Considerations concerning the regulation of the theory of unforeseeability in comparative law.
This study briefly analyses from a general perspective the way in which the theory of unforeseeability is regulated in the legislation of certain European countries. Its main goal is to respond to any objections made against this theory. It does so by supporting the general regulation of necessary, standard criteria at the European level in order to ascertain the conditions of application and effects that unforeseeability has on a contract. Given the lack of such an approach in recent times, we consider our study a starting point which reopens discussions on this topic, without any claims of it being a detailed analysis in compared law.
We have focused particularly on certain Romano-Germanic law systems, respectively the German, the Romanian and the Italian law systems, as well as on English common law, which we consider as the best in representing the large family of Anglo-Saxon law. From those in the former category, we have chosen, firstly, to analyse the German legal system, since it has been the source of inspiration for regulations in this specific field for certain European states. Secondly, we have had a look at the Italian system, which is characterised by a more restrictive regulation of unforeseeability. Thirdly, due to its recent and general regulation of unforeseeability, we have taken into consideration the legal system of Romania, which has relatively recently acceded to the European Union. Lastly, we have also briefly looked at the Swiss law system, due to its status as a European state which is not part of the European Union.
A concise analysis of comparative law in this field has allowed us to realise that the legislation of such states as Italy, Germany or Romania expressly sanctions and generally revises contracts for unforeseeability, while in Switzerland it represents an exception. The legal system of other states does not contain regulations concerning this aspect, but their case law nonetheless allows contracts to be revised for unforeseeability, e.g., English common law.
We find unforeseeability firstly in the Roman legal system, where it was generally not regulated, but took the form of directives of interpretation applicable in individual cases. Subsequently, it was developed by representatives of canon law into the generalisation of the rebus sic stantibus clause. In the European legal doctrine, applying the principle of rebus sic stantibus was the central issue of a debate after the First World War due to the negative economic effects that the state of war had on contractual balance. After the Second World War, this problem was solved in many different ways, mostly in the Western legal doctrine and practice, as opposed to Eastern countries, which became 'socialist nations'. While Western Europe had nuanced solutions, Eastern Europe decided for purely ideological reasons not to allow the application of the theory of unforeseeability (Beleiu, 1993). Generally, the European legislation that regulates unforeseeability nowadays is influenced by German law.
Seen by some theorists as a concealed and contradictory aspect of the principle of the obligatory force of a contract, unforeseeability comes from the socio-economic reality that exists due to dramatic and unforeseen changes in the conditions under which the contract was to be honoured in relation to those conditions considered by the contracting parties at the time they signed it (Dobrev, 2010). In accordance with other doctrinaires, we ascertain that the general regulation of the theory of unforeseeability is necessary, given the present economic crisis plaguing the majority of the nations in the world. Legislators will have to adapt contractual law to the new economic, social and political context, because economic instability has serious negative effects even in this field (Patru, 2011).
1. Theory of unforeseeability in Romanian law
While trying to define the notion of unforeseeability, the majority of doctrinaires ascertain that it is tightly connected with the economic and financial phenomenon. Therefore, by unforeseeability we understand the imbalance produced between contractually stipulated benefits as a consequence of considerable and unexpected increases in prices (Starck, 1993).
