Any event of legal, economic, technical, political or financial nature
i)
which occurs or becomes known to the disadvantaged party after the conclusion of the contract,
ii)
which could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract and
iii)
which fundamentally alters the equilibrium of the contractual obligations, thereby rendering the performance of the contract excessively onerous for that party provided that party has not, through express stipulation or by the nature of the contract, assumed the risk of that event
constitutes hardship ("Wegfall der Geschäftsgrundlage", "clausula rebus sic stantibus", "frustration of purpose").
1 The principle constitutes an exception to the fundamental principle of sanctity of contracts ("pacta sunt servanda"). In spite its pivotal importance, that principle of sanctity of contracts is not without exceptions. However, since the principle of sanctity of contracts is the rule, the hardship defence is available only in exceptional circumstances. It is for this reason that subsection iii) requires a "fundamental" alteration of the economic equilibrium of the parties' contractual obligations. Such a fundamental, i.e. truly exorbitant alteration may result from an increase of the costs of performance of the party invoking the hardship defence or from a decrease in value of the performance to be rendered by the other party.
2 This hierarchy also follows from the principle of the presumption of professional competence. In international contracts, which are usually comprehensive, detailed and all-embracing contractual frameworks, there is a presumption that absent an adaption clause in the contract, the principle of sanctity of contracts prevails since it cannot be assumed that the parties were unaware of possible risks related to a change in the value of the parties' performance.
3 The question whether a fundamental alteration of the economic equilibrium of the contractual obligations of the parties has occurred, must be determined against the circumstances of each individual case. In a highly volatile market with sharp price fluctuations, a substantial increase in the cost of performance will be more acceptable than in markets with relatively stable price structures.
4 The hardship defence is not available if the party invoking the defence has, unilaterally or by agreement with the other side, assumed the risk for the events on which the hardship defence is based.
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Please cite as: "Commentary to Trans-Lex Principle No. VIII.1 - Definition, http://www.trans-lex.org/951000"
1 The principle constitutes an exception to the fundamental principle of sanctity of contracts ("pacta sunt servanda"). In spite its pivotal importance, that principle of sanctity of contracts is not without exceptions. However, since the principle of sanctity of contracts is the rule, the hardship defence is available only in exceptional circumstances. It is for this reason that subsection iii) requires a "fundamental" alteration of the economic equilibrium of the parties' contractual obligations. Such a fundamental, i.e. truly exorbitant alteration may result from an increase of the costs of performance of the party invoking the hardship defence or from a decrease in value of the performance to be rendered by the other party.
2 This hierarchy also follows from the principle of the presumption of professional competence. In international contracts, which are usually comprehensive, detailed and all-embracing contractual frameworks, there is a presumption that absent an adaption clause in the contract, the principle of sanctity of contracts prevails since it cannot be assumed that the parties were unaware of possible risks related to a change in the value of the parties' performance.
3 The question whether a fundamental alteration of the economic equilibrium of the contractual obligations of the parties has occurred, must be determined against the circumstances of each individual case. In a highly volatile market with sharp price fluctuations, a substantial increase in the cost of performance will be more acceptable than in markets with relatively stable price structures.
4 The hardship defence is not available if the party invoking the defence has, unilaterally or by agreement with the other side, assumed the risk for the events on which the hardship defence is based.