Potential impact of changed circumstances on contracts
As already mentioned in the previous edition, the introduction of the doctrine of change of circumstances or hardship is one of the most notable innovations in contract law. Changed circumstances can now have a significant impact on the contracts one concludes after 1 January 2023. In this article, we examine the conditions and practical application thereof.
Legal embedding of the hardship doctrine
When one concludes a contract, one is in principle as a result bound by it (“pacta sunt servanda“). If one fails to honour a commitment, one may be accused of breach of contract, with all the possible penalties that this entails. However, changed circumstances (e.g. Covid-19, Brexit, the war in Ukraine, hyperinflation) can have a major impact and profoundly disrupt the contractual balance that existed at the time the contract was concluded. However, as long as this does not make the fulfilment of a certain obligation completely impossible, one cannot invoke this as force majeure and is therefore not released. Yet, one may then be able to invoke the new hardship doctrine. This states that contracts can be renegotiated or amended if new circumstances have made their performance significantly more difficult. Under the old law, this was neither provided for in the Civil Code nor accepted by the Court of Cassation, but following neighbouring countries such as France and Germany, this additional exception to the binding force of contracts has now been introduced in the Belgian Civil Code.
First step: renegotiation between the parties
For contracts concluded since 1 January 2023, one can ask the other contracting party to renegotiate the contract if all the following conditions are met: (1) a change of circumstances makes the performance of the contract excessively onerous, to such an extent that its performance can no longer reasonably be required, (2) this change was unforeseeable at the time the contract was concluded, (3) this change is not attributable to the party invoking the change of circumstances, (4) said party did not assume this risk and (5) neither the law nor the contract exclude this possibility. During the negotiation phase, one still has to honour its commitments.
Second step: modification or termination by the court
If the request is rejected or the renegotiation fails within a reasonable period of time, one can go to court. It can either (1) amend the contract to bring it in line with what the parties would reasonably have agreed upon when concluding the contract, if they had taken into account the changed circumstances, or (2) terminate all or parts of the contract on a date no earlier than the occurrence of the changed circumstances.
The hardship doctrine is “supplementary” law, also called a default rule; one may derogate from it contractually. Yet its introduction will create a change in mentality. Indeed, whereas for old contracts, its application was only exceptionally possible (i.e. in public procurement contracts or if explicitly provided for by the contract itself), in new contracts (concluded as from 1 January 2023) it will be the standard legal starting point. Its supplementary / default nature offers contracting parties several options. Firstly, one can modalize the default rule, e.g. by setting a renegotiation period, by including a list of criteria (exhaustive or not), etc. In addition, one can facilitate its application (e.g. no prior renegotiation obligation) or, on the contrary, tighten it (e.g. only provide the possibility of termination of the contract, no adjustment). Finally, one can also exclude the doctrine of hardship altogether. In the latter case, vigilance is required: this is a double-edged sword and one must always take into account the prohibition of abuse of rights and the prohibition of manifestly unbalanced clauses. It is therefore advisable, when drafting new contracts, to pay attention to the application and consequences of the hardship doctrine and, if necessary, to seek legal assistance.
Wibo Van Poeck and Bruno Thoen
De Langhe Attorneys