003. ICC force majeure clause 2003 ICC hardship clause 2003, Paris, France: ICC Pub.

14 Ibid

15 Ibid

16 Cordero-Moss, G., 2011. Boilerplate clauses, international commercial contracts and the applicable law, Cambridge: Cambridge University Press.

17 Ibid

18 Anon, Lexis Advance®. Lexis Advance&ampreg. Available from: [Accessed October 6, 2014].

19 Ibid

20 Ibid

21 McKendrick, E., 1991. Force majeure and frustration of contract, London: Lloyd`s of London Press.

22 McKendrick, E., 1991. Force majeure and frustration of contract, London: Lloyd`s of London Press.

23 Ibid

24 Anon, Lexis Advance®. Lexis Advance&ampreg. Available from: [Accessed October 6, 2014].

25 McKendrick, E., 1991. Force majeure and frustration of contract, London: Lloyd`s of London Press.

26 McKendrick, E., 1991. Force majeure and frustration of contract, London: Lloyd`s of London Press.

27 Cordero-Moss, G., 2011. Boilerplate clauses, international commercial contracts and the applicable law, Cambridge: Cambridge University Press.

28 McKendrick, E., 1991. Force majeure and frustration of contract, London: Lloyd`s of London Press.