1. Hardship in national legal systems within OHADAC

Rules on hardship are aimed at regulating the impact on the contract's performance of events not contemplated by the parties that justify rescission by force majeure when performance is not impossible but places an excessive burden on one party. The aim therefore is to guarantee the equilibrium of the contract or to share between the parties the economic risk derived from an event unforeseen and beyond their control but without preventing the performance, which will continue to be of interest to the parties.

The legal regime of hardship is particularly necessary in long-term international contracts or contracts that may be exposed to change in circumstances that can unbalance the contract obligations (building, farming and mines, transportation, supply, leasing, rental, etc.). It is also relevant in instant contracts where benefits, even pecuniary, are delayed with respect to the time of conclusion of the contract.

Many domestic OHADAC legal systems do not recognise that any change of circumstances has legal effects, so that the party affected by the supervening unforeseen event must perform the contract at the risk of being in breach of contract. This is the characteristic approach in OHADAC countries under French legal tradition as well as under common law tradition or under the influence of USA law, which is why the parties in such legal systems must provide for a detailed contractual regulation of hardship.

In legal systems based on French law, in accordance with the prevailing case law in France, the “théorie de l'imprévision” is only applicable to public contracts or public interest contracts, such as the supply of gas or electricity, although there is an approach towards a general duty by the parties of renegotiating in good faith (decisions of the Cour de Cassation of 3 November 1992, 24 November 1998, 13 March 2004 and 29 June 2010). In common law countries, effects of hardship must be considered in specific clauses.

The approach is different in Spanish-speaking legal systems, which have established a specific legal treatment of hardship. Among these, some state that the termination of contract is the only effect of hardship, a line followed by these Principles. That is the sense of Article 80 of the Cuban Civil Code. On the contrary, Article 1.330 of the Guatemalan Civil Code determines only the possibility of judicial review of the contract. Article 868 of the Colombian Civil Code represents a mixed approach, where the first option is the adaptation of the contract by the judge and, failing that, the termination of contract. In the opposite sense, Article 1.161-A of the Panamanian Civil Code, clearly inspired by Italian Civil Code, establishes as the first option the right of termination, although the obligee can argue an equitable adaptation. Other legal systems do not have special rules on hardship, although case law often uses general principles such as the rebus sic stantibus principle, in order to find substantive solutions for each cases, which are particularly suited to the adaptation of contracts exposed to money fluctuations. Therefore, the comparative analysis in these countries eventually leads to a great diversity and clearly results legal uncertainty.

Legal systems based on Dutch law also have an express rule derived from Article 6:258 (6.5.3.1) of the Dutch and Suriname Civil Code, which enables judges to opt for the adaptation or the rescission of the contract.

The relevance of a legal hardship regime has been underlined even in legal systems that recognise its effects only through contractual clauses. The issue has been addressed in the successive projects to reform the French Civil Code. Lastly, Article 104 of the Proposals for the Reform of the French law on obligations of 2013 envisages the possibility of an adaptation of the contract by agreement of the parties and, failing this, the rescission of the contract. Likewise, all international texts on contract law harmonisation contain a specific hardship regime.

2. Hardship in international texts on contract law harmonisation

There are doubts as to whether Article 79 CISG is applicable to hardship cases over and above the usual assumptions of impossibility (force majeure). It must be stressed that CISG has been ratified by some countries such as the Netherlands, Colombia, Honduras and Mexico, but also by countries whose domestic legal systems do not recognise the legal treatment of hardship (USA, France, Saint-Vincent and the Grenadines and Guyana). Several OHADAC territories are thus concerned CISG. In any case, the legal uncertainty about the interpretation of this article and its limited efficacy in the OHADAC sphere are additional arguments in favour of the incorporation of a specific treatment in the OHADAC Principles.

