This page uses so called "cookies" to improve its service (i.e. "tracking"). Learn more and opt out of tracking
I agree
transnational law transnational law (lex mercatoria or international business law) and "Hardship: Legal consequences" 2016-03-01 13:58:16

No. VIII.2 - Hardship: Legal consequences

(a) In case of the occurence of an event as defined in Principle VIII.1, the disadvantaged party may claim from the other party renegotiation of the contract with a view to reaching agreement on alternative contractual terms which reasonably allow both parties the continuation of the contract. 

(b) If the parties fail to reach agreement on these alternative terms within reasonable time, either party may apply to a court or arbitral tribunal in order to have the contract


adapted to the changed circumstances (provided the applicable procedural law gives the court or arbitral tribunal the authority to decide on such adaptation) with a view to restoring the initial equilibrium of the contract or, if such restauration is not feasible, to distributing the losses caused by the hardship event equally between the parties, or


terminated at a date and on terms to be determined by the court or arbitral tribunal.

1 See for the guidelines which must be observed by parties in a contractual renegotiation process Trans-Lex Commentary to Principle IV.6.7, Para 3.

2 If an arbitral tribunal is called upon to adapt the contract under Subsection (b) i), the question arises whether in these cases a "dispute" or "legal dispute" exists as a prerequisite for arbitral decision making. The reason for this is to be found in the special nature of the renegotiation process. Because the possible negotiation outcome is so open, a difference of opinion between the parties as to the way to adjust the contract is not suited to classical arbitral adjudication in the sense of a clear "yes or no" decision of a legal disoute. Rather an agreement between the parties on changing individual contractual obligations or adapting them to the changed economic conditions should be replaced by a ruling by the arbitral tribunal. With regard to the openness of the possible decision, however, the arbitrators are no longer being called upon to make a legal decision but rather, to shape the contractual relationship for the parties. This is a commercial, rather than a legal decision.

3 A multitude of modern developments supports the assumption of a more extensive jurisdiction for arbitral tribunals, including the authorization to adjust and adapt contracts. Factors in support of this view are the significantly greater arbitration-friendliness of national arbitration acts in recent years combined with increasingly equal treatment of adjudication by arbitral tribunals and by national courts, and the comprehensive recognition of party-autonomy as the leading maxim of arbitration. Even under English law, which has traditionally rejected every interference with the contract by the arbitral tribunal, arbitrators today are authorized to undertake such legal creativity to quite a broad extent. Apart from the extremely arbitration-friendly attitude of the English Arbitration Act 1996, this flows above all from the broad term "dispute", which forms the basis of the English arbitration law. As well as genuine legal disputes ("disputes") it includes mere differences of opinion ("differences") and hence permits the express transfer of the completion and adjustment jurisdiction to an arbitral tribunal. Even without an express transfer of jurisdiction under English law, in the case of contracts where performance has already begun a so-called "implied term" can be assumed, according to which the contract should be amended by a subsequent agreement. Consequently, in most cases, the arbitral tribunal will be procedurally authorized to adapt the contract if the parties have included a hardship clause in the contract. This procedural authorization is governed by the arbitration law at the seat of the arbitration ("lex arbitri"). It must be distinguished from the substantive legitimacy of the contract adaptation which follows from the principles of substantive law applicable to the contract.

Please cite as: "Commentary to Trans-Lex Principle , "
International Legislation
Model Laws
National Legislation
Contract Clauses
1. Adaptation Provided by the Contract Itself
Employment Contract
Suspension Period Following Harship Distribution

A participant who receives a distribution of elective deferrals after {Date/Year}, on account of hardship shall be prohibited from making elective deferrals and employee contributions under this and all other plans of the employer for {X} months after receipt of the distribution. A participant who receives a distribution of elective deferrals in calendar year {X} on account of hardship shall be prohibited from making elective deferrals and employee contributions under this and all other plans of the employer for the period specified (...)

Sales & Purchase Contract
Increased Costs

(...) the Seller shall promptly pay to the Administrator, for the account of such Affected Person from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person for both increased costs and maintenance of bargained for yield in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments (...)

Joint Venture
Gross Asset Value

Upon the occurrence of any event specified in Regulations Section X, the Members, by unanimous approval, may cause the Capital Accounts of the Members to be adjusted to reflect the Gross Asset Value of the Company's assets at such time in accordance with such Regulation if the Members, by unanimous approval, determines that the Gross Asset Value of the Company's assets has materially appreciated or depreciated in such an amount so as to render such adjustment necessary to preserve the economic arrangement of the Members.

A project of CENTRAL, University of Cologne.