In order to outline contractual unforeseeability as a separate legal institution, it is necessary to set it apart from another similar notion, that of force majeure. Therefore, the civil law doctrine (Mazeaud et al., 1998) traditionally defines force majeure as an objective, unpredictable and inevitable event beyond the will of the parties. These two notions are similar mainly in the effect which they have on the contractual accountability of the affected parties. To be more precise, the obligations will not be fulfilled within the terms initially established owing to an unforeseen event, respectively a case of an act of God. The similarity between the two consists in the unforeseeability of these two situations. As such, force majeure is characterised by the unpreventable and insurmountable nature of the situation and the reason for which fulfillment of the obligations is impossible. In the case of unforeseeability, the two aforementioned characteristics of an event are less intense, thus making it more difficult to prevent excessive onerousness. Likewise, the effects on a contract are different: the force majeure event entails the impossibility of fulfilling the obligations stipulated in the contract, while in the case of unforeseeability, the affected party does not find it impossible to respect the terms of the contract, merely excessively onerous or they find that the benefits they were to receive have been drastically diminished. In the case of unforeseeability, the terms of the contract are not impossible to fulfill, rather severely threatened by an imbalance in the value of services. Another distinction can be seen when we discuss penalties. In the outcome of a force majeure event, the penalties are either the suspension or annulment of a contract. However, with contractual unforeseeability the specific sanction is the revision of the contract and its amendment to correspond to new circumstances. Last but not least, force majeure is a genuine exception to the principle of the mandatory nature of the contract, while unforeseeability is only an apparent exception.
In Romanian legal literature (Uliescu, 2011; Ungureanu, 2011), unforeseeability is considered an exception to the pacta sunt servanda principle and it refers to revising the effects of a legal document (more precisely, a synallagmatic contract, in return for remuneration, commutative and with a successive execution). This is necessary due to a contractual imbalance produced by a change of circumstances, which used to be considered by the contractual parties at the moment of concluding a legal document. The effects of the contract are often different from the intentions at the moment of its conclusion and from the mandatory provisions of the parties (Boroi, 2008). For example, a supplier who is contractually bound to execute successively and to deliver the stipulated quantity of goods, at a price stipulated per unit and payable upon delivery will see the value of his obligations rise due to the increase in prices due to inflation, without expecting to be compensated for the difference in price by the other contracting party. If we admit that the judge is authorised to intervene in such cases at the request of either party in order to reestablish contractual balance, whether by increasing or decreasing the value of the benefits owed to either side or whether by dissolving a contract, then we have an exception to the principle of the necessary force of the contract, because this contract will produce effects or will cease due to causes unstipulated among its clauses (Chelaru, 2003).
Thus, unforeseeability consists in the damages incurred by either contracting party as a result of a serious imbalance in value that appears between the benefits of one party and the remuneration from the other party in the course of executing the provisions of a contract under the impact of monetary fluctuations, which most often are caused by open or galloping inflation (Pop, 2009). If the parties place a clause in the contract which stipulates the revision of contractual effects in the event of any change of circumstances considered at the moment of conclusion, then we will no longer have an exception to the principle of mandatory force. In this case, we encounter the principle of the freedom of juridical acts (Chelaru, 2007).
Until 2011, Romanian law did not have any regulation with a general grasp on the theory of unforeseeability; however, there were legal provisions that acknowledged its application. Therefore, the application of unforeseeability in Romanian law can be found in the provisions of Article 43, paragraph 3 of Law 8/1996 regarding Authors' Copyright and Related Rights. According to this Article, 'in case of an obvious disproportion between remunerating the author of a work and the benefits of the person who has obtained the transfer of patrimonial rights, the author may petition the competent jurisdictional bodies to revise the contract or to conveniently enhance his remuneration'. Moreover, another application of the theory of unforeseeability can be identified in Article 54 of Emergency Government Ordinance No. 54/2006 concerning the concession of public property, which establishes that 'contractual relations between the conceder and the concessionaire are based on the principle of financial balance of concession, between the rights which are granted to the concessionaire and the obligations which are imposed upon him'. Although exceptional, the legislator also sanctioned this theory in the case of a contract on voluntary service. According to Article 14 of Law 195/2001 on Volunteering, 'if during the execution of a contract on voluntary service there arises a situation independent of the contracting parties that can burden the execution of the obligations incurred by the volunteer, the contract shall then be renegotiated. If the situation renders further execution of the contract impossible, then it is completely terminated'.
