The contract execution in case of a change of circumstances (hardship) a comparison between the civil code 2015 and the principles of international commercial contracts

HỒ CHÍ MINH ---***--- BAN ĐIỀU HÀNH CÁC CHƯƠNG TRÌNH ĐÀO TẠO ĐẶC BIỆT NGUYỄN HOÀNG NAM THE CONTRACT EXECUTION IN CASE OF A CHANGE OF CIRCUMSTANCES HARDSHIP – A COMPARISON BETWEEN THE

BỘ GIÁO DỤC VÀ ĐÀO TẠO

TRƯỜNG ĐẠI HỌC LUẬT TP HỒ CHÍ MINH

-*** -

BAN ĐIỀU HÀNH CÁC CHƯƠNG TRÌNH ĐÀO TẠO ĐẶC BIỆT

NGUYỄN HOÀNG NAM

THE CONTRACT EXECUTION IN CASE OF A CHANGE OF CIRCUMSTANCES (HARDSHIP) – A COMPARISON BETWEEN THE CIVIL CODE 2015 AND THE PRINCIPLES OF INTERNATIONAL

BỘ GIÁO DỤC VÀ ĐÀO TẠO

TRƯỜNG ĐẠI HỌC LUẬT TP HỒ CHÍ MINH

-*** -

BAN ĐIỀU HÀNH CÁC CHƯƠNG TRÌNH ĐÀO TẠO ĐẶC BIỆT

NGUYỄN HOÀNG NAM

THE CONTRACT EXECUTION IN CASE OF A CHANGE OF CIRCUMSTANCES (HARDSHIP) – A COMPARISON BETWEEN THE CIVIL CODE 2015 AND THE PRINCIPLES OF INTERNATIONAL

THÀNH PHỐ HỒ CHÍ MINH

NĂM 2016

STATEMENT OF GUARANTEE

I hereinafter guarantee that this bachelor thesis

is definitely attributed to my own research and are implemented under the instruction of LL.M Luong Van Lam I reassure that the citation and reference used in this thesis is authentic and appropriate I am faithfully and completely responsible for this guarantee

ABBREVIATION TABLE

CC 1995 Civil Code (Law No 44-L/CTN) passed by the National

National Assembly on 15/6/2004, amended by Law on the amendment and supplement of certain regulations of Civil Procedural Code (Law No 65/2011/QH12) passed by the National Assembly on 29/3/2011

CPC 2015 Civil Procedural Code (Law No 92/2015/QH13) passed

by the National Assembly on 25/11/2015

Commercial Law 2005 Commercial Law (Law No 36/2015/QH11) passed by

National Assembly on 31/12/2015

UNIDROIT International Institute for the Unification of Private Law PICC UNIDROIT Principles of International Commercial

Contract

CISG Convention on International Sales of Goods

Decree 99/2007 Decree No 99/2007/ND-CP passed by the Government on

management of expenditure on work investment and construction on 13/6/2007

Decree 37/2015 Decree No 37/2015/ND-CP passed by the Government

providing detailed regulations on construction contract on 22/4/2015

TABLE OF CONTENTS

INTRODUCTION 1

CHAPTER 1: OVERVIEW OF HARDSHIP AND CONTRACT EXECUTION IN CASE OF HARDSHIP 7

1.1 The origin of doctrine of hardship 7

1.1.1 The doctrine pacta sunt servanda 7

1.1.2 The doctrine clausula rebus sic stantibus 10

1.1.3 The doctrine of frustration of purpose 12

1.2 The definition and legal characteristics of hardship 14

1.3 Overview of hardship institution in the Principles of International Commercial Contracts and Vietnamese law 16

1.3.1 Overview of hardship institution in the Principles of International Commercial Contracts 16

1.3.2 Overview of performance of contract in case of a change of circumstances in Vietnamese law 18

SUB-CONCLUSION OF CHAPTER 1 24

CHAPTER 2: THE COMPARISON OF THE CONTRACT EXECUTION IN CASE OF HARDSHIP BETWEEN THE CIVIL CODE 2015 AND THE PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS – EXPERIENCES FOR VIET NAM 25

2.1 The requirements of hardship 25

2.1.1 The time that hardship occurs 25

2.1.2 The awareness of the parties towards hardship 29

2.1.3 The uncontrollability of hardship 34

2.1.4 The excessively onerous consequence of hardship 37

2.2 The legal effects of hardship 40

2.2.1 The right to request renegotiation in case of hardship 40

2.2.2 The interference of judicial body with the contract in case of hardship 44

SUB-CONCLUSION OF CHAPTER 2 49

CONCLUSION 50

INTRODUCTION

1 The reasons for conducting the thesis

The economy of Viet Nam has been enhanced dramatically since the 6th National Congress of the Communist Party This remarkable milestone contributed to the birth and the promotion of the socialist-oriented market economy of Viet Nam In addition, due to the participation of Viet Nam in World Trade Organisation as well as various free trade areas, the flow of international trades into Viet Nam and the economic integration of Viet Nam have become more and more expansive These have both positive and negative impacts on natural persons, legal entities as well as certain superstructures of Viet Nam Contracts and the contract institution are not exempted from this trend In particular situations, changes of the market materially affect contracts which parties concludes without cognition of such changes, leading to the unfair alteration of the equilibrium of the contract Research on this situation, so-called

“hardship” or “fundamental change of circumstances”, thus appears to be an urgent demand in Viet Nam This demand is also confirmed by the fact that regulation on changed circumstances is an inclusion in Annex III namely “Fundamental issues of the Proposal for the Civil Code (amendment) in need of public consultation” promulgated along with Decision No 01/QD-TTg of the Prime Minister on promulgation of the plan of organisation of public consultation regarding the Proposal for the Civil Code (amendment) dated 02/01/2015

However, Vietnamese law regulates this situation in an incomplete manner In fact, only some specialised legal documents provide the changed circumstances of specific types of contract This undeniably creates not only the incoherence and shortcomings in contract law but also the imbalance treatment as to specific types of contract relationships In that context, the adoption of the Civil Code 2015 (hereinafter

“CC 2015”)1 plays a crucial role because, through this legislation, the institution of

“performance of contract in the event of substantial change of circumstances” has been formally and generally recognised in Vietnamese Civil Law This movement of Vietnamese law requires extensive and comprehensive academic research

Another reason for the urgency of this thesis lies in the legal policy of the Vietnamese Communist Party Resolution 48-NQ/TW of Political Bureau on 24/5/2005 determines that enhancing contract law is one of the central strategies to improve the socialist-oriented market economy of Viet Nam Regarding this sense, researching and improving hardship institution support the political and economic policy in Viet Nam

1 Civil Code (Law No 91/2015/QH13) passed by the National Assembly on 24/11/2015

Among many legal systems and general principles, the Principles of International Commercial Contracts (hereafter “PICC”) of the Unification of Private Law (hereafter

“UNIDROIT”) is an appropriate model with which CC 2015 should be compared PICC, the Principles of European Contract Law (hereafter “PECL”) and Draft Common Frame of Reference (hereafter “DCFR”)2 are classical instruments which recognise and provide hardship Among them, whilst PECL and DCFR are principles drafted by European entities in response to the need of harmonisation contract laws at European level3, PICC is a worldwide international instrument prepared by professional drafters in all regions of the world, including all five continents.4 Thus, PICC could offer the innovation and the harmonisation of a variety of legal traditions

in the world at a more expansive decree than PECL and DCFR Furthermore, although Convention on International Sales of Goods (hereafter “CISG”)5 is an indispensable legislation on international trades, the basic question whether hardship is covered by CISG has not been solved.6 The process of promoting Vietnamese Civil Law should

2 Full text of PICC 2010 is available at International Institute for the Unification of Private Law (UNIDROIT), Principles of International Commercial Contracts 2010 (“PICC 2010”), UNIDROIT, Rome Full text of PECL is

available at Lando, Beale (2002), The Principles of European Contract Law, The Hague: Kluwer Full text of DCFR is available at Christian von Bar, Eric Clive, Principles, Definitions, Model Rules of European Private Law: Draft Common Frame of Reference (DCFR), Sellier European Law Publishers, M nchen

3

Christian von Bar, Eric Clive, supra note 2, pp 6-9; Lando, Beale, supra note 2, pp 3-9

