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 ... ... middle of paper ... ...[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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