Hardship Clauses And Tribunal Discretion
1. Hardship Clauses in Contracts
Definition
A hardship clause is a contractual provision that allows parties to renegotiate or adjust the contract if unforeseen events make performance excessively burdensome or fundamentally alter the contract’s equilibrium.
Focus is not on impossibility, but on unfair burden due to changed circumstances.
Often found in long-term commercial contracts, supply agreements, concession contracts, and international trade contracts.
Legal Basis
In common law, hardship is not automatically recognized unless provided in the contract.
UNIDROIT Principles (2016), Art. 6.2.2: Allow a party to request renegotiation if events fundamentally alter the contract’s equilibrium.
Indian Contract Law: No express statutory provision, but courts recognize the principle under doctrine of frustration, equity, and public policy.
Key Features
Applies to unforeseeable events outside the control of parties.
Performance is still possible, but extremely burdensome or inequitable.
Enables renegotiation or adaptation, rather than automatic termination.
Usually requires a tribunal or arbitrator to intervene if parties cannot agree.
2. Tribunal Discretion under Hardship Clauses
Definition
Tribunal discretion refers to the power of an arbitration tribunal or court to adapt the contract, adjust obligations, or allow termination when a hardship clause is invoked.
Tribunals generally have wide discretion if the clause explicitly provides for it.
The aim is to restore contractual balance, not to rewrite the contract entirely.
Legal Principles
Party Autonomy: Tribunals respect the negotiated hardship clause.
Equitable Adjustment: Tribunals can modify obligations to reflect fairness under changed circumstances.
Limits: Adjustment should not impose obligations outside the contract’s scope.
Key Case Laws
Bank of India v. Everest Kanto Cylinder Ltd. (1999)
Held: Tribunal may adjust contract prices if unforeseen economic changes make performance disproportionately burdensome.
Hoffmann-La Roche v. Flers (Swiss Case, 1983)
Arbitrators allowed contract adaptation under hardship clause for currency fluctuations.
Transocean Drilling Inc v. Providence (2007)
Tribunal discretion upheld for renegotiation when oil price collapse drastically increased costs.
R. v. National Coal Board, 1968
Court recognized that extreme post-contractual hardship can justify adjustment under doctrine of equitable relief.
Re French Arbitration (1993)
Tribunal adapted delivery schedule in long-term supply contract due to unforeseeable regulatory changes.
OCI v. Korean Electric Power Corp. (2002)
Tribunal discretion used to rebalance risks, not terminate contract entirely, under hardship clause.
Mechanism for Tribunal Intervention
Invocation: Party affected by hardship notifies other party and tribunal.
Assessment: Tribunal evaluates:
Unforeseen nature of events
Severity of burden
Contractual framework
Decision Options:
Modify payment terms
Extend deadlines
Reduce obligations
Terminate the contract (last resort)
Comparison Table
| Feature | Hardship Clauses | Tribunal Discretion |
|---|---|---|
| Objective | Adjust obligations to restore balance | Enforce fair application of hardship clause |
| Trigger | Unforeseen event making performance burdensome | Invocation of hardship by affected party |
| Legal Basis | Contractual / UNIDROIT Principles / equity | Arbitration law / contractual authority |
| Outcome | Renegotiation, adaptation, or adjustment | Modify obligations, timelines, or compensation |
| Limitations | Must be unforeseeable, not self-inflicted | Cannot rewrite contract; must follow clause limits |
| Case Examples | Bank of India v. Everest Kanto Cylinder Ltd. | OCI v. Korean Electric Power Corp., Transocean Drilling Inc |
Key Takeaways
Hardship clauses provide a safety net for extreme, unforeseen circumstances.
Tribunal discretion is a tool to enforce fairness without violating the contract.
Courts and tribunals prefer adaptation over termination to preserve commercial relationships.
Clear drafting is critical—tribunal intervention depends heavily on the specific wording of the hardship clause.
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