4 See the exhaustive list of drafters and observers from Europe, Africa, Asia, The Americas and Australia in International Institute for the Unification of Private Law (UNIDROIT), Principles of International Commercial Contracts 2010, UNIDROIT, Rome, pp ix-xiii

hoan canh thay doi trong boi canh sua doi Bo luat dan su” [Pre-contractual obligation and regulating contracts in

the event of change of circumstance in the context of amending the Civil Code], Tap chi Luat hoc [Jurisprudence Journal], Special No., pp 118-120 (hardship covers force majeure and certain events could possibly be both

concepts); Amin Dawwas (2010), “Alteration of the Contractual Equilibrium under the UNIDROIT Principles”,

Pace International Law Review Online Companion, Volume 2(5), p 6; Alexei G Doudko (2000), “Hardship in Contract: The Approach of the UNIDROIT Principles and Legal Developments in Russia”, Unification of Law Review, Volume 5, p 490-491; Nguyen Ngoc Lam (2014), Giai quyet tranh chap hop dong thuong mai quoc te

[Settlement of disputes on international commercial contracts], Hong Duc Publishing House, Ha Noi, pp

195-196; Le Minh Hung (2010), Hieu luc cua hop dong theo qui dinh cua phap luat Viet Nam [The validity of

contract in accordance with the regulations of Vietnamese law], PhD Dissertation, University of Law of Ho Chi Minh City, p 158; Nguyen Anh Thu (2014), “De xuat sua doi, bo sung qui dinh lien quan den nguyen tac thien chi trong Bo luat dan su Viet Nam nam 2005” [Proposal for amending and supplementing regulations related to

the principle of good faith in the Vietnamese Civil Code 2005], Tap chi Khoa Dai hoc Quoc gia Ha Noi: Luat hoc [Journal of Science of Viet Nam National University in Ha Noi: Legal Studies], Volume 3, pp 64-65; Joern Rimke (2000), “Force majeure and Hardship: Application in International Trade Practice with Specific regard to the CISG and the UNIDROIT Principles of International Commercial Contracts”, Pace Review of the Convention on Contracts for the International Sales of Goods, Kluwer, p 200-201 (concluding that force majeure differs from hardship); Do Van Dai (2015), “Ban them ve dieu chinh hop dong khi hoan canh thay doi” [More comments on regulating contracts regading the incidence of change of circumstance], Tap chi Nghien cuu lap phap [Journal of Legislative Research], Volume 13(293)/2015, p 32; Harry M Flechner (2011), “The

Exemption Provision of the Sales Convention, including comments on “Hardship” Doctrine and the 19 June

2009 Decision of the Belgian Cassation Court”, Belgrade Law Review, Year LIX, No 3, pp 90-101 (reject the inclusion of hardship in CISG); Christoph Brunner (2009), Force Majeure and Hardship under General

not be affected by such dispute as well as uncertainty and indirect provisions of CISG Therefore, to the extent of international instruments and to the decree of a bachelor thesis, PICC appears to be an ideal and reliable option for this research

Moreover, the regulations on hardship in PICC are believed to be a good model for national law-makers due to its advance and several times of application Issued in

1994, up to 2011, PICC has been applied or referred to in 265 cases7, a nontrivial number as regards to the non-binding nature of PICC Another crucial reason is the explicit intention of the drafters of CC 2015 to absorb experiences from PICC in the drafting process Specifically, in Section C.4 of the Presentation on the Proposal for the Civil Code (amendment) of Ministry of Justice, Section 6.2.1 and 6.2.2 PICC are fully cited Accordingly, as a benchmark for drafting CC 2015, PICC is the most ultimate research object upon fostering Vietnamese Civil Law

Consequently, the author chooses “The contract execution in case of a change

of circumstances (hardship) – A comparison between the Civil Code 2015 and Principles of International Commercial Contracts” as the bachelor thesis

2 Overview of the research literature

Vietnamese material

The doctoral dissertation “Hieu luc cua hop dong theo qui dinh của phap luat Viet Nam” [The validity of contracts in accordance with Vietnamese law] of Le Minh Hung does not only provide an thorough and in-depth research on elements of the validity of contracts but also specifies the hardship clause in many legal systems for the purpose

of improving Vietnamese law Regarding this sense, the article “Dieu khoan dieu chinh hop dong do hoan canh thay doi trong phap luat nuoc va kinh nghiem cho Viet

Nam” [Hardship clause in foreign law and experiences for Viet Nam] in Tap chi nghien cuu lap phap [Journal of Legislative Research] 2009 also contains various

information on hardship clause in several domestic laws, international principles and the practical application of Vietnamese law

Three articles including “Dieu chinh hop dong khi hoan canh thay doi va van de sua doi Bo luat Dan su nam 2005” [Regulating contracts in the event of change of

circumstances and the amendment of Civil Code 2005] of Ngo Quoc Chien in Tap chi

Contracts Principles – Exemption for Non-performance in International Arbitration, Kluwer Law International, Netherlands, pp 397-400 (with a view to discrepancy between two concepts only regarding the legal effect);

Hannes Rösler (2008), “Changed and Unforeseen Circumstances in German and International Contract Law”,

Slovenian Law Review, Volume 5(1), pp 52; Rodrigo Momberg Uribe (2011), “Change of Circumstances in International Instrument of Contract Law The Approach of the CISG, PICC, PECL and DCRF”, Vidobona Journal of International Commercial Law and Arbitration, Volume 15(2), pp 235-266

7

Lauro Gama Jr (2011), “Prospects for the UNIDROIT Principles in Brazil”, Uniform Law Review, Volume

16(3), p 620

nghien cuu lap phap [Journal of Legislative Research] 2015, “Ban them ve dieu chinh

hop dong khi hoan canh thay doi” [More comments on regulating contracts regarding

the incidence of change of circumstances] of Do Van Dai in Tap chi nghien cuu lap phap [Journal of Legislative Research] and “Nghia vu tien hop dong va dieu chinh hop

dong do hoan canh thay doi trong boi canh sua doi Bo luat Dan su” [Pre-contractutal obligations and regulating contracts in the event of change of circumstance in the

context of amending the Civil Code] of Kieu Thi Thuy Linh in Tap chi Luat hoc

[Jurisprudence Journal] 2015 provide the necessity of legalising the issue and a variety

of shortcomings of relevant provisions in the Proposal for the Civil Code

Material in foreign language

The book Force Majeure and Hardship under General Contracts Principles – Exemption for Non-performance in International Arbitration chiefly edited by

Christoph Brunner is an indispensable and comprehensive source of material regarding hardship, covering historic and doctrinal aspects, comments and analysis on this institution in typical legal instruments to both international and domestic extents The article “Contractual Excuse under the CISG: Impediment, Hardship, and the

Excuse Doctrine” of Larry A DiMatteo on Pace International Law Review 2015

provides a comprehensive analysis on the Article 79 “Exemptions” of Convention on International Sales of Goods as the institution of hardship in the Principle of International Commercial Contract and Principles of European Contract Law

The article “Force majeure and Hardship in International Sales Contracts” of Ingeborg Schwenzer in Victoria University Wellington Law Review illustrates the relationship between force majeure and hardship as regulated by certain domestic laws

and some international conventions and principles

The article “From Clausula Rebus Sic Stantibus to Hardship: Aspect of the Evolution of the Judge’s Role” of Pascal Pichonnaz in Fundamina 2011 describes the

legal-historical aspect of hardship from its origin in the Middle Ages to modern legislations

The article “Hardship and Force majeure” of Dietrich Maskow in American Journal of Comparative Law 1992 introduces two concepts which are hardship and force majeure, regarding their reasoning and legal regulations, in PICC, CISG and

changes in German Law

The aforementioned research indicates that there has not been extensive legal literature on “fundamental changes of circumstances relating to contract” in CC 2015

Additionally, little scholar conducts exhaustive research on the comparison between this institution in CC 2015 and that in PICC This serves as a supplementary element

of the necessity of the thesis

3 The objectives of the thesis

The research is carried out in both theoretical and practical aspects for the purpose of clarification of the legal nature and consequences of fundamentally changed circumstances of contracts To achieve this purpose, there are two smaller objectives At the beginning, the thesis aims at analysing doctrinal perspectives and legal characteristics of hardship events On that base, the thesis primarily focuses on the requirements and effects of recognised hardship Concerning the second objective,

on the one hand, a comparison between Vietnamese regulations and PICC is undeniably important On the other hand, the research offers comments, recommendations and according reasoning in order to enhance Vietnamese law

4 The object and scope of research

Hardship institution in CC 2015 and PICC, including three entire versions in

1994, 2004 and the latest 2010, are inclusions in the research object Accordingly, the scope of the thesis is confined to the legal norms of Vietnamese law, specifically CC

