One of the great difficulties presented by the negotiation of any long-term contract is dealing with future uncertainty. Lawyers typically attempt to address this through drafting complex force majeure (FM) provisions. Where force majeure does not cater for economic problems then there may be some attempt to manage the risk of such problems by drafting what is popularly known as a hardship provision. FM and hardship provisions are usually negotiated as bespoke provisions for particular contracts. There is some limited industry precedent for drafting FM clauses which can be relied on, but creativity is generally the order of the day. This takes time, effort and expense. Inexperience and inequality of bargaining power often skews the balance of the negotiation of these provisions, resulting in an outcome which at least one of the contracting parties might regard as unsatisfactory.

Enter the ICC

Conscious of the effort required to draft and negotiate FM and hardship provisions, which often prove to be unsatisfactory in any case, in February 2003 the International Chamber of Commerce (ICC) promulgated model form FM and hardship clauses,¹ intended to be capable of being incorporated expressly or by reference into a commercial contract and so providing mechanisms for the management of FM and hardship issues quickly and conveniently. According to the ICC, the provisions as drafted were intended to be “balanced” and would “apply equally to all parties to the agreement”, with the intention “to facilitate the drafting process for both companies and their lawyers”.

The ICC FM clause

In the ICC FM clause there is no actual reference to the term ‘force majeure’². Rather, what would constitute FM is indicted by a party’s failure to perform a contractual duty if that party can prove:

"(a) that its failure to perform was caused by an impediment beyond its reasonable control; and

(b) that it could not reasonably have been expected to have taken the occurrence of the impediment into account at the time of the conclusion of the contract; and

(c) that it could not reasonably have avoided or overcome the effects of the impediment.”

The definition of the FM event for these purposes is then further illustrated by a number of defined impediments, the existence of which evidences the FM event:

"(a) war (whether declared or not), armed conflict or the serious threat of same (including but not limited to hostile attack, blockade, military embargo), hostilities, invasion, act of a foreign enemy, extensive military mobilisation;

(b) civil war, riot rebellion and revolution, military or usurped power, insurrection, civil commotion or disorder, mob violence, act of civil disobedience;

(c) act of terrorism, sabotage or piracy;

(d) act of authority whether lawful or unlawful, compliance with any law or governmental order, rule, regulation or direction, curfew restriction, expropriation, compulsory acquisition, seizure of works, requisition, nationalisation;

(e) act of God, plague, epidemic, natural disaster such as but not limited to violent storm, cyclone, typhoon, hurricane, tornado, blizzard, earthquake, volcanic activity, landslide, tidal wave, tsunami, flood, damage or destruction by lightning, drought;

(f) explosion, fire, destruction of machines, equipment, factories and of any kind of installation, prolonged break-down of transport, telecommunication or electric current;

(g) general labour disturbance such as but not limited to boycott, strike and lock-out, go-slow, occupation of factories and premises.”

The clause defines FM through reliance on either the general formula or the list of specified impediments. A party seeking to claim FM could rely on the general formula alone or could point to one or more of the impediments as prima facie establishing the claim for FM. The list of impediments is expressed in the preamble to the clause to be an evidential presumption and subject to the overriding requirement of the general formula, since the invoking party still has to prove that it could not reasonably have avoided or overcome the effects of the event invoked (but this intention is not entirely clear from the drafting of the clause itself).

The party seeking to rely on protection for FM bears the burden of proving establishment of the operative elements of the provision. If that party is able to prove that its failure to perform a contractual duty is attributable to FM (as defined) then the clause affords the following protections to the invoking party:

(1) the invoking party is relieved from its duty to perform its obligations under the contract from the time of the impediment (or the time later notice of the impediment is received by the other contracting party, if notice was not given without delay by the invoking party); and

(2) the invoking party is relieved from any liability in damages, or any other contractual remedy for breach of contract.

The invoking party is obliged to take all reasonable means to limit the effect of the event or impediment.

A key issue to consider is the duration of the protections afforded to the invoking party. The ICC FM clause says that if the event or impediment is temporary³ then the protections apply only insofar as the impediment continues to impede performance by the invoking party of its contractual duties. Looking further ahead, if the duration of the event or impediment “has the effect of substantially depriving either or both of the contacting parties of what they were reasonably entitled to expect under the contract” then either party has the right to terminate the affected contract by giving reasonable notice to the other party.

Where the affected contract is so terminated and a party has, by reason of anything done by the other party, derived “a benefit”⁴ before the termination of the contract, then the party in receipt of that benefit is obliged to pay to the other party a sum of money equivalent to the value of such benefit. This could result in both parties being obliged to value their respective benefits and to make cross-payments in respect of them.

Despite its noble ideals, the ICC FM clause tends to create more confusion than it removes. The obvious uncertainty around defining the substantial deprivation of reasonable expectation under the affected contract, allied to what a reasonable period for the notice of termination would be and how benefits are to be assessed and quantified, means that the clause is not readily capable of adoption without significant re-working to address at least these three issues (quite apart from introducing more detail around the administration of a FM claim, which is typically found in bespoke FM provisions). This removes the principal intended attraction of the clause, that it is capable of immediate and unadorned application.

The ICC hardship clause

The ICC’s suggested model hardship clause is even shorter on content than the ICC FM clause (it is less than half the size) and so there is necessarily less to be said about it in commentary.

The ICC hardship clause starts with a recital of the expectation that the parties to a contract will perform their contractual duties, however onerous they might be (and so reflective of the ‘pacta sunt servanda’ principle).

There is no definition of ‘hardship’ in the ICC clause. This is one issue which might be addressed in any specific amendment to the clause if it is deployed within a contract.

The ICC hardship clause goes onto provide that if a party can prove that its continued performance of its contractual duties has become “excessively onerous” because of the occurrence of an event beyond that party’s reasonable control (which that party could not reasonably have been expected to have taken into account at the time of concluding the contract) and which that party could not reasonably have avoided or overcome then the contracting parties are obliged to negotiate alternative contractual terms which make reasonable allowance for the event in question.

If those alternative terms are not agreed between the contracting parties (and there is no suggested timetable for such agreement) then (in the absence of alternative contractual provisions which cater for the occurrence of such an event, such as FM and/or termination provisions) the party invoking the application of the hardship clause (not either party, as is the case for FM) will have a right to terminate the contract. In contrast to the ICC FM clause, termination is without provision for any compensatory payments.

If the ICC hardship clause is to be used in a contract then it would have to be reconciled with the wider provisions of the contract relating to termination on notice and post-termination consequences (including the possible payment of compensation for termination). It would also become necessary to ensure consistency between the hardship clause and the application of any FM provisions in the contract.

Conclusion

Perhaps not surprisingly, the ICC FM and hardship clauses have not really caught on. The convenient shorthand which they apply leaves a number of substantial holes which require some significant drafting to fix. Rarely are these clauses encountered in practice and even if they are, they are unlikely to be applied in their unamended form to commercial contracts. This runs counter to what the ICC intended. The clauses amount to an interesting but obscure footnote in the history of commercial contracting, evocative of Shelly’s immortal lines:

““My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!

Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away”.”

_{1. ICC Force Majeure Clause 2003 (ICC Publication No 650); ICC Hardship Clause 2003 (ICC Publication No 650), February 2003, available at www.store.iccwbo.org.}

_{2. Although ‘force majeure’ is described in the preamble to the clause as “greater force”, where the FM clause is intended to “excuse a party from liability if some unforeseen event beyond the control of that party prevents it from performing its obligations under the contract”.}

_{3. Not defined.}

_{4. Also not defined.}