At present, the New Romanian Civil Code, enacted on 1 October 2011, in an attempt to account for the current social-economic realities and at the same time to combine the main European legal systems, expressly regulates unforeseeability as an exception to the principle of the necessary force of a legal act. Therefore, Article 1271 states that 'the parties are obliged to execute their obligations even though their execution becomes more onerous. Despite this, the parties concerned are obliged to negotiate whether to adapt or to terminate the contract. Therefore, the parties establish to resort to either of these methods if executing the contract becomes excessively onerous for one of the parties due to a reasonably unforeseen change in circumstances after the conclusion of the contract. They also establish which damaged party should not bear the risk of this unforeseen event. If they cannot reach an agreement, the court may order them to adapt a contract in order to equitably divide the losses and benefits resulting from the change of circumstances or terminate the contract at the moment and under the conditions determined by it' (New Civil Code, 2011).
Thus, the theory of unforeseeability will not only be applied in situations where the debtor does not account for the change in circumstances and could not reasonably have considered this risk. If the contracting parties inserted certain clauses of indexation in the contract, they could remove any risk of unforeseeability. These clauses automatically reevaluate the services owed depending on the variation of the reference index established by the clause or convention of indexation, in order to cover any devaluation of the currency used for payment (Pop, 2009). The contracting parties also have the possibility to insert hardship clauses in a contract in order to ensure the reassessment and revision of the contracting situation.
In the event that these clauses are not inserted, the parties are obliged to negotiate the adaptation and amendment of a contract, should honouring it become much too onerous for either of them due to a change in circumstances that meets the following conditions: the modification comes after the contract is signed; these circumstances could not reasonably be foreseen at the time when the contract is signed; the damaged party is not contractually obligated to run the risk of such a change. If the contracting parties cannot reach a reasonable agreement during the renegotiation, the court, at their request, may adapt the contract in such a way that they share the benefits and the losses incurred due to the change in the initial circumstances (Pop, 2009). Moreover, if such an adaptation is possible, the court may even void the contract.
Romanian legal doctrinaires have recently criticised the way in which unforeseeability is regulated in the New Civil Code by showing that the application of the theory of unforeseeability may affect the mutual trust that the contracting parties have in one another and can have a negative impact on crediting (Dobrev, 2010). Our point of view is that the regulation of unforeseeability through the New Civil Code comes at an opportune moment. The lawmaker, therefore, reacts to the current economic reality. Obviously, it is in practice that we will discover whether the new changes are effective or not.
2. Way of regulating unforeseeability in German law
In the German legal system, we find many stages of development of the theory of unforeseeability. In the first stage, the basis for applying this theory consists in suggesting the rebus sic stantibus clause in the contract, which, at that moment, represented the influence of natural law. The conditions of application as well as the effects were modern: the adaptation or the termination of a mandatory legal relation.
The second stage is represented by the 20th century. Thus, the German Civil Code of 1900 no longer acknowledged the theory of unforeseeability, which was also rejected by jurisprudence. The German Civil Code (B.G.B.) sanctioned unforeseeability only partially in Articles 321 and 610. It was applied just in the category of contracts which had not been executed and only considering the situation of the creditor (Zams.a, 2006). Pursuant to Article 321 of the B.G.B., 'a person who is obliged to perform in advance under a reciprocal contract may refuse to render his performance if, after the contract is entered into, it becomes apparent that his entitlement to consideration is jeopardised by the inability to perform of the other party'.
As there are a number of gaps in the legal text, German jurists have developed the 'wegfall der Geschaftsgrundlage' theory, which allows for a contract to be adapted or terminated if the contractual basis disappears. The Geschaftsgrundlage theory (Cohn, 1946) is actually the representation which the parties make on the presence or appearance of other circumstances on the basis of which the contractual will is formed. The absence of a contractual basis leads to the dissolution or revision of a contract. Jurisprudence lies at the foundation of the theory which applies to contracts based on Article 242 of the German Civil Code, which sanctions the execution of obligations in good faith. The change of circumstances must not be blamed on the debtor, and the uncertainty of events does not always seem necessary. The application of the theory depends on the following conditions: it has to be the only means of avoiding enduring extremely severe consequences which are incompatible with law and justice and which, in accordance with equity, may not be left in their charge; the modification must not be included among risks in a contract. If these conditions are complied with, the judge will have the contract adapted and only if the contract loses all the reasons to exist will he terminate it, with only one exception (Anton, 2000).