2015, three versions of PICC and certainly their practical applications In detail, the research concentrates on two basic issues of hardship, including its requirements and

legal effects Moreover, although hardship is closely related to force majeure8, the

research mainly concentrates on studying the former

5 Research methods

The analytical and synthetic method, the comparative method and the historical method are properly used in this thesis As regards to the analytical method, the subject is divided into appropriate contingents, which would support the coherent understanding of the nature of the complex research objects In term of synthetic method, we induce subject to get a full general picture of matters Besides, the comparative method offers the comparison and contrast of discrepant aspects of particular issues whose similarities and differences leads to thorough knowledge and further information With historical methods, we would examine the progress of research objects and explain their changes in respect of historical knowledge

Chapter 1 of the thesis takes advantage of the analytical and synthetic method as well as historical method Chapter 2 of the thesis follows the analytical and synthetic method along with comparative method

8 Hannes Rösler, supra note 6, p 52

6 The thesis outline

The thesis is clearly divided into two chapters Chapter 1 offers an overview of hardship under theoretical and doctrinal aspects beside general perspectives of hardship in PICC and Vietnamese law In Chapter 2, the thesis tenders detailed comparison between PICC and CC 2015 as regards its requisitions and legal effects Furthermore, within the scope of this Chapter, the comparison does not only comprise

of necessary legal reasoning but also illustrate the grounds for experiences for Vietnamese law and legal application in Vietnam

CHAPTER 1: OVERVIEW OF HARDSHIP AND CONTRACT EXECUTION IN CASE OF HARDSHIP

In this Chapter, the author shall analyse the most fundamental theoretical issues

of performance of contracts in the event of a change of circumstances, so-called hardship Specifically, these issues include the doctrines in which hardship is rooted, the definition and legal characteristics of hardship and eventually a historical overview

of regulations on hardship in PICC and Vietnamese legal system Chapter 1 shall provide the reasoning of the birth of hardship as the foundation to study two basic aspects of hardship, including its requirements and effects, which shall be studied in Chapter 2

1.1 The origin of doctrine of hardship

Hardship is a new and innovative institution which is partially rooted in

traditional doctrines, including pacta sunt servanda, rebus sic stantibus and the

frustration of purpose In this Section, the author shall not attempt to analyse these classical theories Instead, this Section shall describe the relationship between hardship

and these doctrines to assist the argument that these doctrines, even pacta sunt servanda, support and constitute a part of the doctrine of hardship

1.1.1 The doctrine pacta sunt servanda

In term of pacta sunt servanda (Latin for “agreement must be kept”9) as the cornerstone and the underlying principle of contract law10, all valid agreements are

recognised and completely observed Pacta sunt servanda admires the contract in

9

Bryan A Garner (2009), Black’s Law Dictionary, 9th edition, St Paul, Minn,: West, p 1217

10 Amin Dawwas, supra note 6, p 3; Rodrigo Momberg Uriber, supra note 6, p 246; Dietrich Maskow (1992),

“Hardship and Force majeure”, American Journal of Comparative Law, Volume 40(3), p 658, 661; Hannes

Rösler (2007), “Hardship in German Codified Private Law – In Comparative Perspective to English, French and

International Contract Law, European Review of Private Law, Volume 15(4), p 504; Alexei G Doudko, supra note 6, pp 483, 492; Nguyen Ngoc Lam, supra note 6, p 194; Le Minh Hung, supra note 6, pp 31, 191; Kieu Thi Thuy Linh, supra note 6, p 117; University of Law of Ho Chi Minh City (2013), Giao trinh nhung van de chung ve luat dan su, quyen so huu va thua ke [Textbook of the general issues of civil law, ownership and

inheritance rights], Hong Duc Publishing House, Ha Noi, pp 52-53 (noting that since CC 2015 took effect, the principle of voluntary and free commitments and agreements has been prioritised and prevailed over the other principles of civil law In fact in the Civil Code 1995 (Law No 44-L/CTN) passed by the National Assembly on 28/10/1995 (hereafter CC 1995), this principle ranked fourth after three principles related respecting lawful interests, the law and good morality and traditions); Article 2.3 CC 2015 (“any commitments or agreements which does not violate a prohibition by law or is not contrary to social moral is valid for performance by the parties and must be respected by other subjects”); Article 1.3 PICC 2010; (“a contract validly entered into is binding upon the parties It can only be modified or terminated in accordance with its term or by agreements or

as otherwise provided in this Principle”); UNIDROIT, supra note 2, §1, §2, p 11 (Comments to Article 1.3

PICC Within the scope of PICC, Comments to the Preamble and Sections of PICC are not binding but reflect

the drafter’s opinions and illustrate an Article’s scope and meaning; see Perales Viscasillas, supra note 10, pp 388-389) directly quotes the term “pacta sunt servanda” Interestingly, although CISG does not explicitly mention pacta sunt servanda, implicit assumption of this principle could be found in Article 30, 53, 71-73, 79

CISG and the absence of principle of good faith in CISG

respect of its entireness Subsequently, performance of contractual obligations is strictly entitled, leaving no room for judicial or unilateral discharge or reformation of the contract This offers the extrinsic and intrinsic aspects of the principle On the one hand, contract is a device which stipulates the rights and obligations of the parties as regards their internal relationship On the other hand, under no circumstances could the third party or judicial bodies or events regardless its level of seriousness intervene the enforcement of the contract

These stringent contents of pacta sunt servanda result in the fact that hardship,

under the classical approach of civil law, is treated as “stepchild of contract law”11

The excessive respect for the doctrine pacta sunt servanda thus leads to the legislative

prejudice on and the rejection of the theory of fundamental change of circumstances What does not comply with principles shall be seriously challenged by the time factor

It is not until 1942 that the very first legislation in the world, the Italian Civil Code

1942, codified hardship.12 Accordingly, the birth of hardship is fairly late as related to other institutions of contract law This fact illustrates the importance of the approaches

of the relationship between hardship and pacta sunt servanda Regarding this sense,

there exist two conflicting arguments

In the first viewpoint, hardship appears to be an exception of pacta sunt servanda.13 Two subsequent reasons justifying this point of view could be raised On

the one side, while pacta sunt servanda recognises the enforcement of contracts with

its ultimate absoluteness, hardship often engages in the adaptation of the contract In contrast with traditional belief in the validity of contract as utmost “statute of the party”14, doctrine of hardship acknowledges a change of circumstances as an excuse for the adaptation or termination of such “statute” Consequently, under the flexible approach of this doctrine, contracts might be either completely or partly enforced On

the other side, as related to the first reason, while pacta sunt servanda precludes the

intervention of the third parties, even the state entities, in the contract, hardship institution in many legal instruments often recognises the intervention of judicial bodies which could modify the original contract

11 The cited term is provided in Alexei G Doudko, supra note 6, p 483

12 Do Van Dai supra note 6, p 35; Alexei G Doudko, supra note 6, pp 492-493

13 For the literature supporting this viewpoint, see Amin Dawwas, supra note 6, p 5; Rodrigo Momberg Uribe, supra note 6, pp 247-248; Werner Melis (1984), “Force majeure and Hardship Clauses in International

Commercial Contracts in View of the Practices of the ICC Court of Arbitration”, Journal of International

Arbitration, Volume 1, p 215; Nguyen Anh Thu, supra note 6, p 64

14 The cited term is provided in Pascal Pichonnaz (2011), “From clausula rebus sic stantibus to Hardship: Aspects of the Evolution of the Judge’s Role”, Fundamina, Volume 17(1), p 125; University of Law of Ho Chi Minh City (2013), Giao trinh phap luat ve hop dong va boi thuong thiet hai ngoai hop dong [Textbook of the

law on contract and non-contractual compensation], Hong Duc Publising House, Ha Noi, pp 132-133

The other scholars state that hardship theory should not be considered to

completely contradict with pacta sunt servanda.15 Instead of a conflicting doctrinal competition, it is evident that special regulation of contract in case of a change of

circumstances could supplement and relax the harsh approach of pacta sunt servanda.16 At least we could find the spirit of pacta sunt servanda in the theory of

Another sense of the meeting between pacta sunt servanda and hardship is the

prevention from withholding the contractual performance, as stated in Article 6.2.3(2) PICC and Article 420.4 CC 2015 Undeniably, this is a method of “keeping the promise” to ensure the compliance with the contract However, this aspect in hardship

is limited to the dispute resolution process only Article 420.4 CC 2015 provides this content only “during the process of negotiation of amendment or termination of the contract and during the period the court resolves the case” After this process, the