Articles 6.2.1 to 6.2.3 UP include a regulation of hardship applicable when the Unidroit Principles are applicable. Article 6.2.2 UP allows considering events occurred or simply known after the time of conclusion of the contract. On the one hand, Article 6.2.3 UP states that the aggrieved party must firstly claim for renegotiation and cannot withdraw the performance of its obligation during renegotiation. This rule can be excessively costly depending on the nature of the contract. Moreover, if negotiations are not successful, the parties can sue before the courts, which can opt for termination or adaptation of the contract. Obviously, many contracting parties are not interested in courts rewriting their contracts, particularly if they are familiar with Anglo-American legal culture.

PECL Article 6:111 provides in for a change of circumstances. Unlike UP, the PECL only recognise hardship related to events subsequent to the conclusion of the contract. However, the solution is rather similar and suggests the same reservations: the contract parties must renegotiate in good faith at the risk of being condemned to pay damages, but if they do not reach an agreement, the judge will decide to rescind or adapt the contract. Aside from a few differences, the rule set out in Article III.-1:110 DCFR is similar.

3. Hardship rules proposed in the OHADAC Principles

The rules proposed in the OHADAC Principles obey the common core or approach in the countries of the OHADAC sphere. As in the Unidroit Principles, it has been considered more convenient to establish the conditions for hardship admissibility on the ground of unforeseen events in the time of the conclusion of the contract regardless of their subsequent or unknown character, as far as they imply risk not assumed by the parties. The content and the comment to Article 7.1.8 on impossibility must be taken into account to interpret the rules on hardship.

Hardship provide parties with the right to terminate the contract after accomplishing some requirements related to the proof and notification of the unforeseen event and the adoption of any measure to minimise its consequences, whose omission can imply responsibility for damages caused to the other party. Termination of contract will imply the return of and, if needed, the compensation for benefits already obtained by one party.

Unlike other regulations (Panamanian Civil Code, UP, PECL and DCFR) the obligation to renegotiate before termination is not expressly provided. It is considered that such a renegotiation will take place if the parties are interested in preserving the contract. Otherwise, it is not advisable to impose a duty to renegotiate which does not exist in common law systems and gives rise to doubts about the consequences of passivity or bad faith during renegotiations and the responsibilities derived therefrom. Moreover, the statement of a generic obligation to renegotiate implies legal uncertainty related to the temporal and material scope of such an obligation. That is why it seems more convenient to grant parties the freedom to choose the regime on the contract's renegotiation and otherwise to guarantee legal certainty though the unconditional right to termination.

Likewise, it is considered inappropriate to follow the line of some national systems (Dutch and Suriname, Guatemalan, Colombian and Panamanian Civil Code) and of most of international texts in order to enable judges to adapt the contract, as an alternative to termination, regardless of the parties' will. This legal power is a source of uncertainty in international trade and it is radically contrary to the common law tradition. The OHADAC Principles try to offer a legal regime valid and admissible in all OHADAC countries, which does not prevent an adaptation by a third. As in relation with the possibility of adaptation through renegotiation, it is considered that adaptation by judges or arbitrators cannot be imposed by law but only by virtue of parties' will in accordance with the terms expressly agreed in the contract.

Having regard to all these reasons the regulation of hardship in the OHADAC Principles, respecting the rule of the common minimum denominator and the common legal tradition in all OHADAC countries, must be carefully considered by the parties, as well as the possibility of modifying such a legal regime through complementary contractual terms.

SPECIFIC HARDSHIP CLAUSES

Even when parties have submitted their contract to the OHADAC Principles on International Commercial Contracts and, failing that, to a domestic law, both the Principles and domestic laws recognise the priority of contractual terms in regulating cases oh hardship. In international trade, there are well-known standardised hardship clauses, such as the ICC Hardship Clause 2003. The International Chamber of Commerce has drafted this model clause that can be incorporated into contract by reference. However, its wording is much more modest than the regulation proposed in the OHADAC Principles themselves.

This clause is clearly inspired by international texts such as the UNIDROIT Principles and PECL. However, it can be criticised in some points, because given the object of the contract or the interests at stake, parties may prefer to establish the right to terminate the contract instead of the option consisting in the obligation to renegotiate first, which may be undesirable depending on contracts involved. Moreover, when termination is considered as the main or only option or it is a subsidiary option at any event, the terms of the right to termination, the effects on restitution or the payment of benefits must be determined in the same manner as for cases of force majeure. However, the ICC hardship clause does not take such circumstances into consideration.

