ICC Has Updated Its Standard Force Majeure And Hardship Clauses

ICC Has Updated Its Standard Force Majeure And Hardship Clauses:

In March, during the initial outbreak of the global COVID-19 pandemic, the International Chamber of Commerce (ICC) updated its model Force Majeure and Hardship Clauses. In times of crisis like this, such clauses, which were hardly ever thought of in the past, are getting more attention than ever and it makes sense to review our existing contracts to see whether they can be optimized for the future.

 

ICC Standard Clauses:

The ICC has standard documents available for all on its website, which include standard clauses for different purposes, as well as their explanatory notes. ICC’s force majeure and hardship clauses had previously been revised in 2003. In March 2020, as a result of the uncertainty created by COVID-19, the ICC updated these clauses once again.

 

Introduction:

ICC, by updating the previous 2003 version, with the 2020 version of “Force Majeure” and “Hardship” Clauses; now offers two options, one shorter simpler and one longer, more comprehensive that can meet the needs of various businesses. The clauses aim to provide businesses with a draft that can be applied in unpredictable situations such as the COVID-19 epidemic.

 

Changes Made in the Force Majeure Clause:

ICC offers two versions of Force Majeure 2020 clause, one long and one short. Fundamentally; Force Majeure 2020 clause preserves the structure of Force Majeure 2003 clause. The purpose of some minor changes is to simplify the provisions and increase their applicability. The definitions of “Force Majeure” and “The Affected Party” are included in the first paragraph of the new clause. Within the scope of the Force Majeure Clause 2020, the definitions in the first paragraph of the text are as follows;

“Force Majeure” the extent that the party affected by the said obstacle (“The Affected Party”) proves the following conditions, refers to the occurrence of an event or situation (“Force Majeure Event”) that prevents a party from fulfilling one or more of its contractual obligations:

  1. a) The obstacle in question is beyond its reasonable control; and
  2. b) The obstacle in question cannot be considered reasonable at the time of conclusion of the contract; and
  3. c) The Affected Party will not reasonably be able to gain or overcome the effects of the obstacle,

In the third paragraph of the clause; similar to the Force Majeure Clause 2003, situations that are assumed force majeure are listed. The parties have the opportunity to add or delete events from the list according to their own needs. If one of the events in the third paragraph takes place; the affected party is freed from the obligation to prove the clauses (a) and (b) in the first paragraph and becomes obliged to prove only clause (c). Especially in these days when the COVID-19 epidemic is on the agenda, addition of the epidemic diseases is among the remarkable innovations.

In accordance with the fourth paragraph of the clause; the party affected by the obstacle must report the incident to the other party without delay. The aforementioned notification obligation was not regulated as a separate clause in the Force Majeure Clause in 2003 and was included in other existing clauses. While such a period was not foreseen in the 2003 version of the Force Majeure Clause, this period is determined as 120 days in the 2020 version of the Force Majeure Clause. This period, provided that the parties agree, can be determined a shorter longer according to the changing needs of the parties.

 

Short Format of the Force Majeure Clause :

With the 2020 changes, for the first time, a short form of the Force Majeure clause is presented by the ICC. This short form by the ICC includes basic Force Majeure regulations in general, consists of only three paragraphs. The purpose of presenting this short form by the ICC is; to overcome the widely used practice of only referring to the ICC clause instead of adding the full clause due to the long and complex structure of the Clause’s 2003 version. In this way; it is aimed to include the short form directly in the contracts without any attributions. 

The short format that emerged with the ICC 2020 changes; while covers the main issues in the long format, does not cover some of the regulations in the said format. Due to this reason; while the short format can guide small-scale businesses such as SMEs, the long format can lead the way for larger companies and businesses.

 

Changes Made in the Hardship Clause:

The Hardship Clause 2020 consists of three paragraphs similar to the Hardship Clause 2003. While the first two paragraphs remain the same as the 2003 version, the main important change was made in the third paragraph. In the Hardship Clause 2003, only the option to terminate the contract was regulated. The Hardship Clause 2020 now offers three options. These are as follows;

  1. The party relying on the clause of hardship may terminate the contract, but cannot ask the judge or arbitrator to adapt the contract without the approval of the other party.
  2. Each party may ask the judge or arbitrator, when applicable, to adapt or terminate the contract in order to maintain the balance of interests.
  3. Each party may ask the judge or arbitrator to declare the contract as terminated.

Conclusion :

Parties must always remember that it is never advisable to adopt standard contract provisions without reviewing their suitability to the real life conditions of the commercial relationship between the parties, even if these standard provisions are recommended by a globally esteemed institution such as the ICC. However, the ICC model clauses are certainly a good starting point and an agreeable middle ground for parties, due to the trustworthiness and good reputation of ICC.  With the Force Majeure Clause 2020, the notification obligation has been regulated in a separate clause.

Original text of the clauses can be found on the ICC website via the link below :

https://iccwbo.org/content/uploads/sites/3/2020/03/icc-forcemajeure-hardship-clauses-march2020.pdf 

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