15 Hannes Rösler, supra note 10, p 509; Alexei G Doudko, supra note 6, p 493

16

Le Minh Hung, supra note 6, 157

17 Le Minh Hung, supra note 6, pp 32-33

18 Elena Christine Zaccaria (2005), “The Effects of Changed Circumstances in International Commercial

Trade”, International Trade and Business Law Review, Volume 9, p 137 This sense is also referred to as favour contractus, see Amin Dawwas, supra note 6, pp 13-14; Alexei G Doudko, supra note 6, pp 490-491; Christoph Brunner, supra note 6, p 400

19 UNIDROIT, supra note, §7, pp 221-222 (Comments to Article 6.2.3 PICC 2010)

contract is prone to be amended or terminated and the former performance could, therefore, be distorted

These two senses imply the inclusion of particular contents of pacta sunt servanda in hardship institution After the above clear analysis, since the arguments

under each approach are undeniable, the author supports that hardship does not only

exclude many contents of pacta sunt servanda but also inherits certain essential factors

of this classical doctrine

1.1.2 The doctrine clausula rebus sic stantibus

Clausula rebus sic stantibus (Latin for “clause things thus standing”) is a doctrine

which exists in international public law, providing state entities with an exit from international treaties if there happens an unforeseen “fundamental change of circumstances”, as specified by Article 62 Viena Convention on the Law of Treaties

1969.20 To the decree of this thesis, the analysis of clausula rebus sic stantibus or rebus sic stantibus is within the scope of civil law and contract law.21

In Black’s Law Dictionary, rebus sic stantibus is defined as follows22:

The principle that all agreements are concluded with the implied condition that they are binding only as long as there are no major changes in the circumstances.23

Despite being found in international public law, rebus sic stantibus is, in fact, originally rooted in the Middle Ages and private law Pursuant to an approach of rebus sic stantibus, in the situation of impossibilitas or impossibilium (impossibility to

perform), the contract loses its enforcement due to lack of objects.24 However, in

another situation, although it is not impossible to perform the contract, difficultas dandi (difficulty performing) also release the parties from contractual obligation.25 In these two approaches, the judges’ revision of contract is restricted Nevertheless, to the

20

United Convention on Contracts for the International Sales of Goods (“CISG”), opened for signature on 11/4/1980 (entered into force on 01/01/1988) This Article states that “a fundamental change of circumstances which has occurred with regard to those existing at the time of the conclusion of a treaty, and which was not foreseen by the parties, may not be invoked as a ground for terminating or withdrawing from the treaty unless: (a) The existence of those circumstances constituted an essential basis of the consent of the parties to be bound

by the treaty; and (b) The effect of the change is radically to transform the extent of obligations still to be

performed under the treaty” Also see Bryan A Garner, supra note, p 285

21

See Bryan A Garner, supra note 9, pp 285, 1381 (specifying that clausula rebussic stantibus is a principle

of international public law whilst rebus sic stantibus is a concept within civil law and international law)

22 Andrew Hutchison (2010), “The Doctrine of Frustration: A Solution to the Problem of Changed

Circumstances in South African Contract Law”, African Law Journal, 127(1), p.93

23

Bryan A Garner, supra note 9, p 1381

24 Pascal Pichonnaz, supra note 14, pp 127-128

25 Pascal Pichonnaz, supra note 14, pp 129-130

degree of the case of remissio mercedis, regarding agricultural leases in the

circumstances of extremely bad harvest, the court is in favour of the farmer who asks

for partial or remission of his rent The judge’s reasoning is that the locator (the leaser)

does not only have to hand over possession of land but also guarantees the effective perception of fruits.26 Accordingly, remissio mercedis offers judges the right to

intervene into the contract to amend the price in proportion with the bad harvest in case of extraordinary circumstances.27

Rebus sic stantibus admits the validity and enforcement of contract but only to

the extent of standing circumstances On the conclusion and performance of the contract, the parties are deemed to accept and understand the contract as it was at the

time of the promise In the vice versa sense, if there occurs major changes which

materially affect the circumstances, the court shall read and enforce an implied contract between the parties in accordance with such changes in replacement of the

initial one Therefore, nowadays clausula rebus sic stantibus is misled as clausula rebus sic non stantibus28: the contract non-standing and thus calls for reformation

The doctrine of clausula rebus sic stantibus supports two aspects of the doctrine

of hardship The former allows the latter to consider a change of circumstances, thus

contributes to the relaxation of pacta sunt servanda In a comparative view, whereas pacta sunt servanda esteems the absoluteness of the contract regardless of changed circumstances, under rebus sic stantibus, contract is a process, a “meta-program”29from its initiation, development to termination Rebus sic stantibus differs the situation

of the conclusion of the contract from that of other stages, especially the performance period In other words, the contract in case of a change of circumstances is implied to

be inconsistent with the original contract and compatible with such change Additionally, under both of the theories, the level of seriousness of the event amounting to changed circumstances should be taken into account This serves as the pre-requisition of application of the doctrines and the element to which the legal consequences of hardship is proportional

In the other aspect, unlike pacta sunt servanda, clausula rebus sic stantibus does

not exclude the judicial interference into the contract Judges could hence be freed

26 Pascal Pichonnaz, supra note 14, pp 130-131

27 Pascal Pichonnaz, supra note 14, pp 130-131

from obstacles of the willingness of the parties and freedom of contract and, to a particular extent, adjust the contract at its own decision

In practice of dispute settlements, several awards of International Chamber of

Commerce (hereafter “ICC”) Arbitration refer to clausula rebus sic stantibus upon deciding cases involved in hardship In the case of Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v Cubic Defense Systems, Inc, ICC

Court of Arbitration clearly states that “from the covenant of good faith and fair dealing which is implied in each contract [ ] in a case of [ ] fundamental changes in

an unforeseeable way, a party is precluded from invoking the binding effect of the

contract [ ] In such restrictive and narrow form this concept of hardship or clausula rebus sic stantibus [ ]”.30 The case No 8486 settled by ICC Court of Arbitration31 and

the case of Delta Comercializadora de Energia Ltda v AES Infoenergy Ltda resolved

by a Brazilian Arbitration32 also find the conceptual hardship identical to clausula rebus sic stantibus

Nonetheless, because of the approach of reading implied-terms, clausula rubus sic stantibus fails to address the question why and how, in case of a change of

circumstances, courts could adjust the contract which was concluded without the parties’ cognition, foreseeability and assumption of such changes In that context, hardship provides the theory of alteration of equilibrium on contracts to supplement

the shortcoming of clausula rebus sic stantibus.33

1.1.3 The doctrine of frustration of purpose

The doctrine of frustration of purpose is conceptually the situation in which the supplier’s performance is no longer any use to the recipient for the purpose for which both had intended.34 The aim of the doctrine is to escape from the injustice, which results from the enforcement of contract in its literal terms after a significant change of circumstances.35

31 ICC International Court of Arbitration, Zürich, September 1996, Case No 8486, English full text available

at http://www.unilex.info/case.cfm?pid=2&do=case&id=630&step=FullText (last visited on 12/7/2016)

32 Chamber of Conciliation and Arbitration FGV, Brazil, 2 September 2009, Delta Comercializadora de Energia Ltda v AES Infoenergy Ltda, English abstract available at http://www.unilex.info/case.cfm?pid=2&do

=case&id=1530&step=Abstract (last visited on 10/7/2016)

33

See Section 1.2 and 2.1.3

34 Christoph Brunner, supra note 6, p 464

35 Andrew Hutchison, supra note 22, pp 84-106

The common law system admits pacta sunt servanda in an excessive manner Prior to Taylor v Caldwell case in 1863, English law admires the absoluteness of the

contract and even impossibility was not a ground for discharge.36 In the set of out cases”, in which the local authority banned the illumination of streetlights in cities

“black-to avoid enemy detection in World War One and World War Two, courts in England, the United States and Australia held several contracts for shining lights and leasing neon signs frustrated and impossible.37

As similar to clausula rebus sic stantibus, basis of the frustration of purpose is

implied terms that a given purpose would continue to exist.38 The unforeseeable frustration of the purpose, which both parties have shared, would affect the contract Regarding the effect of frustration, whilst civil law system enables courts to terminate

or adapt the contract, English law strictly offer only total discharge of contracts.39

