For further information,
please contact:
Legal Alerts
https://www.esin.av.tr/wp-content/themes/esin/images/esin.jpg

ICC Force Majeure and Hardship Clauses 2020

Legal Alerts
Dispute Resolution
General

The International Chamber of Commerce (“ICC“) announced an update on its Force Majeure and Hardship Clauses on March 20, 2020. Force majeure and hardship are currently much-discussed matters due to the COVID-19 outbreak. The ICC brought a new perspective to this discussion, providing a restructured draft and updating its 2003 version of the clauses.

ICC Force Majeure Clause Changes

The ICC Force Majeure and Hardship Clauses 2020 present a long form and a short form of the ICC Force Majeure Clause 2020.

The long form consists of nine paragraphs, like the 2003 version. The new version’s paragraph titles are (i) definition, (ii) non-performance by third parties, (iii) presumed force majeure events, (iv) notification, (v) consequences of force majeure, (vi) temporary impediment, (vii) duty to mitigate, (viii) contract termination and (ix) unjust enrichment.

In the new version, the ICC provides general definitions of “force majeure” and “affected party” in the first paragraph, differently from the 2003 version. Save for minor changes to the wording, the new version retains the majority of the 2003 version’s first paragraph, which determines the conditions for the occurrence of a force majeure event. In order for an event to be considered a force majeure under the ICC Force Majeure Clause 2020, all of the following conditions must exist concurrently:

  1. the impediment is beyond reasonable control;
  2. the impediment could not have been reasonably foreseen at the time of the conclusion of the contract; and
  3. the effects of the impediment could not have been reasonably avoided or overcome by the Affected Party (defined as the party affected by the impediment under the ICC Force Majeure Clause 2020).

The third paragraph includes a list of the presumed force majeure events that commonly qualify as force majeure, similar to the 2003 version. The ICC suggests that parties add or delete events from the list in accordance with their specific needs. The events listed under the clause are significant for the burden of proof: if an event from the list occurs, the party invoking force majeure must prove the existence of condition (c) above. Otherwise, if an event that is not listed under the clause occurs, the party invoking force majeure must prove that all of the three conditions are met.

The consequences of force majeure are determined in the fifth paragraph. As per this provision, the party successfully invoking the force majeure clause is relieved from its duty to perform its obligations under the contract; from any liability in damages; from any other contractual remedy for breach of contract; or from the occurrence of the impediment, provided they provide the other party with timely notice. In order to avoid having the Affected Party invoke force majeure only at a later stage where a timely notice is not given, the effects of the force majeure are delayed until the receipt of the notice.

In the 2020 version, the eighth paragraph establishes a general rule for determining when the duration of the impediment is unsustainable and entitles the parties to terminate the contract. Unlike the 2003 version which had no time limit, the 2020 version provides a maximum duration of 120 days, which the parties can alter at any time according to their needs in order to increase certainty and foreseeability.

The ICC provides a short form of the ICC Force Majeure Clause for the first time, which is as a major change. This short form is a reduced version of the long form, and is limited to the essential provisions. The short form consists of only three paragraphs and can be used by those who wish to incorporate in their contract a standard concise clause covering only certain important issues and the short form, as noted by the ICC, is particularly addressed to the use of small to medium enterprises. The parties who include the short form in their contract should consider that the long form provides guidance on issues not addressed in the short form and is a more detailed version, trying to capture other angles as well.

ICC Hardship Clause Changes

The 2020 version of the ICC Hardship Clause consists of three paragraphs, like the 2003 version. The first two paragraphs are exactly the same, but the third paragraph introduces a significant change. The ICC introduces three alternative terms for the third paragraph: (a) party to terminate, (b) judge to adapt or terminate and (c) judge to terminate.

  • Under option (a), the party invoking hardship will be entitled to terminate the contract on its initiative.
  • Under option (b), the parties are entitled to request a judge or arbitrator to adapt or terminate the contract.
  • Under option (c), either party may request the judge or arbitrator to declare the termination.

The ICC defines its updated Force Majeure and Hardship Clauses as balanced models for use in international contracts in any jurisdiction, created to help parties negotiate and draft contracts and increase legal certainty. It should be kept in mind that these standard ICC clauses should be adapted considering the applicable law to the contract.[1]

Considering the current state of business affairs due to the COVID-19 outbreak, the ICC’s updated Force Majeure and Hardship Clauses may be used as guides while drafting new contracts during the outbreak and afterwards. In terms of Turkish law, drafting of force majeure and/or hardship clauses would gain significant importance during the COVID-19 outbreak as it is generally accepted that Turkish laws relating to force majeure and hardship (mainly articles 136-138 of Turkish Code of Obligations) are non-mandatory, meaning that the contracting parties are free to design their own clauses. The ICC Force Majeure and Hardship Clauses 2020 would therefore be a useful reference point while drafting and negotiating Turkish law governed contracts.

The ICC Force Majeure and Hardship Clauses 2020 are available at here.

Please refer to https://www.esin.av.tr/coronavirus-desk/ for our client alerts regarding the legal consequences of COVID-19 on other areas.

[1] Please note that this is a general explanation in respect of the change in the relevant ICC clause(s). Whether and under which conditions these should be reflected upon the agreements of the parties and the enforceability of those under the applicable law(s) is not elaborated herein and should be subject to a case specific evaluation.