Unprecedented times call for innovative measures. One such measure is hardship (imprevisieleer/théorie de l’imprévision): a legal instrument, which is being introduced in the Belgian civil law to better reflect and appreciate the volatile context in which many contracts are being agreed today: rapidly rising energy prices in Europe, high inflation, supply chain-issues driving up prices of electronics and commodities.
What is hardship?
Hardship or unforeseeable change of circumstances is a legal instrument designed specifically for (but not limited to) volatile market conditions. Specifically, it protects contracting parties against any unforeseen circumstances that might make it unfeasible to fulfill their contractual commitments.
Hardship results in a general change in the balance of the performance of the contract. The unforeseen circumstances could lead to the revision of the contract by the court in favor of the party suffering such change in circumstances. For example, if the oil price increases by 60%, it is not impossible for an oil supplier to deliver under a sales agreement. However, fulfilling such sales agreement does become extremely difficult with potential grave economic consequences for the oil supplier.
Why was hardship introduced?
For a long time, the Belgian civil courts systematically rejected the doctrine of hardship in civil law as a valid legal basis for contract revision. However, parties have been using a wealth of creative methods to handle such imbalance. As of 1 January 2023, those creative methods will no longer be needed because Article 5.74 of the new Belgian Civil Code will provide a legal basis for the doctrine of hardship.
The consequences of the COVID-19 pandemic, and the Ukraine war, made not having such a legal basis almost untenable. With energy prices rising dramatically, at times overnight, inflation skyrocketing, and supply chains severely disrupted, a mechanism was needed to protect the contractual balance between parties.
A party may request for the revision of a contract if the following five conditions are met:
- The change of circumstances must not have been present at the time of the conclusion of the contract, but must occur during the performance of the contract;
- the change of circumstances was unforeseeable at the time the contract was concluded;
- the change of circumstances may not be attributable to the debtor;
- the debtor did not assume this risk; and
- neither the law nor the contract excludes this possibility. This means that the parties may not have excluded in their contract the possibility to renegotiate their contract.
Hardship vs. force majeure, or unfeasible vs. impossible
Force majeure and hardship both refer to situations where a party encounters difficulty in fulfilling its obligations because of a dramatic change in circumstances, following the conclusion of the contract.
Hardship, however, is distinctly different from force majeure. For instance, a government-enforced lockdown could make it impossible to fulfil a construction contract, or a storm could wreak havoc on the construction site. In this case, work cannot continue: force majeure renders fulfilling the contract impossible.
In contrast, hardship merely indicates it would be unfeasible to do so: it would run the contractor out of business or waiting for the required materials might cause too many delays, causing a snowball-effect with grave economic implications for the contractor’s other scheduled projects. Hardship indicates significant difficulties, of a grave nature and therefore has a wider scope than force majeure.
What does this mean for you?
If you are working within a currently volatile market, or are at risk, then hardship will offer protection in case your commitments become unfeasible after conclusion of your contracts. Article 5.74 of the new Belgian Civil Code will offer you a legal basis for contract revision if you are experiencing such hardship.
In case you would like to receive further information on hardship or need our assistance, please do not hesitate to reach out to us.
Interested in the other novelties concerning the new contract law under Book V? Please read our previous articles:
- The modernization of contractual obligations – EY Law Belgium
Make sure to keep checking our EY Law-website and our LinkedIn-page for our coming articles concerning the many other novelties on contract law.