Consequently, the doctrine of frustration assists the relief of the doctrine pacta sunt servanda and leaves room for the judicial intervention into the contractual

relationship Nevertheless, the former doctrine holds several defects which make it imperfect upon addressing the change of circumstances The frustration is only limited

to the depreciation of the contractual value.40 Under this doctrine, the failure to meet the purpose of a party justifies the discharge of contractual obligations Hence, an increase of price of the contract could not upset the objectives which the parties wish

to achieve upon entering into the transaction Subsequently, frustration of purpose could confuse the reasoning of the theory of hardship for the failure to deal with all situations of change of price (inflation as a typical illustration) Furthermore, the doctrine of frustration originally rejects the renegotiation and adaptation of contracts, which appear to be essential measures in case of hardship events Whereas the hardship doctrine serves the need of saving contracts, the frustration doctrine primarily refers to the depression of purpose as a justification for termination of contract Unsurprisingly, as the initial cradle of the doctrine of frustration, English law has not ever recognised hardship.41

36 Andrew Hutchison, supra note 22, pp 86-87

37 Andrew Hutchison, supra note 22, pp 88-90

38

Andrew Hutchison, supra note 22, p 92

39 Rodrigo Momberg Uriber, supra note 6, pp 262-263; Andrew Hutchison, supra note 22, pp 93-94; Ingeborg Schwenzer (2008), “Force majeure and Hardship in International Sales Contracts”, Victoria University

of Wellington Law Review, Volume 39(4), p 711; Hannes Rösler, supra note 10, p 506-507; Christoph Brunner, supra note 6, p 491; Joern Rimke, supra note 6, pp 202-203

40 Amin Dawwas, supra note 6, p 4; Christoph Brunner, supra note 6, p 411

41 Hannes Rösler, supra note 10, p 497; Christoph Brunner, supra note 6, pp 408-411

1.2 The definition and legal characteristics of hardship

In accordance with Oxford Advanced Learners’ Dictionary, hardship refers to “a

situation that is difficult and unpleasant because you do not have enough money, food, clothes”.42 Black’s Law Dictionary defines hardship as “privation, suffering or

adversity”.43 This dictionary, beside that general meaning, only provides definition of hardship to the degree of family law and administrative law.44 It is quite astounding

that a famous dictionary like Black’s Law Dictionary (2009 edition) could forget such

an impressive legal phenomenon in the field of contract law since its birth in 1942 Pursuant to Werner Melis, hardship is “the meaning of an event that changes the contractual equilibrium between the rights and obligations of the parties in such a dramatic way that performance can become ruinous for one of them or cannot be reasonable expected”.45 The manner of this definition is rather puzzling because it denies treating “unforeseeability” as a mandatory element of hardship

Instead of defining hardship, the author Le Minh Hung specifies the concept of hardship clause: 46

Hardship clause is a clause which entitles a party to request the amendment of the contract in the event of objective change of circumstances and economic environment which substantially affect the interests of one or many parties, alter the economic equilibrium of the contract and make the performance of the contract excessively onerous and costly

This definition covers both the features, which indicate the connotation of the hardship concept, and the subsequent legal effects In contrast with this notion, a specific hardship event could rarely negatively affect the interests of both parties but rather an aggrieved one

Additionally, Article 6.2.2 PICC and Article 420.1 CC 2015 provide legal definition of hardship attached to its characteristics There is probably no further detailed personal definition of hardship in contract law On the one side, the inclusion

of the definition of hardship in the hardship institution leads to the fact that legal scholars do not try to supply their own definitions Actually, upon engaging in

42 A S Horny, supra note 42, p 684

43 Bryan A Garner, supra note 9, p 784

44

Bryan A Garner, supra note 9, p 784

45 Werner Melis, supra note 6, p 213

46 Le Minh Hung, supra note 6, p 157

hardship definition, they concentrate on analysing and clarifying this notion instead.47

On the other side, to the extent and the objective of Chapter 2 of this thesis, the author does not mention and clarify the definitions in PICC and CC 2015 in this Section Basing on the essences of the notion “hardship”, the author partially supports the previous definitions and supply one as follows:

Hardship or fundamental change of circumstances, in the field of contract law, is an uncontemplated and unforeseeable event which fundamentally alters the equilibrium of a contract and thus leads to an excessively onerous burden placed on one of the parties as a ground for the adaptation or termination of the contract

Characteristics of hardship

Regardless of the discrepancies of legal traditions, many legal scholar affirm the three succeeding characteristics of hardship: (i) subjectivity; (ii) objectivity and (iii) generally accepted effects.48

First, subject to objectivity, hardship is an event which is ruinous for the equilibrium of the contract The doctrine of hardship respects the binding effect of the contract even when the performance turns to being difficult for a party It is the excessively onerous event that may sufficiently amount to the hardship However, to the extent of this doctrine, hardship does not make the performance of the contract

impossible This is one of the differences between hardship and force majeure

Additionally, as a objective change of circumstances, hardship event occurs beyond the control of the parties

Second, as regards to the feature of subjectivity, both parties did not and could

not foresee the hardship event Upon entering into the contract, the parties may not predict supervening situations like economic crisis, terrorism, wartimes, extreme weather (global warming for example), political tension (“Brexit” – the possibility of the exit of the United Kingdom from European Union for instance) or unexpected changes of policy and law

Third, the amendment and termination of the contract are typical measures in case of hardship.49 In a broad sense, these legal effects could be either the results of the parties’ renegotiation or the judicial dispute settlement

1.3 Overview of hardship institution in the Principles of International Commercial Contracts and Vietnamese law

1.3.1 Overview of hardship institution in the Principles of International Commercial Contracts

UNIDROIT, created in 1926, is an independent international institution composed of 56 state members.50 It took fourteen years to draft the first version of PICC (1970-1994).51 Nowadays there have been three versions of PICC in total: 1994,

2004 and 2010 The natures of PICC are merely academic, non-political52 and mandatory53 Furthermore, PICC has private origin, as opposed to domestic and treaty-based law which originates in the State legislator.54 It is notable that PICC has the feature of generality55, so hardship provisions in PICC could be invoked to defence the parties of a wide range of contracts

non-The purposes of PICC are set forth in its Preamble To the extent of the objective

of this thesis, we should regard that one of the purposes of PICC is to “serve as a model for national legislators” According to the Comment 7 to this purpose, PICC

“may be particularly useful to those countries which lack a developed body of legal rules relating to contracts and which intend to update their law, at least with respect to foreign economic relationship, to current international standard”56 Due to the need of enhancing hardship rules, Vietnamese contract law accordingly takes advantage of PICC as to the latter objective.57 In fact, Ministry of Justice, the authority which drafted CC 2015, expresses this intention upon referring to PICC in the Presentation

on the Proposal for the Civil Code (amendment)

Hardship is one of the most remarkable features of PICC Interestingly, PICC’s provisions on hardship have remained unchanged throughout all of its versions since

49

Rodrigo Momberg Uriber, supra note 6, p 263

50

Perales Viscasillas, supra note 10, p 383

51 Perales Viscasillas, supra note 10, p 386

52 See Hannes Rösler, supra note 6, p 53; Perales Viscasillas, supra note 10, pp 385-386

53

Pascal Pichonnaz, supra note 14, p 63

54 Lauro Game Jr., supra note 7, p 614

55 Lauro Game Jr., supra note 7, pp 618-619

56 UNIDROIT, supra note 2, §7, p 6 (Comments to the Preample PICC 2010)

57

Section 1.3 shall clarify that Vietnamese legal tradition includes provisions on a change of circumstances of the contract, a concept which is similar but not identical to hardship Thus, PICC serves as an international instrument to fill in the gap of Vietnamese legal provisions on a change of circumstances

1994 This should be considered as an achievement which has long-lasted for more than twenty years The succeeding paragraphs are the original hardship clauses in PICC 2010 which are identical to those of the others in 1994 and 2010:58

6.2.1 Contracts to be observed

Where the performance of a contract becomes more onerous for one of the parties, that party is nevertheless bound to perform its obligations subject to the following provisions on hardship

6.2.2 Definition of hardship

There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party's performance has increased or because the value of the performance a party receives has diminished, and:

(a) the events occur or become known to the disadvantaged party after the conclusion of the contract;

(b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract;

(c) the events are beyond the control of the disadvantaged party; and (d) the risk of the events was not assumed by the disadvantaged party 6.2.3 Effects of hardship

(1) In case of hardship the disadvantaged party is entitled to request renegotiations The request shall be made without undue delay and shall indicate the grounds on which it is based

(2) The request for renegotiation does not in itself entitle the disadvantaged party to withhold performance

(3) Upon failure to reach agreement within a reasonable time either party may resort to the court

(4) If the court finds hardship it may, if reasonable,

(a) terminate the contract at a date and on terms to be fixed; or (b) adapt the contract with a view to restoring its equilibrium

