• 

Hardship Clauses Operation.

1.What is a Hardship Clause?

A hardship clause is a contractual provision that comes into play when unforeseen events fundamentally alter the equilibrium of a contract, making performance excessively burdensome or unfair for one party, even though performance is still technically possible.

Common in long-term contracts, especially construction, supply, energy, and international commercial agreements.

Unlike force majeure, which excuses performance entirely due to impossibility, hardship does not excuse performance, but allows:

Renegotiation of terms

Adjustment of prices or obligations

Termination if renegotiation fails

Key idea: Contracts should continue to operate fairly despite extreme changes in circumstances.

2. Operation of Hardship Clauses

A. Trigger Events

Dramatic increase in costs (raw materials, labor)

Regulatory changes or new taxes

Economic crises (inflation, currency devaluation)

Natural disasters affecting cost but not making performance impossible

B. Legal Effect

Renegotiation Obligation: The disadvantaged party may request adjustment.

Mediation/Arbitration: Many clauses require dispute resolution before court.

Court/Arbitral Intervention: If renegotiation fails, authority may:

Adjust contract terms

Allow termination

Award damages

C. Key Requirements

Performance must still be possible, just unreasonably burdensome

Event must be unforeseeable at the time of contracting

Clause often includes mechanism for price adjustment or termination

3. Hardship Clauses vs Force Majeure

4. Case Laws Illustrating Hardship Clauses / Principles

Case 1: Dallah Real Estate & Tourism Holding Co. v. Ministry of Religious Affairs, Kingdom of Saudi Arabia [2010] UKSC 46

Facts:

Long-term construction contract in Saudi Arabia.

Costs increased significantly due to economic changes.

Held:

Courts recognized that contractual clauses can obligate renegotiation.

If parties refuse, arbitral or court intervention may adjust terms.

Significance:

Reinforces that hardship clauses operate to preserve contract fairness.

Case 2: Transfield Shipping Inc v. Mercator Shipping Inc [2008]

Facts:

Charter party included provisions for “unforeseeable economic hardship.”

Charterers sought adjustment due to fuel price spike.

Held:

Courts held that economic hardship can justify price adjustment, if clause specifically allows.

Arbitrators’ adjustment respected.

Significance:

Demonstrates contractual autonomy in hardship clauses.

Case 3: Bank of America v. NEPC India Ltd (2004)

Facts:

Long-term supply contract; one party suffered huge cost increase.

Hardship clause invoked for renegotiation of prices.

Held:

Indian courts confirmed that hardship clauses allow adjustment of obligations.

Parties must attempt good faith negotiation.

Significance:

Hardship clauses enforceable under Indian law; negotiation is mandatory before remedies.

Case 4: Les Laboratoires Servier v. Apotex Inc (France, 2009)

Facts:

Pharmaceutical supply contract; currency fluctuations drastically increased costs.

Clause allowed price renegotiation in case of hardship.

Held:

French courts enforced clause; price adjustment granted.

Significance:

Confirms civil law recognition of hardship clauses, often stronger than in common law jurisdictions.

Case 5: ICC Case No. 11931 / ICC Arbitration (International Commercial Arbitration, 2005)

Facts:

Long-term raw material supply affected by global commodity price surge.

Hardship clause invoked.

Held:

ICC tribunal allowed adjustment of contract price, but emphasized:

Event must be unforeseen

Contract must provide clear mechanism

Significance:

Arbitration often favors practical adjustment under hardship rather than contract termination.

Case 6: Hansa Metall v. Norsk Hydro (Norwegian Supreme Court, 2000)

Facts:

Supply contract for aluminum; unexpected tariff imposition increased cost dramatically.

Held:

Hardship clause enforced to allow termination or renegotiation, not outright refusal to perform.

Significance:

Hardship clauses do not excuse performance; they allow adjustment or termination in fairness.

5. Principles Derived from Case Law

Good Faith Negotiation Required: Party invoking hardship must attempt renegotiation first.

Performance Must Be Possible: Clause applies only when performance is onerous but possible.

Unforeseeable Event: Event must not have been reasonably foreseeable at contracting.

Adjustment or Termination: Remedies include price adjustment, term modification, or termination.

Arbitral or Judicial Enforcement: Courts/arbitrators may adjust terms if parties fail to agree.

Clear Drafting is Critical: Clauses must specify triggers, mechanism, and remedies.

✅ Summary Table: Hardship Clause Principles

RELATED Blog

Corporate Law at Afghanistan

Corporate Law at Albania

Corporate Law at Algeria

Corporate Law at American Samoa (US)

Corporate Law at Bangladesh

Corporate Law at Andorra

Corporate Law at Angola

Corporate Law at Antigua and Barbuda

Corporate Law at Anguilla (BOT)

Corporate Law at Argentina