Hardship clause

Hardship clause
See also
Termination clause Tenancy at Will Discharge of contract Statute barred debt Termination for convenience Good faith bargaining Assignment of claims Consideration clause Contract documents

Hardship clause is a disposition according to which the tax administration has discretionary powers to mitigate any harsh results of tax, such relief being granted because the taxpayer has insufficient means to pay, or because the incidence of tax has worked inequitably in his particular circumstances.

If many long-term contract, usually international but sometimes domestic, a so-called hardship clause is often included to deal with problem. The clause provides that in cases where an event has caused substantial economic hardship or substantial and economic disadvantage to one of the parties, then the party affected may call for renegotiation.

An example would be: If during the course of the contract either party considers that it has suffered undue prejudice or obvious hardship, that party shall have the right to require the other party to participate in a joint examination of the position with a view to determining whether revision or modification of the provisions hereof is required and if so what revision or modification would be appropriate and equitable in the circumstances.

Advantages of hardship clause

There are several advantages of hardship clause:

1. The first is the provision of a degree of certainty. It is often difficult to know whether or not a contract has been frustrated. To an extent this uncertainty can be reduced by the parties agreeing a list of events which are to constitute force majeure or hardship events.
2. The second is that frustration operates within very narrow limits (both in terms of the events which constitute frustrating events and the width of doctrines such as self-induced frustration which deny to a party the ability to argue that the contract was frustrated).
3. The third advantage is that the parties can make provision for the consequences of the occurrence of a force majeure or hardship event. Frustration operates too drastically because it terminates the contract, irrespective of the wishes of the parties. Very often the parties want to continue their relationship but to adapt the terms to meet the new situation. This cannot be done under the doctrine of frustration.

Hardship and Force Majeure

The substantial change of circumstances, which the typical hardship clause encounters, is connected with the occurrence of events that upset the economics of a contract, with the result that its performance becomes unusually onerous or devoid of purpose for one of the parties, but without rendering such performance impossible. On the other hand, for force majeure, there has to be an event that totally prevents the performance of the contract, whether temporarily or permanently. Whereas the change of circumstances may lead to the amendment or termination of the contract, force majeure brings about its suspension (in the event of temporary impossibility) or termination (in the event of complete impossibility). The common link between the two concepts is he occurrence of unforeseeable and unavoidable events.

References

• Dictionary of Taxation Terms, (2000), Bukupedia, London.
• Fontaine M., De Ly F., (2010), Drafting International Contracts, BRILL, New York.
• Marsh P.D., (2010), Contract Negotiation, Gower Publishing, Burlington.
• McKendrick E., (2015), Contract Law, Macmillan, Chennai.

Author: Adam Jawor