58

UNIDROIT, supra note 2, pp 212-222 In fact, Articles and Comments to Articles on hardship in PICC

2014 are identical to those in PICC 2004, which amends only to the extent of Comments to Articles on hardship

in PICC 1994; see UNIDROIT, supra note 2, pp xxxi, xxxiv

1.3.2 Overview of performance of contract in case of a change of circumstances in Vietnamese law

Prior to the birth of CC 2015, the fragmented existence of hardship in Vietnamese law is a distinctive feature or this legal system Unlike the typical approach of the absolute rejection of hardship theory in English law59 or the general recognition of hardship in PICC60, Vietnamese law offers this institution in a sectoral manner Narrowly, only particular fields of specialised law regulate the contract in case of a change of circumstances

The very first regulations on hardship in bidding engagements were possibly found in the South of Viet Nam around 1946.61 The Democratic Republic of Viet Nam

in the North also takes change of circumstances into account and issue Ordinance No 139-TTg of the Prime Minister of Democratic of Republic of Viet Nam promulgating temporary rules on contract for performance of basic construction works on 26/6/1960 Article 17 of this Ordinance provides the amendment of construction contracts if there

is a change in engineering or the work amount and such amendment must be approved

by the competent authorities

The enhancement of regulations on a change of circumstances in Viet Nam after

1975 followed the piecemeal approach like its predecessors Construction and bidding activities continued to be prioritised to enjoy incentives of these regulations

Concerning bidding activities, both of the Law on Bidding 201362 and the Law

on Bidding 200563 allow revision of bidding contracts in the event of change of price

or operational schedule.64 The agreement on amendment of bidding contracts is a requisition of application of this institution Regarding change of price, saliently, Article 67.4 Bidding Law 2013 states that amended contractual price shall not exceed the procurement price or approved estimated budget or the total contributed capital In addition, adjustment of contract price shall only apply contract based on fixed unit price, contract based on modifiable unit price and time-based contract (Article 67.3

pre-59 See Section 1.1.2

60 See UNIDROIT, §7, supra note 2, p 217 (Comments to Article 6.2.2 PICC 2010 stating that “the definition

of hardship in this Article is necessarily of a rather general character”) In fact, entire 211 Articles, 11 Chapters

and the Preamble of PICC 2010 stipulate a variety of issues of contractual relationship without specifying or mentioning any particular types of contract

61

Le Minh Hung, supra note 6, p 171 citing Vu Van Mau, Viet Nam Dan luat – luoc khao [Vietnamese Civil

Law – research in brief], Quyen II “Nghia vu va khe uoc” [Book II: Obligation and engagement], Phan thu nhat: Nguon goc cua nghia vu [The first part: Origin of obligation], QGGD Publishing House, Sai Gon 1963, pp 250,

254

62

Law on Bidding (Law No 43/2013/QH11) passed by National Assembly on 26/11/2013

63 Law on Bidding (Law No 61/2005/QH11) passed by the National Assembly on 29/11/2005

64 Article 67 of the Law on Bidding 2013 and Article 57 of the Law on Bidding 2005

Bidding Law 2013) Therefore, a lump-sum contract is exempted from taking use of change on circumstances Considering change of operational schedule, Article 67.6

Bidding Law 2013 provides a set of limited situations: (i) case of force majeure, not

relating to any violation or mistake of parties in contract; (ii) changes of the work scope, design, measures for construction due to objective requirements affecting the contract operational schedule; (iii) handing over of ground inconsistently with agreements in contract affect to the contract operational schedule not due to fault of contractor Additionally, such changes are not the excuse for discharge of contractual obligation Amendment of bidding contract is the only permitted solution to change of circumstances in the context of Bidding Law 2013 whereas Article 57.3 Bidding Law

2005 provides a measure, which is to select a new contractor, in case of failure to renegotiation

As regards to construction contracts, Article 143 of the Law on Construction

201465 provides the reformation of construction contracts due to changes of a wider extent than the Law on Bidding above, including not only contractual price, operational term but also work amount and other contractual contents Article 143.2 Construction Law 2013 states particular events contributing to the amendment of contracts: (i) in case agreed upon by the parties in the contract in accordance with Construction Law and relevant laws; (ii) when the State changes its policies directly affecting the contract performance, unless otherwise agreed upon by the contractual parties; (iii) when the project is adjusted, affecting the contract, unless otherwise

agreed upon by the parties; (iv) force majeure circumstances as prescribed by law

Article 22.2 of Decree No 99/2007/ND-CP of the Government on management

of expenditure on work investment and construction on 13/6/2007 (hereafter Decree 99/2007) and Article 38.2 of Decree No 37/2015/ND-CP of the Government providing detailed regulations on construction contract on 22/4/2015 (hereafter Decree 37/2015) supplies a discrepant approach in which the change of price of construction contracts is deemed to be sufficient if it makes up more than 20% of the work volume Article 39.2 of Decree 37/2015 regulates four situations of adjusting the operational schedule:

- Under effects of earthquake, storm, floods, tsunami, conflagration,

enemy-inflicted disaster or other force majeure events;

- Changes or adjustments of the project, scope of work, design, construction measures as requested by the employer;

65 Law on Construction (Law No 50/2014/QH13) passed by National Assembly on 18/6/2014

- Handover of site plan not complying with the contract; temporary suspension

of contract caused by the employer's fault;

- Temporary suspension of construction works at the request of competent authorities without the employer’s fault

After 1975, insurance business and audit appear to be new promising fields to seed change of circumstances regulations Section 14 to 17 and Section A29 to A31 of Standard No 210 on audit contract, provided by Circular No 214/2012/TT-BTC passed by the Government on the promulgation of the system of Vietnamese audit standards on 06/12/2012, avail the parties with the obligation to renegotiate or, in case

of failure to deal, terminate the contract if there is a change of practical circumstances affecting demand of audit services In the field of insurance business, Article 20.1 of the Law on Insurance Business66 states the situation of increase in insurance premium:

“When there appear changes in the factors used as the basis for premium calculation, thus leading to the reduction in the insured risks, the insurance buyers may request the insurance enterprises to reduce the premiums for the remaining periods of the insurance contracts Where the insurance enterprises refuse to reduce the premiums, the insurance buyers may unilaterally suspend the performance of the insurance contracts but have to immediately notify such in writing to the insurance enterprises The circumstances of decreased insurance premium is similar, as provided by Article 20.2 Insurance Business Law: “When there appear changes in the factors used as basis for premium calculation, thus leading to the increase in the insured risks, the insurance enterprises may recalculate the premium for the remaining periods of the insurance contracts Where the insurance buyers refuse to accept the premium increase, the insurance enterprises may unilaterally suspend the performance of the insurance contracts, but shall have to immediately notify such in writing to the insurance buyers” Subsequently, Insurance Business Law refers to only changed circumstances which lead to the increase or decrease of the insurance premium Moreover, Insurance Business Law supplies the aggrieved party with the right to request amendment of contract or unilaterally terminate the insurance the contract The decree of the changed price and the awareness of the parties towards the circumstances are irrelevant

It is not until the birth of CC 2015 that Vietnamese legislation generally formulates and recognises the concept of hardship Full wording of this institution, in fact, appears in the form of substantial change of circumstances as follows67:

Article 420 Performance of contracts when circumstances change substantially

1 Circumstances shall [be deemed to] change substantially when the following conditions are satisfied:

(a) There is a change to the circumstances due to objective reasons, occurring after the contract is entered into;

(b) At the time when the contract is entered into, the parties are unable to foresee the change of circumstances;

(c) There is such a big change in circumstances that the contract would not have been entered into or would have been entered into with completely different contents if the parties had foreseen such change;

(d) The continuation of performance of the contract without changing the contents of the contract will cause serious loss and damage to one party;

(dd) The party whose benefits are affected has taken all necessary measures to the best of its ability and appropriate with the nature of the contract but is unable to prevent or mitigate the level of affecting the benefits

2 Where circumstances change substantially, the party whose benefits are affected has the right to request the other party to re-negotiate the contract within a reasonable period of time

3 Where the parties are unable to reach agreement on amendment of the contract within a reasonable period of time, either party may request a court to: (a) Terminate the contract at a definite time;

(b) Amend the contract to balance legitimate rights and benefits of the parties due to substantial change in circumstances

The court is only permitted to make a decision on amendment of the contract in a case where termination of the contract will cause loss and damage

of an amount higher than the costs for performance of the contract if the contract is amended

