The Role of Hardship Clauses in Controlling Liability by Contract

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The Role of Hardship Clauses in Controlling Liability by Contract

Introduction

The fundamental principle of the law of contract is that the parties

to a contract must carry out their contractual obligations. The

principle of hardship operates as a modification of the principle of

pacta sunt servanda; it gives relief to a party where performance of a

contractual obligation due to change of circumstances becomes

extremely onerous. This essay will discuss the role of hardship

clauses in controlling liability by contract. The first part briefly

states the key elements of hardship clauses. The second part considers

the role of hardship clauses in controlling liability from a

theoretical perspective whilst the third part undertakes an analysis

of the elements of hardship clauses with a view to finding out when

such clauses can be used to limit liability under a contract. The

fourth part discusses the obligation to renegotiate, and some

sanctions for failure to successfully renegotiate a solution in the

changed circumstances.

1. Contents of Hardship Clauses

Hardship clauses are usually incorporated in long-term construction

contracts, infrastructure projects, joint ventures, management and

marketing agreements and other contracts requiring regular performance

of services or delivery of goods from a particular source of supply.

Though the details of hardship clauses in each contracts vary, the

essential elements of any such clause is that the occurrence of

certain events has fundamentally altered the equilibrium of the

contract, and that the events are entirely uncontemplated and

unforeseeable, and are beyond the control of the ...

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...[11] D. Tallon, Exemptions, in Commentary on the Intl Sales Law572

(C.M. Bianca & M.J. Bonell eds., 1987) at 580.

[12] Ibid at 611.

[13]D P. Flambouras, The Doctrine of Impossibility of Performance and

Clausula Rebus Sic Statibus, 13 Pace Int'l L. Rev. 261 at 272.

[14] P.J.M. Declercq, Modern Analysis of the Legal effect of Force

Majeure Clauses in Situations of Commercial Impracticability, 15 J.L.

& Com. 213 at 221.

[15] Ibid.

[16] Wolfgang Peter, Arbitration and Renegotiation of International

Investment Agreements 322 (1995) at 244.

[17] Kuwait v. Am. Indep. Oil Co., Final Award, Mar. 24, 1982, 21

I.L.M. 976, 1014 (1982).

[18] Supra note 3 at 208.

[19] Ibid.

[20] ICC Award No. 2478, 1978 Y.B. Com. Arb. 222.

[21] Supra note 17 at 250.

[22] Supra note 3 at 209.

[23] Ibid.

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