OHADAC therefore advises against completing the OHADAC Principles using the ICC hardship clause. To drafting a clause that complements the OHADAC Principles, parties must balance the additional utility of these clauses insofar as they contribute to correct or determine the proposed regulation in different ways.

1. Determination of the events causing hardship

The hardship rules of the OHADAC Principles may create some interpretative difficulties, particularly when the case is brought before an Anglo-American court or when the contract is governed alternatively by English law. In common law trade practice, the general requirement of precision in contracts advises the parties to include a hardship clause, even by including the exact wording of parts of the article of the OHADAC Principles. In this clause, the events causing hardship may be defined precisely. The first two paragraphs could therefore be written as follows:

Clause A: Termination option

“1. A party to this contract is bound to perform its contractual duties even if events have rendered performance more onerous than could reasonably have been anticipated at the time of the conclusion of the contract.

2. Notwithstanding paragraph 1 of this Clause, either party is entitled to terminate the contract if it proves that:

1. the performance of its contractual duties has become excessively onerous due to an event beyond its reasonable control which it could not reasonably have been expected to have taken into account at the time of the conclusion of the contract, such as but not limited to:
   1. war (whether declared or not), armed conflict or the serious threat of same (including but not limited to hostile attack, blockade, military embargo, hostilities, invasion, act of a foreign enemy, extensive military mobilisation;
   2. civil war, riot rebellion and revolution, military or usurped power, insurrection, civil commotion or disorder, mob violence, act of civil disobedience;
   3. act of terrorism, sabotage or piracy;
   4. act of authority whether lawful or unlawful, compliance with any law or governmental order, rule, regulation or direction, regulation or direction, curfew restriction, expropriation, compulsory acquisition, seizure of works, requisition, nationalisation;
   5. act of God, plague, epidemic, natural disaster such as violent storm, cyclone, typhoon, hurricane, tornado, blizzard, earthquake, volcanic activity, landslide, tidal wave, tsunami, flood, damage or destruction by lightning, drought;
   6. explosion, fire, destruction of machines, equipment, factories and of any kind of installation, prolonged break-down of transport, telecommunication or electric current;
   7. general labour disturbance such as boycott, strike and lock-out, go-slow, occupation of factories or premises;
   y que
2. it could not reasonably have avoided or overcome the event or its consequences;
   and that
3. it did not assume the risk of such events.

3. The party alleging any event rendering performance excessively onerous shall notify the other party in writing without delay, together with sufficient evidence of such event certified by a relevant body, and it is under an obligation to take all reasonable means to limit the effect of the event invoked upon performance of its contractual duties.

4. Where either contracting party has, by reason of anything done by another contracting party in the performance of the contract, derived a benefit before the termination of the contract, the party deriving such a benefit shall be under a duty to pay the other party a sum of money equivalent to the value of such benefit.”

2. Regulation of the renegotiation process

The rules of the OHADAC Principles do not provide for an obligation to renegotiate the contract. The parties have therefore the right to terminate the contract in accordance with the conditions stated in these Principles, which require that the obligor provides notice and sufficient proof of the event causing hardship. The other party may however disagree on the accomplishment of the conditions required to terminate the contract or on the effects of termination on compensation for benefits, and in this case, may claim the performance or the payment of damages.

As mentioned above, the Principles have not established an obligation to renegotiate, considering it rather restrictive and vague. Moreover, it is difficult to establish a generic legal regime for a possible renegotiation which is not always feasible depending on the type of contract. The contract term period and process may be tricky issues depending on the purpose and nature of the contract, and could lead to legal uncertainty and risks of abuse. Furthermore, establishing a satisfactory regime of responsibility for a party impeding renegotiations or renegotiating in bad faith does not also seem possible. Therefore, where the parties' interests and the contract recommend this, the OHADAC Principles have preferred to leave to the parties the option of choosing a regime of renegotiation between the parties. To this end, they can complete the submission to the Principles with a specific clause.