67 English version of CC 2015 is available at Vietnam Laws Online Database, www.vietnamlaws.com

4 During the process of negotiation of amendment or termination of the contract and during the period the court resolves the case, the parties must continue to perform their obligations under the contract, unless otherwise agreed

The adoption of CC 2015 should be considered an innovative and extraordinary development stage of hardship institution in Viet Nam which shall be analysed and clarified in Chapter 2 The rest of this Section shall be spent on assessing legal implications in the development of hardship rules

First, Vietnamese hardship provisions initially arose to meet the need of particular types of contract whose nature is characterised as complication and long-term engagements Accordingly, contracts involved in bidding, construction, business insurance and audit are typically complex ones whose period of performance is lengthy These features also lead to the sensitive vulnerability of such contracts in case

of severe events This is a well-known justification for the recognition of hardship

Hardship, pursuant to certain aspects of pacta sunt servanda, proposes for those types

of contract a shield from the threat of termination due to catastrophe.68

Second, such approach of Vietnamese legislators contributes to the pointillist feature and the imbalanced treatment of hardship regulation Whilst excessively onerous event could substantially distort the equilibrium in all categories of contract, Vietnamese hardship rules only pays respect to limited types of contract

Third, the general codification of hardship in CC 2015 is compatible with general principles of contract including PICC, DCFR and PECL Vietnamese law thus could harmonise with a classical approach in the world which is total recognition of hardship regardless types of contract

Fourth, before CC 2015, Vietnamese regulations on change of circumstances were unfamiliar with common criteria of the concept of hardship like “alteration of equilibrium of the contract”, “assumption of risks”, “reasonable foreseeability of events” In this context, Vietnamese law did not concern the actual nature of hardship which is excessive onerosity altering the equilibrium of the parties69 Despite the possibility of covering hardship, this situation of Vietnamese law, due to lacking the

examination of the decree of change, should be considered mere change of

circumstances rather than hardship In addition, regarding legal effects of a change of circumstances, while contract amendment is prevalent over termination in insurance

68 See Section 1.1.1

69 See Section 1.2

business law and audit law, in the field of construction and bidding, redefinition of particular aspects of contract are the only measure for which the parties could pray However, on failure to renegotiate, bidding law further used to offer new bidding package as regards to newly arising job – quite a peculiar method upon addressing a change of circumstances

SUB-CONCLUSION OF CHAPTER 1

In Chapter 1, after the analysis of theoretical, historical and legislative aspects of hardship, we would come to the subsequent conclusions:

1 Clausula rebus sic stantibus and frustration of purpose are among the

classical doctrines which assist the entitlement and codification of hardship As

regards to pacta sunt servanda, there probably appears to be conflicted whether this

doctrine exempts or support the theory of hardship Yet it is evidently substantiated

that hardship follows specific perspectives of the doctrine of pacta sunt servanda

2 The legal literature on hardship demonstrates the identity between the definition of this notion and its legal characteristics or requirements In short, hardship contains both the objective and subjective natures An event meeting such features shall amount to the situation of hardship and would result in special legal consequences

3 Legislative history in Viet Nam shows that Vietnamese law has manipulated the contract in case of a change of circumstances in a fragment manner In addition, contract regulations on a change of circumstances in Viet Nam before the enactment of

CC 2015 indicates that such change, despite leading to effects as hardship does, may not be purported to be hardship event It is CC 2015 that brings along a new stage of hardship development in Viet Nam by absorbing highly valuable experiences from PICC

CHAPTER 2: THE COMPARISON OF THE CONTRACT EXECUTION IN CASE OF HARDSHIP BETWEEN THE CIVIL CODE 2015 AND THE PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS –

EXPERIENCES FOR VIET NAM

As a response to crises arisen from World Wars, numerous domestic and international legal instruments have granted hardship institution.70 Particular typical instruments, for instance PICC, PECL, DCFR and ICC Hardship Clause, manipulate two basic factors of hardship, including the definition (requirements) and legal effects

of hardship.71 In accordance with this tendency, in Chapter 2, the comparison between hardship institutions in CC 2015 and PICC shall follow two approaches: (i) the requirements of hardship and (ii) the legal effects of hardship

2.1 The requirements of hardship

2.1.1 The time that hardship occurs

Both PICC 2010 and CC 2015 consider the time factor as one of the pre-requisite conditions of hardship event Article 420.1(a) CC 2015 clearly states that hardship “is

a change to the circumstances due to objective reasons, occurring after the contract is entered into” Pursuant to Article 6.2.2(a) PICC 2010, “the [hardship] events occur or become known to the disadvantaged party after the conclusion of the contract”

As regards to the similarity, PICC 2010 and CC 2015 explicitly require that the hardship event must occur after the conclusion of the contract This condition accords

70 See Section 1.1.2, also see Dietrich Maskow, supra note 10, p 659; Alexei G Doudko, supra note 6, p 492

(referring to the World Wars, the collapse of socialist system, the oil crises in 1970s as the typical events leading

to the entitlement of hardship)

71 See Article 6.2.2 (definition of hardship) and 6.2.3 (effects of hardship) PICC 2010; Article 6:111 PECL

2002 (see Lando, Beale, supra note 2, p 21); Article III –I:110 DCFR; (see Christian von Bar, Eric Clive, supra note 2, pp 232-233); ICC Hardship Clause 2003 (see International Chamber of Commerce (ICC) (2003), ICC Force Majeure Clause 2003 and ICC Hardship Clause 2003, ICC Publishing S.A., Paris p 15)

As regards to national legal systems, Article 451 of the Civil Code of the Russian Federation (available at http://www.wipo.int/edocs/lexdocs/laws/en/ru/ru083en.pdf, last visited on 09/7/2016) and new Article 1195 of the French Civil Code also state two above aspects of s change of circumstances The new regulation in French Civil Code, which takes effect since 01/10/2016, states that; see ICC, “A French revolution: Hardship finds it way into the Civil Code, available at http://www.iccwbo.org/News/Articles/2016/A-French-revolution-Hardship- finds-its-way-into-the-Civil-Code/ (last visited on 09/7/2016):

Where a change of circumstances that was unforeseeable at the time of the contract's conclusion renders performance exceedingly onerous for a party that had not accepted to assume such risk, the party may ask the other party to renegotiate the contract It shall continue to perform its obligations during renegotiation

In the event of refusal or failure of the renegotiation, the parties may agree to terminate the contract, on

a date and on terms determined by them, or jointly apply to a judge to proceed with its adaptation Failing agreement within a reasonable period of time, the judge may, upon a party's request, revise the contract or terminate it, on the date and terms he decides

Also see Section 1.3.2 for a Vietnamese perspective of this inclination

with the requirement of unforeseeability of the hardship.72 A link of many provisions

of PICC 2010 and CC 2015 could justify this similarity Article 386.1, 393.1 and 400.1

CC 2015, Article 2.1.2 and 2.1.6 PICC 2010 provide that the offer to conclude a contract and the acceptance of the offer are binding Both of them may lead to the establishment, amendment or termination of civil rights and/or obligations Thus, the

parties upon concluding the contract would examine and consider events which take

place upon or before the contract conclusion in order to obtain sufficient information and not fall into a bad deal If an event occurs before or upon the conclusion of the

contract, it is thus supposed that the parties could be aware of such situation (stressed

by the author) Therefore, the conclusion of the contract is assumed to comply with the circumstances at the time of the conclusion and satisfy the purpose and interests of the parties to the extent of their cognition upon the conclusion.73 Subsequently, to the decree of this similarity, only an event which happens after the conclusion of the

contract might relieve the parties from the enforcement of the contract (strongly emphasised by the author)

Moreover, PICC 2010 and CC 2015 generally share the reception-based theory upon determining the time of contract conclusion Specifically, Article 2.1.6 PICC

2010 and Article 400.1 CC 2015 provide that, in general, the time of conclusion of the contract is when the offeror has received the acceptance of the offer from the offeree Notwithstanding the above similarity, the time factor in CC 2015 and PICC 2010 are not identical Whilst both of the legal instruments provide that hardship must occur after the conclusion of the contract, PICC 2010 states another situation of the time element: “the events become known to the disadvantaged party after the conclusion of the contract” This additional situation and the linking word “or” of Article 6.2.2(a) contributes to the optional structure of this provision: the event suffices as long as it

occurs after and/or becomes known to the aggrieved party after the conclusion of the

contract There are consequently three scenarios pursuant to Article 6.2.2(a):

- Scenario 1: The change of circumstances occurs and becomes known to the disadvantaged party after the conclusion of the contract (hereinafter “Scenario 1”);

