Ændrede omstændigheder – med fokus på hardshipklausuler

Johanns Baad Michelsen & Jesper Engel Petersen

Student thesis: Master thesis


This thesis concerns the impact of change of circumstances in a business relationship, with special focus on hardship clauses in long and complex contracts. The thesis is build around the company CMJ A/S, which is a major company within the energy sector. The focus is mainly to determine whether the inclusion of a hardship clause in their contracts will be efficient for CMJ A/S or not. In order to analyze the clause’s efficiency, the thesis attempts to uncover the legal situation in Denmark, if a change of circumstances affects the contract, and no clause is adopted. The thesis concludes that the legal remedy in Denmark, is a doctrine of frustration, rather than a doctrine of adjustment. Also treated in this thesis, is the fairly new Proposal for a Common European Sales Law (or, CESL), with a special focus on Article 89, which is comparable to a general hardship provision. If the proposal gets adopted by the European Union, a viable option for CMJ A/S to use this will exist. Additionally we consider the groundbreaking rule of art. 2 in the CESL, under which a party’s failure to exude good faith and fair dealing, can result in him being liable for damages. We specifically analyze the effect of this rule in connection with the act of renegotiation, which stems from the hardship clause in art. 89 of the CESL. A hardship clause will also be particularly relevant in the energy sector, where many contract are closely linked in the form of so called cascade-contracts, and the failure of a single contract could have major implications for other contracts, and thus the company as a whole. A general and broadly written hardship clause such as CESL's Article 89 will probably not be the best solution, where the contracts is of a long duration and complexity. It is therefore recommended that certain clauses be tailored to CMJ A/S's needs, while some lesser important contracts more easily can be placed within the frame of the CESL. A hardship clause is a divergence from the principle of Pacta Sunt Servanda, and follows the doctrine of adjustment. This thesis attempts to analyze whether it is efficient to diverge from this principle or not. The analysis considers both legal and economic implications of doing this. The thesis concludes that the use of a hardship clause should improve the overall stability of CMJ A/S contracts, and thereby its relation to its partners, by sharing an eventual burden, and thus increasing the confidence in each other. This reduces the chance of litigation and costs associated with this, which could mount to a total loss if the contract is terminated. The clause results in an increased focus on not only renegotiation, but also in achieving a solution through renegotiation. Furthermore we conclude, that the rule of liability for failure to adhere to expectations of “good faith and fair dealing”, is somewhat effective in removing certain moral hazard issues within the renegotiation phase. In addition, a hardship clause adds stability to the contract, as both parties know that in extreme cases, reestablishment of the original contract balance will be attempted This can eventually lead to certain contracts and cooperation agreements will be entered signed, where they otherwise would have been signed, because of an undetermined risk.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2012
Number of pages107