Force majeure (or vis major) and hardship are two concepts that govern situations of changed circumstances in international commercial contracts

Unlike short-term ones, long-term contracts generally include clauses regulating changed circumstances. Two main concepts related to changing situations are force majeure (or vis major) and hardship.

Force majeure is a civil law concept that has no real meaning under the common law system. In more general terms, force majeure occurs when the performance of a contract is impossible due to unforeseeable events beyond the control of the parties. The concept of force majeure has evolved progressively in international trade practice. However, the approach of legal systems to situations of force majeure varies from country to country. Despite these variations, general characteristics of force majeure can be defined. The roots of the term itself go back to the Code Napoleon, from which the phrase “force majeure” was stemmed from, meaning an irresistible compulsion or coercion in French. Afterward, a number of definitions have been evolved.  Today most widely used definition is stipulated under United Nations Convention [1] – “A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences.” This concept is generally not regarded as being able to solve a problem entirely. Parties to international agreements and contracts prefer to include special clauses in their agreements and contracts related to the matters of hardship and force majeure. Another inclination is that, nonperformance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences [2]. The goal of the mentioned concept of force majeure is to settle the problems resulting from non-performance either by suspension or termination.

The term of “Act of God” or “vis major” has a narrower meaning than force majeure”. Thus, Act of God generally refers to natural events – such as tornadoes, hurricanes, earthquakes, floods etc. happening independently of human interruption.

The concept of hardship is less straightforward. Hardship was defined as a ground for making amendments to and dissolution of the agreements. Approaches in the legislations of numerous countries vary. The most unified definition of hardship is situations, where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished [3]. The concepts of hardship and force majeure seem to be related to each other, particularly since they share some feature i.e. they both cater to situations of changed circumstances. However, the primary difference between the two concepts is that hardship is a state where the performance of the disadvantaged party has become much more burdensome, but not impossible, while force majeure means that the performance of the party concerned has become impossible, at least temporarily.

Comparing to universally accepted concepts, the approach is different in the national legislation of Azerbaijan with no definition of force-majeure. However, the term of “Significant Change of Circumstances” has been used in Civil Code [4], mostly resembling definition of hardship in UNIDROIT. According to the Code, a significant change of circumstances, which the parties accounted for in the course of entering into the contract, can serve as the ground for the amendment or dissolution thereof. However, in practice, the parties often refer to the “force majeure” term in their agreements and contracts and the local Courts refer to the international documents. For example, last two devaluations of the national currency in 2015, triggered extreme difficulties in regard to the implementation of loan agreements concluded between banks and debtors. Some of them even brought the cases to Courts. The local Court evaluated the devaluations as hardship, but not as force majeure, so the debtors should pay their loans. In the same time, banks advised to take some soften measures where possible, in order to cope with difficulties, the community encounter [5].

In conclusion, the concepts of hardship and force majeure constitute exceptions to the principle “pacta sunt servanda” – the universally accepted principle of contract law and they constitute one of the most important terms of the agreements and contracts, as no party is secured from unforeseen happenings and damages.

Deep notes:

[1] United Nations Convention on Contracts for the International Sale of Goods, Article 79

[2] UNIDROIT Principles of International Commercial Contracts, Article 7.1.7 – Force Majeure

[3] UNIDROIT Principles of International Commercial Contracts, Article 6.2.2 – Definition of Hardship

[4] Civil Code of Azerbaijan, 1999, Article 422, Contract Amendment and Dissolution in Connection with Significant Change of Circumstances

[5] Resolution of Ganja Appeal Court, October 6, 2016, case no. 2(104)-1984/2016, Hajiyeva Tahmina Firdovsy vs “Bank Respublika” OJSC

 

Author: Vugar IBRAHIMOV

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