Contract - Unidroit - Principles
The legal problem in the first dispute concerns excuses for non-performance of a contract. Hence, what is at stake here is, in the first instance, whether a non-performance may be excused in the given circumstances. More specifically, though, the problem is about force majeure and hardship, as well as the relationship between the two concepts. The contention between the parties is essentially whether the provisions in the contract on force majeure cover the variation of price, and this may be broken down into two constituent questions: firstly, does force majeure cover hardship? Secondly, does the 70% rise in the price of the raw material constitute hardship? The combined response to these two questions will tell us not only whether a non-performance may be excused, but also how it may be excused—basically, whether X will be entitled to a renegotiation of the contract or not.
Now that we have established that an absence of a hardship clause does not preclude hardship from being invoked, there remains to be answered the question of whether the given circumstances constitute hardship. Normally, the equilibrium of the contract is said to be “fundamentally altered” when there is a 50% or more change in the cost, as was included in the earlier versions of the UNIDROIT Principles. Hence, this means that the 70% rise in raw material prices may be considered hardship. X's claim to renegotiate the contract under hardship is thus legitimate, especially since hardship is invoked for this purpose (as opposed to force majeure, which is used to excuse non-performance). However, it must be noted that hardship is prospective in nature and therefore cannot be applied to the period of more than three years that has elapsed since the start of the contract.
[...] There is no substantial difference as to outcome between English law and the UNIDROIT Principles, as both essentially leave it to judicial discretion. The main difference is that the UNIDROIT Principles lay out rules for the procedure, in particular providing a somewhat greater protection to the debtor (i.e. non-performing party) should the actual harm suffered be higher (since specific sum may be reduced” but not increased under Article 7.4 .13). Ultimately, though, both are equally effective economically speaking since the results are similar. [...]
[...] According to this Article, unless there was some modification by Y with regards to the X's standard form, the latter will prevail. We must bear in mind, though, that this is contingent on an acceptance to apply the general rules of contract formation to standard forms The CISG is silent on the issue of clauses with liquidated damages. However, what may be said of liquidated damages in relation to the CISG is that the CISG does not govern the validity of such clauses, as made clear in Article which states that Convention] is not concerned with: the validity of the contract or of any of its provisions or of any usage”. [...]
[...] Firstly, Article of the UNIDROIT Principles states: “Where one party or both parties use standard terms in concluding a contract, the general rules on formation apply, subject to Articles - 2.1 .22.” Next, since Article of the UNIDROIT Principles states that by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act without notice to the offeror, the acceptance is effective when the act is performed”, we may assume that, a contract has come into existence since both parties have been carrying it out for more than three years. The legal question then is the conditions required for a standard form clause to be applied. For it to apply, the standard form must be valid and must prevail. For the standard form to be valid, X has to be the offeror and the offeree or accepting party. [...]
[...] As established in the case Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd, clauses on liquidated damages will generally be upheld unless the sum is of an unconscionable amount. This is decided by comparing the sum agreed upon with the actual harm suffered, as well as by way of judicial discretion. Thus, whether the award would be substantially different under English law would depend largely on the adjudicator. But at the very least, there is no clearly articulated rule as to whether the liquidated damages clause constitutes a price floor or a price ceiling. [...]
[...] Now that we have established that an absence of a hardship clause does not preclude hardship from being invoked, there remains to be answered the question of whether the given circumstances constitute hardship. Normally, the equilibrium of the contract is said to be “fundamentally altered” when there is a 50% or more change in the cost, as was included in the earlier versions of the UNIDROIT Principles. Hence, this means that the 70% rise in raw material prices may be considered hardship. [...]
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