1. HARDSHIP CLAUSES :
CAN THEY WORK ?
ICMA XVIII
Vancouver, May 17th 2012
Sébastien Lootgieter

2. f
THE BINDING EFFECT OF THE CONTRACT
“Ce qui est dit est dit, ce qui est dit est dû”
“What is said is said, what is agreed must be upheld”
A contract must be performed even if performance becomes more
onerous than initially envisaged.

3. f
FLUCTUATIONS IN THE MARKET
2007 :
“Once again a stunning year for the shipping world, the fifth
in a row to defy the most optimistic forecasts. Every record
has been broken ...”
2010 :
“[that year] ended with the uncertainty of a chartering
industry at its lowest level...” (Barry Rogliano Salles)

4. f
THE SOLUTION : THE HARDSHIP CLAUSE ?
Difficulties in applying the hardship clause :
 Z ... v. A..., award n° 1172 - 3rd February 2010
 N ... v. C..., award n° 1179 - 3rd December 2010
What is hardship ?
What are the consequences of hardship clauses?
Are hardship clauses doomed to fail?
When do they work?

5. I – WHAT IS HARDSHIP ?
The relevant clause :
“The parties acknowledge that events not foreseen by them
at the date of this contract may arise during the term of this
contract. Should such events, including but not limited to
events of an economic, monetary, fiscal or political nature,
affect directly or indirectly the execution of the Contract,
creating an unreasonable advantage to one party, or causing
serious harm to the other, the injured party shall inform the
other party by written notice.
The parties shall meet within 30(thirty) days after the date of
such written notice, in order to seek an appropriate solution
of the protection of their respective interests and for the
continuation of the contract.
If the parties are unable to agree on a solution within 60
(sixty) days after the date of said written notice, the injured
party shall be entitled to go to arbitration. For the purpose of
this section, the parties agree that fluctuation in the tramp
freight market alone shall not constitute a “hardship””

6. In Awards 1172 and 1179 pleas of hardship were rejected:
- hardship is not an event of force majeure
- hardship is not a “second chance”
- hardship is not a tool to give a party new rights or guarantees
- hardship cannot apply to foreseeable economic difficulties

7. II – THE LIMITED SOLUTIONS FOR HARDSHIP
The hardship clause only provides for the parties to meet and
negotiate.
The parties are not obliged to reach an agreement.
No liability for either party if negotiations fail (unless bad faith).
There is no alternative (no termination, no arbitration)

8. III – WHY DOES HARDSHIP NOT WORK?
The real motive behind the plea of hardship : an attempt to avoid
performance because it is more expensive
Every contract is a projection into the future and constitutes a risk
which the parties must assume

9. NEVERTHELESS :
Parties to a contract are not magicians and cannot predict
the future
Since many years charter contracts usually provide a clause
to limit the impact of economic changes (eg. Indexation,
freight or bunker adjustment clauses)

10. IV – HOW DOES HARDSHIP WORK?
Arbitrators can revise the contract price and/or other terms :
 C... v. O..., award n° 387, 24th December 1980
 C... v. A..., award n° 776, 25th May 1990
Provided there is also :
• a clause conferring specific powers of revision upon the
Arbitrators or an “amiable compositeur” clause
• a clear definition of the hardship events giving rise to this
power

11. The clause can also provide for termination of the contract if
the parties are unable to agree upon alternative terms (cf.
ICC Hardship Clause 2003).
Maybe hardship clauses do not work simply because
they are not well drafted.

12. “Owners
and
Charterers
hereby
recognize
that
circumstances may arise during the currency of the charter
term by reason of currency devaluation which may render it
equitable that there should be increases or decreases in the
rate of hire payable for the vessel.
In the first instance, the parties shall endeavor amicably to
agree upon die appropriate adjustment. If they are unable to
reach agreement ,the question as to whether there should be
any such adjustment and if so, the amount thereof, shall be
determined by an independent shipbroker who shall be
appointed for that purpose by the parties, or, in the event of
their disagreement by the president for the time being of the
Institute of Chartered Shipbrokers in London. The said
broker shall act as a valuer and not as an arbitrator and his
decision shall be final and binding” (quoted in Lars Gorton’s
1978, Escalation and currency clauses in shipping contract)

13. THANK YOU