In Germany, uncertainty used to be regulated by Article 313 until the BGB was modified and given the general quality quite recently, more precisely in 2000. Pursuant to Article 313 from the BGB (Interference with the basis of the transaction): 'If the circumstances which were at the basis of a contract have significantly changed since the contract was signed and if the parties would not have entered into the contract or would have entered into it with a different content if they had foreseen this change, adaptation of the contract may be demanded to the extent that, taking account of all the circumstances of the specific case, in particular the contractual or statutory distribution of risk, one of the parties cannot reasonably be expected to uphold the contract without alteration. It is equivalent to a change of circumstances if material conceptions that have become the basis of the contract are found to be incorrect. If adaptation of the contract is not possible or one party cannot reasonably be expected to accept it, the disadvantaged party may revoke the contract. In the case of continuing obligations, the right to terminate takes the place of the right to revoke'.
The current regulation maintains the same area of application as the old theory of Geschaftsgrundlage, which is broader than that of the theory of unforeseeability and is based on the same institution, typical of German law. Actually, there is a tight connection between peculiarities of this institution and the scope of application of Article 313. The first generates the area which contains a broader theory of regulation by its mixed quality of objective and subjective elements (Zams.a, 2006). The specific element of this regulation consists of framing the theory of interference with the contractual basis, a notion of false representation of certain essential data which form the basis of the transaction. Furthermore, we may see a more comprehensive view of Article 313 of the B.G.B. and of the causes that prevent the application of the theory, including certain extra-contractual circumstances besides the theory of risks. In view of the effects of the present theory, the solution offered by the German Civil Code may belong to the modern tendency of adapting the contract and afterwards resorting to its termination in exceptional cases (Zams.a, 2006).
3. Regulating unforeseeability in Italian law
Two stages in the sanctioning of contractual uncertainty may be identified in relation to the changes made to the Italian Civil Code and depending on the express regulation of the theory of unforeseeability called eccesiva onerosita (Bosseli, 1952). Before modifying the Italian Civil Code, the notion of natural disasters and armed conflicts had posed problems in managing contractual risks, whether assumed or not, foreseeable or not, and doctrinaires had found various solutions. Thus, they had either adhered to the objective theory (by extending the notion of absolute necessity) or supported the subjective theory (the rebus sic stantibus, la presupposizione clause). After the First World War, the legislator regulated the eccesiva onerosita theory through a special law, though the generality of its application constituted a reason for controversy (Philippe, 1986).
In 1942, the Italian Civil Code expressly regulated the theory of unforeseeability. Pursuant to Article 1467, 'in contracts of successive or periodic execution or with differentiated execution, in case the benefits of one of the parties become excessively onerous after the intervention of extraordinary and unpredictable events, the respective party will be able to demand the termination of a contract, with the effects established by Article 1468. The termination of the contract may be requested only if the subsequent onerousness falls in the category of the normal randomness of the contract. The party against which the termination is requested may avoid it by proposing an equitable modification of contractual conditions' (Italian Civil Code, 1942). Furthermore, Article 1468 states that 'if the hypothesis in the precedent article concerns a contract in which only one of the parties would have assumed its obligations, it may demand a reduction of debts or in a modification in the way of execution so as to continue to execute it on an equitable basis' (Italian Civil Code, 1942).
