Hardship & The Duty to
Renegotiate

When Contracts Meet Crisis: The Case for Renegotiation

Geopolitical disruption is no longer a theoretical risk for businesses operating in international trade. Across the Persian Gulf region and beyond, companies are facing a sharp and uncomfortable reality: long-term commercial agreements signed in more stable times are now under severe strain — and many are looking for a legal basis to seek relief.

That mechanism exists. It is called hardship — and unlike force majeure, which excuses performance entirely, hardship is designed to keep contracts alive by compelling parties back to the negotiating table.

What Hardship Actually Means in Law

Hardship arises where unforeseen events, occurring after a contract is concluded, fundamentally alter its economic balance — making performance significantly more onerous for one party, even if not technically impossible. The concept is codified in the UNIDROIT Principles of International Commercial Contracts (Art. 6.2.2), which defines it as an event that fundamentally alters the equilibrium of the contract, either because the cost of performance has increased dramatically or because the value of what one party receives has substantially diminished.

The distinction from force majeure is critical. Force majeure operates as an excuse: performance is suspended or discharged because it has become impossible or legally prohibited. Hardship does not excuse non-performance. A party suffering hardship is still obliged to continue performing — at least during the renegotiation process. What hardship provides is not an exit, but a legal basis to demand that the other party engage in genuine renegotiation to restore contractual equilibrium.

Hardship does not excuse non-performance but triggers an obligation to renegotiate in order to restore equilibrium — it is a mechanism for contract survival, not contract escape.

The Threshold: What Courts and Tribunals Actually Require

Hardship is not a low bar. Increased costs, reduced margins, or a less favourable trading environment do not, by themselves, establish it. The threshold is deliberately high, reflecting the fundamental principle of pacta sunt servanda — parties are bound by their agreements and must not use changed circumstances as a pretext to escape unfavourable but foreseeable commercial risk.

To succeed on a hardship claim, a party must generally demonstrate all of the following:

Fundamental Alteration of Contractual Equilibrium

The disruption must be severe enough to destroy the basic balance of the bargain, not merely make it more expensive. Academic commentary on the UNIDROIT Principles suggests a useful benchmark: a cost increase of less than 50% is unlikely to meet the threshold. A 70% rise in the price of steel was found sufficient by the Belgian Court of Cassation (2009), where that increase directly destroyed the economic rationale of a long-term supply agreement.

Events Were Unforeseeable at Time of Contract

The events must not have been foreseeable when the contract was entered into, and the risk must not have been one the affected party assumed — expressly or impliedly. In markets with established geopolitical risk profiles, this can be a difficult argument. Where contracts were concluded before the current conflict escalated, the analysis is more favourable.

The Risk Is Beyond the Party's Control

Hardship cannot be invoked where the party's own conduct contributed to the changed circumstances. The doctrine is reserved for external, objective changes — not commercial misjudgements or voluntary exposure to avoidable risk.

The Party Did Not Assume the Risk

If a contract explicitly allocates the risk of price volatility or geopolitical disruption to one party — through fixed-price provisions, war risk clauses, or broad change-in-circumstances waivers — invoking hardship becomes substantially harder. The absence of any such allocation, or the presence of a well-drafted hardship provision, significantly improves the affected party's position.

The Duty to Renegotiate: A Legal Obligation, Not a Commercial Courtesy

Once the threshold is met, the affected party is entitled under UNIDROIT Art. 6.2.3 to request renegotiation without undue delay, stating the grounds on which the request is based. That request must be made in good faith — the party must genuinely believe hardship exists and not use the mechanism as a tactical manoeuvre to renegotiate a simply unfavourable deal.

Critically, the duty is not unilateral. Both parties are expected to conduct negotiations constructively, provide necessary information, and refrain from obstruction. A refusal to engage, or an unreasonable insistence on strict adherence to the original terms in the face of a legitimate hardship claim, carries legal risk. Courts and arbitral tribunals have increasingly treated bad-faith refusal to renegotiate as a factor that weakens the refusing party's legal and costs position.

The duty to renegotiate is an obligation of conduct, not of result. Neither party is required to reach agreement — but both are required to pursue it genuinely.

In international arbitration, tribunals have occasionally exercised a power of contract adaptation — revising terms where parties have failed to agree — though the dominant view remains that adaptation is a last resort, and that arbitrators should first facilitate rather than replace genuine negotiation.

An Effective Renegotiation Requires

Does Hardship Apply Without a Hardship Clause?

The answer depends on the applicable law — but often yes, in some form. The UNIDROIT Principles apply where parties have chosen them or where an arbitral tribunal adopts them as general principles of international commercial law. Many domestic legal systems contain analogous doctrines: French law has imprévision (Art. 1195 Civil Code); German law applies Störung der Geschäftsgrundlage (§ 313 BGB). English law remains more conservative — frustration applies only where performance becomes radically different from what was undertaken, and courts are reluctant to extend it to mere commercial difficulty.

The ICC has published model hardship and force majeure clauses — updated to reflect the lessons of COVID-19 — which provide a structured framework: triggering conditions, notice requirements, a renegotiation period, and a mechanism for termination or referral to a third party if renegotiation fails. For contracts lacking such a clause, the UNIDROIT framework and applicable domestic law fill the gap to varying degrees.

What Affected Parties Should Do Now

Whether your business is seeking relief or responding to a hardship request, the following steps apply equally:

• Review the contract text carefully. Does it contain a hardship or material adverse change clause? What is its scope, triggering threshold, and procedure? What law governs the contract?
• Document the impact. Quantify the cost increase or value diminution with precision. Establish when the disrupting events began, and when they could reasonably have been foreseen.
• Act without undue delay. Most hardship provisions and the UNIDROIT Principles require prompt notice. Delay can undermine the claim and, in some legal systems, result in waiver.
• Engage in good faith. Whether initiating or responding to a renegotiation request, document your conduct carefully. Good faith is increasingly a legal standard with consequences, not merely a commercial aspiration.
• Consider the relationship, not just the contract. Hardship renegotiation is an opportunity to adjust an agreement that no longer works. Parties who approach it as a legal skirmish rather than a commercial problem typically fare worse — before both the counterparty and any subsequent tribunal.