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transnational law transnational law (lex mercatoria or international business law) and "Definition" 2016-03-01 13:58:16

No. VIII.1 - Definition

Any event of legal, economic, technical, political or financial nature


which occurs or becomes known to the disadvantaged party after the conclusion of the contract,


which could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract and


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 defense 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 defense 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 defense is not available if the party invoking the defense has, unilaterally or by agreement with the other side, assumed the risk for the events on which the hardship defense is based.

Please cite as: "Commentary to Trans-Lex Principle , "
Arbitral Awards
Arbitration Rules
Court Decisions
International Legislation
Model Laws
Model Terms
National Legislation
Principles / Restatements
Contract Clauses
1. Hardship Defined as Event Increasing Costs of One Party
Employment Contract
Harship withdrawals
A Participant (...) may only make a withdrawal (...) if the withdrawal is necessary in light of immediate and heavy financial needs of the Particpant (...) such withdrawal shall not exceed the amount required to meet the immediate financial need created by the harship, and the amount to be withdrawn must not be reasonably available from other resources of the Participant (...)
Harship Withdrawals
A Participant who is an Employee may request the withdrawal of up to the amount necessary to satisfy a financial need including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the withdrawal. Only requests for withdrawals on account of a Participant's Deemed Financial Need and which are Deemed Necessary to satisfy the financial need shall be approved (...) there is no minimum amount for a hardship withdrawal (...) there is no restriction on the number of hardship withdrawals permitted to a Participant.
Hardship Distributions
A Participant shall be entitled to a hardship distribution only if the distribution is (i) both made on account of an immediate and heavy financial need of the Participant and (ii) necessary to satisfy such financial need. The Participant shall furnish the Administrator with satisfactory proof that the hardship meets the requirements (...)
Unforeseeable Emergency
(...) an unforeseeable emergency is a severe financial hardship to the Participant or Beneficiary resulting from a sudden and unexepected illness or accident of the Participant or Beneficiary (...) loss of the Participant's or Beneficiary's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant or Beneficiary (...) withdrawal of amounts because of an unforeseeable emergency shall be permitted only to the extent reasonably needed to satisfy the emergency (...)
Harship Distributions
Upon harship of a Participant, the Trustee shall, upon the direction of the Administrator, make a distribution from the Particpant's Salary Deferral Contributions Account and/or Rollover Contributions Account, in that order (...)
Changes in Payment Date / Emergency
The emergency must result from a severe financial hardship to the Participant resulting from (1) a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, (2) loss of the Participant's property due to casualty or (3) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
Hardship Distribution Rules
Distribution may be made to a Participant in the event of financial hardship. For purposes of this Section, a "hardship distribution" is a distribution that is necessary to satisfy an immediate and heavy financial need of an Employee who lacks other available resources to satisfy such need.
Sales & Purchase Contract
Increased Costs
If Seller's costs of performance are increased after the date of the contract by reason of increased freight rates, taxed or other governmental charges, and insurance rates including war risk, Buyer shall reimburse Seller for such increased cost or loss of income.
Hardship Clause
If at any time of from time to time during the contract period there has been any substantial change in the economic circumstances relating to this Agreement and, notwithstanding the effect of the other relieving or adjusting provisions of this Agreement, either party feels that such change is causing it to suffer substantial economic hardship then the parties, at the request of either party, shall meet together to consider what adjustments in the prices are justified in the circumstances in fairness to the parties to offset or alleviate the hardship caused by such change. If the parties shall not within {X} days after such request of renegociation have reached agreement on the adjustments in the said prices the matter may forthwith be referred by either party for determination by experts (...) The experts shall determine what, if any, adjustments in the said prices or in the said price revision mechanism shall be made and any revised prices or any change in the price revision mechanism so determined by such experts shall take effect {X} months after the date on which the request for the review was first made - (International Contracting: Law and Practice - Larry A. DiMatteo - §3.21 - S. 98).
Increased Costs
(...) any Purchaser Agent, Purchaser, Liquidity Provider (...) (Affected Person) reasonably determines that the existence of or compliance with: (i) any law or regulation or any generally accepted accounting standard or any change therein or in the interpretation or application thereof, in each case adopted, issued or occurring after the date hereof, or (ii) any request, guideline or directive from any central bank or other Governmental Authority (whether or not having the force of law) issued or occurring after the date of this Agreement, affects or would affect the amount of capital required or expected to be maintained by such Affected Person, and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make Purchases of Pool Receivables related to this Agreement (...)
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