- Scenario 2: The change of circumstances occurs after the conclusion of the contract and becomes known to the disadvantaged party upon or before the contract conclusion (hereinafter “Scenario 2”);

72 See Section 2.1.2.

73

Article 118 CC 2015 also provide narrowly that “the objectives of a civil transaction are the interests which

the subjects wish to achieve at the time when they enter into such transaction” Subsequently, CC 2015 does not

impose the objectives further than the ones upon the conclusion of the contract on the parties

- Scenario 3: The change of circumstances occurs before or upon the contract conclusion and becomes known to the disadvantaged party after the contract conclusion (hereinafter “Scenario 3”); and

- Scenario 4: The change of circumstances occurs and become known to the disadvantaged party upon or before the contract conclusion (hereinafter “Scenario 4”) The event in Scenario 1 definitely satisfies the time requirement provided by both

CC 2015 and PICC 2010 As regards to Scenario 2 and Scenario 4, because the aggrieved party is able to foresee the change, it does not suffice to be hardship.74 The inheritance of CC 2015 from PICC 2010 is only to these extents In Scenario 3, such a change in the Vietnamese legal framework cannot amount to hardship whereas under the approach of PICC 2010, it can The author recommends Vietnamese law strictly inherits Article 6.2.2(a) PICC 2010 and precludes the time requirement provided by Article 420.1(a) CC 2015 for the succeeding reasons

First, the above justification for the requirement that hardship must occur after the conclusion of the contract is unreliable and contributes to the uncertainty of hardship rules Upon stating the binding nature of the offer and the acceptance of the offer, Article 386.1, 393.1 and 400.1 CC 2015, Article 2.1.2 and 2.1.6 PICC 2010, despite the possibility to create psychological impacts on the offeror and the offeree,

does not oblige them to speculate all circumstances and events In reality, no one could

foresee all events or changes of situations at the time of the conclusion of the contract and in the future Furthermore, an event occurring slowly upon the conclusion of the contract might change catastrophically and unpredictably in the future75 (see the case below), especially regarding long-term contracts Notwithstanding the inclusion of the time element in hardship provisions, the aforementioned analysis illustrates that PICC

2010 still grants hardship event taking place before the conclusion of the contract, as indicated in Scenario 3 Thus, forcing the parties to relinquish hardship excuse which happens prior to or on the contract conclusion is unconvincing and groundless, especially in the context that Vietnamese legislator attempted to adopt legal experience from PICC 2010

Second, hardship differs from force majeure only to the extent of the level of seriousness of the event (force majeure leads to impossibility whilst hardship makes the performance far burdensome) and its function (whereas force majeure functions as

excuse for non-performance, hardship functions for the purpose of saving and

74 See the requirement of unforeseeability in Section 2.1.2

75 Alexei G Doudko, supra note 6, p 498

performing the contract).76 Excluding such dissimilarity, hardship shares the objective

manner with force majeure.77 In that context, provisions on force majeure in PICC and

CC 2015 do not require that the force majeure event must occur before the conclusion

of the contract.78 As a concept closely related to force majeure79, hardship should not

differ from force majeure as regards to any aspects outside the extent of their functions

and the decree of onerosity of the change Consequently, rules on hardship, in the legal

framework of PICC 2010 and Vietnamese law, should absorb the approach of force majeure and preclude the condition of the time of occurrence of hardship event

Third, the practical application of PICC 2010 shows the irrelevance of the time requirement when examining the existence of hardship In detail, in the case of

Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran

v Cubic Defense Systems, Inc, both parties entered into two contracts in 1977.80 The Arbitral Tribunal finds that the advent of Islamic Revolution in early 1979 amounted

to hardship despite its initial root which is prior to the contract conclusion in 1977 In fact, even though the peak of the Islamic Revolution was in 1979, key preliminary events (harsh economic downturn, monetary inflation due to oil crisis, corrupt electoral processes and leaders) occurred throughout the mid 1970s.81 Besides, a

76 Amin Dawwas, supra note 6, p 6; Do Van Dai, supra note 6, p 32; Joern Rimke, supra note 6, pp 200-201; Harry M Flechtner, supra note 6, p 90; Christoph Brunner, supra note 6, pp 397-400 (with a view to the discrepancy between two concepts only regarding the legal effect); Nguyen Ngoc Lam, supra note 6, p 195-196;

Le Minh Hung, supra note 6, p 158

77 Article 420.1(a) CC 2015 clearly states that “hardship is a change of circumstances due to objective reasons”

78 Both Article 161.1 CC 2005 and Article 156.1 CC 2015 state that “force majeure is an event which occurs

in an objective manner which is not able to be foreseen and which is not able to be remedied by all possible necessary and admissible measures being taken” Pursuant to Article 7.1.7 PICC 2010, “non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and

that it could not reasonably be expected to have taken into account at the time of the conclusion of the contract

or to have avoided or overcome it or its consequences” Notably, following this inclination, in accordance with

the definition of force majeure provided by Article 79.1 CISG, it is irrelevant whether the impediment occurs before or after the conclusion of the contract Pursuant to CISG, force majeure is an event which is “due to an impediment beyond his [a party’s] control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its

consequences” (emphasised by the author)

79 UNIDROIT, §6, supra note 2, p 217 (Comments to Article 6.2.2 PICC 2010) (clearly indicating that “under

these Principles there may be factual situations which can at the same time be considered as cases of hardship

and of force majeure If this is the case, it is for the party affected by these events to decide which remedy to pursue If it invokes force majeure it is with a view to its non-performance being excused If, on the other hand, a

party invokes hardship, this is in the first instance for the purpose of renegotiating the terms of the contract so as

to allow the contract to be kept alive although on revised terms”); also see Hannes Rösler, supra note 6, p 52

Nikki R Keddie, Yann Richard (2006), Modern Iran: Roots and Revolution, Yale University Press,

Conneticut, p 168; Krysta Wise (2011) “Islamic Revolution of 1979: The Downfall of American-Iranian

Relations”, Legacy, Volume 11(1), pp 4-5

German Court, upon applying PICC 2010, concludes that the reunification of Germany occurring after the conclusion of the contract purports to be hardship.82

Consequently, the condition of time factor is unnecessary because hardship might occur objectively before, after or on the conclusion of the contract.83 Then we need to address the existence of this condition in PICC 2010 The author approves with the argument of a scholar who states that this requirement should be eliminated.84 The reason is that, as mentioned above, the time which hardship occurs is not a material matter of hardship On the other hand, the other situation provided by Article 6.2.2(a),

“the event become known to the disadvantaged party after the conclusion of the contract”, is already stipulated by Article 6.2.2(b).85 The unawareness of the parties towards the hardship is one of the aspects of the unforeseeability requisite of this event: if they cannot foresee an event, they absolutely shall not and cannot know it before or upon the conclusion of the contract Therefore, the author proposes that all the content of Article 420.1(a) CC 2015 should be disregarded.86

2.1.2 The awareness of the parties towards hardship

As stated in Section 1.2, hardship is a legal concept which has both objective and subjective features As regards to subjective characteristics, hardship is an unforeseeable event and whose risk was not assumed by the aggrieved party (risk allocation) This Section shall be spent on examining these two criteria of hardship

Risk allocation

Article 6.2.2(d) PICC 2010 provides the requirement that “the risk of the events was not assumed by the disadvantaged party” Nevertheless, this requirement is absent from the definition of hardship provided by Article 420.1 CC 2015 This leads to the need to justify the discrepancy between CC 2015 and PICC 2010

A historical approach of Vietnamese contract law indicates that the assumption of risk is, to many levels, unfamiliar with Vietnamese legal system Section 1.3.2 shows

82 Schiedsgericht Berlin, SG 126/90, 1990, English abstract available at http://www.unilex.info/case.cfm? pid=2&do=case&id=627&step=Abstract (last visited on 10/7/2016)

Astonishingly, the existence of the time condition of Article 420.1(a) is intact throughout almost all versions

of the Proposal for the new Civil Code; see Article 419.1(a) of the 1st Proposal, 414.2(a) of the 2nd Proposal, Article 441.2(a) of the 3rd Proposal, Article 443.1(a) of the 4th Proposal, Article 427.2(a) of the 6th Proposal, Article 418.1(a) of the 7th Proposal and Article 419.1(a) of the 8th Proposal Only in the 5th Proposal was the time factor absent from the requirements of hardship (see Article 435.1 of the 5th Proposal) No scholar has commented on this legal phenomenon, as regards to its difference from the spirit of PICC 2010 Moreover, the above conclusion is also true and reasonable as regards to Article 6.2.2(b)