From the articles presented, it results that the Italian legislator is preoccupied not only with the legal framework of the theory, but also with the theoretical basis, namely, the principle of equity. In relation to the conditions for applying the eccesiva onerosita theory, the articles cited form the field of its application, more precisely, they are to be used only in the cases of bilateral, commutative juridical acts executed in time, both synallagmatic as well as unilateral. Article 1469 forbids the application of this theory in contracts that are uncertain in nature or in the will of their parties. On the contrary, the Romanian doctrine allows for the application of unforeseeability in aleatory contracts by removing the speculative ones (Zams.a, 2006).
Another peculiarity of the eccesiva onerosita theory consists in the fact that, in the case of contracts with differentiated execution, the execution of contractual terms does not depend on the nature of these contracts, but rather on the specific ways of execution agreed upon by the parties (Philippe, 1986). The legislator has, therefore, sought to develop a clear framework which contains the theory in order to avoid an extensive interpretation of it, which would come into contradiction with the exceptional quality of the regulation.
With regards to the change of circumstances, Article 1467 of the Italian Civil Code clearly states that the events that have occurred must be extraordinary and unpredictable without making any reference to the non-impunity of the condition. By virtue of this condition, we must understand that both contractual dispositions as well as the obligation of diligence must be respected as stipulated in Article 1176 (Philippe, 1986).
We have come to realise the differences between the Italian and Romanian systems under the aspect of admitting the effects of the theory. With regard to synallagmatic contracts, the Italian legislator has stopped in principle upon a single effect, the annulment of the contract. It is only as a second resort that the other contractual party found at a disadvantage may choose to amend a contract in accordance with the new circumstances. Contrary to the position taken by Romanian jurisprudence, the role of the judge is extremely limited, given that his ability to intervene directly or indirectly is not acknowledged. In the case of unilateral contracts, the effects consist in reducing the duty of the debtor. This is done by modifying the conditions of execution which suggest that a contract is actually renegotiated. Therefore, in principle, the debtor cannot use his right to terminate the contract, but has the option to renegotiate it (Zamsa, 2006).
In conclusion, unforeseeability is generally sanctioned in the Italian legal system and it is characterised by the following aspects:
* the theory is regulated under the name eccesiva onerosita;
* the basis of the theory is specified by the legislator: the principle of equity;
* the field of application is limited to commutative contracts, thereby expressly excluding its application in case of aleatory contracts;
* the different effects of acknowledging this theory, since we are in the presence of a synallagmatic or unilateral contract;
* the role of the judge's intervention is only to limit the contract by verifying the fulfillment of the conditions within the theory and the assessment of the equity involved in continuing the contractual relation.
4. Unforeseeability in the English legal system
Under English law, the matter of revising a contract appeared as the doctrine of frustration. In order to conclude contracts, it is not enough for the will of the contracting parties to be manifested, as it is in Romanian law. Another condition must be met: consideration, which offers a criterion which allows for the courts of law to acknowledge the validity of contracts, in the absence of the pacta sunt servanda principle, which does not exist in English law. Thus, it is not the intention of the parties that is at the centre in contractual law, but the contract itself with its economic significance (David, 1937).
Old English law did not allow for contracts to be terminated due to the impossibility of executing them, except in the case of complete impossibility. Subsequently, the case of Taylor v. Caldwell (1863) allowed for certain exceptions of the rule founded on the notion of tacit clause according to which the parties are presumed to have set the conditions for renouncing all responsibility in case the execution honouring of the contract would become impossible due to causing damages.
This essentially subjective concept acknowledges the existence of the rebus sic stantibus clause which was abandoned, because in the 9th century it became an objective concept. In certain cases, one may assess that the execution of a contract is subjected to the permanent existence of a person, an object or certain circumstances which brought about a considerable delay in execution. Therefore, if certain new circumstances which bring a radical change to the contractual obligation occur, there is 'frustration' and consequently the termination of the legal relation. However, an economic imbalance between terms does not represent frustration which may allow for this theory to be likened to that of absolute necessity (Anton, 2000).