In practice, parties are advised to establish mediation clauses through mechanisms of ADR implemented by or subject to OHADAC Arbitration and Conciliation Rules to bring the negotiations to a successful conclusion. It is also advisable to set a maximum period for renegotiation and to specify whether performance is delayed for one or both parties during this period, depending on the nature of the contract. To this intent, parties will consider the inclusion in the contract of a clause as follows:

Clause B: Option for renegotiation and mediation

“1. A party to this contract is bound to perform its contractual duties even if events have rendered performance more onerous than could reasonably have been anticipated at the time of the conclusion of the contract.

2. Notwithstanding paragraph 1 of this Clause, where a party to a contract proves that:

1. the performance of its contractual duties has become excessively onerous due to an event beyond its reasonable control which it could not reasonably have been expected to have taken into account at the time of the conclusion of the contract, such as but not limited to:
   1. war (whether declared or not), armed conflict or the serious threat of same (including but not limited to hostile attack, blockade, military embargo, hostilities, invasion, act of a foreign enemy, extensive military mobilisation;
   2. civil war, riot rebellion and revolution, military or usurped power, insurrection, civil commotion or disorder, mob violence, act of civil disobedience;
   3. act of terrorism, sabotage or piracy;
   4. act of authority whether lawful or unlawful, compliance with any law or governmental order, rule, regulation or direction, regulation or direction, curfew restriction, expropriation, compulsory acquisition, seizure of works, requisition, nationalisation;
   5. act of God, plague, epidemic, natural disaster such as violent storm, cyclone, typhoon, hurricane, tornado, blizzard, earthquake, volcanic activity, landslide, tidal wave, tsunami, flood, damage or destruction by lightning, drought;
   6. explosion, fire, destruction of machines, equipment, factories and of any kind of installation, prolonged break-down of transport, telecommunication or electric current;
   7. general labour disturbance such as boycott, strike and lock-out, go-slow, occupation of factories or premises;
   y que
2. it could not reasonably have avoided or overcome the event or its consequences;
   and that
3. it did not assume the risk of such events;
   the parties are bound, within a period of (days/months) to negotiate alternative contractual terms which reasonably allow for the consequences of the event. During this period the performance of the respective obligations will (not) be deferred. (Parties will submit the renegotiation to mediation according to the OHADAC Mediation and Conciliation Rules).

3. Where alternative contractual terms which reasonably allow for the consequences of the event are not agreed by the parties within the established period, either party is entitled to terminate the contract by the way of notification to the other party.

4. The party alleging any event rendering performance excessively onerous shall notify the other party in writing without delay, together with sufficient evidence of such event certified by a relevant body, and it is under an obligation to take all reasonable means to limit the effect of the event invoked upon performance of its contractual duties.

5. Where either contracting party has, by reason of anything done by another contracting party in the performance of the contract, derived a benefit before the termination of the contract, the party deriving such a benefit shall be under a duty to pay the other party a sum of money equivalent to the value of such benefit”.

3. Regulation of adaptation by a third party

The submission of adaptation of contract to a third party is an option that can be alternative or cumulative with the renegotiation of the contract. In the first case, it has the advantage of being more rapid, leaving the decision to equitably adapt or terminate the contract to a neutral expert. To this end, it is also advisable to use the services of an arbitrator or expert, who is competent to determine the existence of a hardship event, to adapt the contract terms if needed, or failing this, to decide on the termination of contract, if in the case of termination, to determine any relevant set-offs. The proposed clause could be drafted as follows:

Clause C: Option for adaptation by a third party

“1. A party to this contract is bound to perform its contractual duties even if events have rendered performance more onerous than could reasonably have been anticipated at the time of the conclusion of the contract.

2. Notwithstanding paragraph 1 of this Clause, where a party to a contract proves that:

1. the performance of its contractual duties has become excessively onerous due to an event beyond its reasonable control which it could not reasonably have been expected to have taken into account at the time of the conclusion of the contract, such as those mentioned below as well as all events of similar nature:
   1. war (whether declared or not), armed conflict or the serious threat of same (including but not limited to hostile attack, blockade, military embargo, hostilities, invasion, act of a foreign enemy, extensive military mobilisation;
   2. civil war, riot rebellion and revolution, military or usurped power, insurrection, civil commotion or disorder, mob violence, act of civil disobedience;
   3. act of terrorism, sabotage or piracy;
   4. act of authority whether lawful or unlawful, compliance with any law or governmental order, rule, regulation or direction, regulation or direction, curfew restriction, expropriation, compulsory acquisition, seizure of works, requisition, nationalisation;
   5. disaster, invasion, epidemic, natural disaster such as violent storm, cyclone, typhoon, hurricane, tornado, blizzard, earthquake, volcanic activity, landslide, tidal wave, tsunami, flood, damage or destruction by lightning, drought;
   6. explosion, fire, destruction of machines, equipment, factories and of any kind of installation, prolonged break-down of transport, telecommunication or electric current;
   7. general labour disturbance such as boycott, strike and lock-out, go-slow, occupation of factories or premises;
   y que
2. it could not reasonably have avoided or overcome the event or its consequences;
   and that
3. it did not assume the risk of such events;
   the parties will submit the adaptation of the contract to the decision of a unique arbitrator according to the OHADAC Arbitration Rules.

3. The arbitrator will be empowered by the parties to determine the effective existence of events causing hardship under the conditions established in paragraph 2 of this clause. The arbitrator will decide to adapt the contract terms, taking into account the nature and contents of the contract and according to equity principles. If the arbitrator considers the adaptation as impossible or inadequate, he may decide on the termination of contract. If either contracting party has derived a benefit before the termination of the contract, by reason of anything done by another contracting party in the performance of the contract, the arbitrator will fix a due compensation for the other party, equivalent to the value of such benefit.

4. The party invoking the hardship event shall notify the other party in writing without delay, together with sufficient evidence of such event certified by a relevant body, and it is under an obligation to take all reasonable means to limit the effect of the event invoked upon performance of its contractual duties.”

The adaptation of the contract by a third person is compatible with the possibility for parties to first try to renegotiate the contract. Calling on a third person therefore aims at maximising the chances of preserving the contract, but certainly with the inconvenience of delay. If, in the light of contract's circumstances, the parties consider that this regime is relevant, it is advisable to have a combination of clauses B and C is advisable, according to the following model clause:

Clause D: Option for renegotiation and adaptation by a third party

“1. A party to this contract is bound to perform its contractual duties even if events have rendered performance more onerous than could reasonably have been anticipated at the time of the conclusion of the contract.

2. Notwithstanding paragraph 1 of this Clause, where a party to a contract proves that:

1. the performance of its contractual duties has become excessively onerous due to an event beyond its reasonable control which it could not reasonably have been expected to have taken into account at the time of the conclusion of the contract, such as but not limited to:
   1. war (whether declared or not), armed conflict or the serious threat of same (including but not limited to hostile attack, blockade, military embargo, hostilities, invasion, act of a foreign enemy, extensive military mobilisation;
   2. civil war, riot rebellion and revolution, military or usurped power, insurrection, civil commotion or disorder, mob violence, act of civil disobedience;
   3. act of terrorism, sabotage or piracy;
   4. act of authority whether lawful or unlawful, compliance with any law or governmental order, rule, regulation or direction, regulation or direction, curfew restriction, expropriation, compulsory acquisition, seizure of works, requisition, nationalisation;
   5. disaster, invasion, epidemic, natural disaster such as violent storm, cyclone, typhoon, hurricane, tornado, blizzard, earthquake, volcanic activity, landslide, tidal wave, tsunami, flood, damage or destruction by lightning, drought;
   6. explosion, fire, destruction of machines, equipment, factories and of any kind of installation, prolonged break-down of transport, telecommunication or electric current;
   7. general labour disturbance such as boycott, strike and lock-out, go-slow, occupation of factories or premises;
   y que
2. it could not reasonably have avoided or overcome the event or its consequences;
   and that
3. it did not assume the risk of such events;
   the parties are bound, within a period of (days/months) to negotiate alternative contractual terms which reasonably allow for the consequences of the event. During this period the performance of the respective obligations will (not) be deferred. (Parties will submit the renegotiation to mediation according to the OHADAC Mediation and Conciliation Rules).

3. If parties do not reach an agreement during the period fixed to renegotiation, they agree to submit the adaptation of the contract to the decision of a unique arbitrator according to the OHADAC Arbitration Rules.

4. The arbitrator will have the power attributed by the parties to determine the effective existence of events causing hardship under the conditions established in paragraph 2 of this clause. The arbitrator will decide the adaptation of the contract terms having regard to the nature and contents of the contract and according to equity principles. If the arbitrator considers the adaptation as impossible or inadequate, he will be able to state the termination of contract. Where either contracting party has, by reason of anything done by another contracting party in the performance of the contract, derived a benefit before the termination of the contract, the arbitrator will fix a due compensation for the other party, equivalent to the value of such benefit.

5. The party alleging any event rendering performance excessively onerous shall notify the other party in writing without delay, together with sufficient evidence of such event certified by a relevant body, and it is under an obligation to take all reasonable means to limit the effect of the event invoked upon performance of its contractual duties.”

The doctrine of frustration of purpose, cause or finality of contracts finds its roots in Anglo-American law. This approach developed in England from the “Coronation cases” of the early 20th century. US law expressly provides for this in Section 265 of the Second Restatement. Case-law in common law Caribbean countries reflects this English doctrine [e.g. Supreme Court of Jamaica (2010) in Clacken v Causwell: Carilaw M 2010 SC 101; Court of Appeal of Bermuda (1981) in Benevides v Minister of Public Works and Agriculture: Carilaw BM 1981 CA 22). As in cases of hardship or force majeure, frustration of contract occurs when circumstances external to and unforeseen by the parties frustrate the interests and legitimate expectations of the parties, depriving the contract of sense and cause for one of the parties. In the cases related to the coronation of Edward VII, frustration came from the king's illness, which frustrated the objective of balcony renting from which one party intended to enjoy the foreseen procession. Frustration alters the negotiating bases of the contract and deprives it of any value and purpose from the point of view of one party.

Given that frustration of contract purpose does not entail a material impossibility of performance, as in hardship cases, in legal systems inspired by French law no effect is recognised due to frustration. However, there is a clear trend toward its incorporation in civil law systems, where case law has recourse to the “rebus sic stantibus” principle or to the German doctrine of Wegfall der Gaschäftsgrundlage. Thus is stated in § 313 German Civil Code (BGB), after the reform made in 2002, in Article 1.213 of the Proposals for the Reform of the Spanish Civil Code and it is also possible under Article 104 of the Proposals for the Reform of the French law on obligations of 2013. Moreover, frustration of purpose actually implies, as hardship, the loss of economic expectations for one of the parties that is an unexpected and extreme cost; that is why to some extent it can be considered as a hardship case that will result in the termination of the contract.

It is absolutely essential that the aim of purpose of the contract has been assumed and shared by all parties in order to consider the contract's purpose as frustrated. In the coronation cases it was obvious that landlords knew or reasonably had to know that the aim of balcony renting, and at otherwise high prices, was to attend the ceremonial procession on the occasion of the king's coronation. But in other cases one party cannot invoke the termination of contract by frustration of purpose when such purpose or aim is not known or does not have to be known by the other party.

Example: An arms manufacturer buys a consignment of commodities (steel and nickel) in order to produce weapon components destined to the government of a country in the Persian Gulf. A few days later, exportations of such materials to the destination country are forbidden by virtue of a blockade imposed by the United Nations. The manufacturer intends to invoke against the supplier frustration and termination of the contract. The supplier did not know and did not have to know the final destination of the products transformed by the manufacturer from the supplied commodities; therefore, frustration of contract's purpose cannot be argued.