In relation to the Romanian legal system, the field of applicability of the doctrine of frustration is wider than that of contractual unforeseeability, as it contains a series of unusual juridical elements. As opposed to Romanian law, here we find a more restrictive appreciation of the doctrine of frustration with regards to the imbalance of contractual benefits, which is the cause of unforeseeability. Thus, the differences between the theory of unforeseeability in Romanian law and the theory of frustration in English law reflect the following aspects:
* the notion of impossibility is a condition for the concept of frustration to become applicable;
* the main effect of admitting the theory of frustration consists in automatically annulling the contract;
* the complexity of the notion of frustration results in the combination of certain elements of common law and civil law.
5. Unforeseeability in Swiss law
Swiss law acknowledges unforeseeability only as an exception in the case of a contract of deposit or the one of enterprise (Article 373 and 476 of the Swiss Code of Obligations, 1911). Jurisprudence in this field holds that a judge's intervention at the request of one of the parties, pursuant to Article 2 of the Swiss Civil Code, is contingent on imbalance in benefits caused by an extraordinary change of circumstances. Therefore, one party alone does not run this risk, because responsibility is shared with the other party as agreed upon in a contract.
However, taking into consideration adverse circumstances, the insistence of the other contractual party to uphold his rights is considered abusive. Once again, good faith serves as a basis for revising a contract for unforeseeability and at the same time acknowledges the revision and termination of the contract in an exceptional case of objective imbalance of benefits (Philippe, 1986).
A short presentation of comparative law on the topic of unforeseeability demonstrates that numerous legal systems include in principle the modification and termination of a contract for uncertainty. It is founded on the principle of good-faith in the execution of contracts and it demonstrates a greater receptiveness to the need for the legal protection required by the contracting parties in the civil cycle.
The theory of unforeseeability seems to be an optimal solution for ensuring that more contracts are concluded and their honouring is not jeopardised by any major imbalance between the contracting parties, which appears after the contracts are signed and is generated by a drastic change which the contracting parties could not possibly foresee beforehand. It finds its basis in the social use of a contract, which, although considered to represent the law of the parties, cannot be separated from the economic and social context in which it is concluded. When this context changes, not even the will of the contracting parties is represented. This situation justifies the revision of the contract for any unforeseeable factors.
As we have shown, at the European level there is no general and unanimously accepted regulation as yet, since there is too great a variety of opinions in this field. However, the majority of the Member States states, including Romania, Germany and Italy, acknowledge this theory in their own legislation.
In the future European Civil Code, the regulation of unforeseeability surely constitutes one of the major challenges facing specialists working on compiling such a code of law. Despite differences of opinion, we are great supporters of the efforts to regulate the theory of unforeseeability in a general manner, since in the current economic climate the possibility to revise a contract due to uncertainty represents a viable solution in order to ensure the stability of the civil circuit.
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Ramona DUMINICA (1), Carmina ALECA (2)
(1) PhD Candidate in General Theory of Law
Tudor R. Popescu Doctoral School, University of Craiova Al.I. Cuza Street, No. 13, Cod 200585, Craiova, Romania Parliamentary Adviser at the Romanian Parliament
E-mail: firstname.lastname@example.org; tel.: 40 074 492 2368
(2) PhD, Lecturer
Faculty of Juridical and Administrative Sciences, University of Pitesti Bld. Republicii, No. 71, Pitesti, Romania
E-mail: email@example.com; tel.: 004 074 5 79 0265
Received 20 January 2012; accepted 25 May 2012
Short biographical notes
Ramona Duminica is a PhD Candidate in General Theory of Law at the Tudor R. Popescu Doctoral School, University of Craiova, Romania. She is an active member of the Euroregional Centre for the Prevention and Fight against Cross-Border Criminality (2010). During 2007-2011, she was an assistant professor at the Faculty of Juridical and Administrative Sciences of the University of Pitesti and currently she is a parliamentary adviser at the Romanian Parliament. In terms of scientific research, Ramona Duminica is the co-author of five academic courses: European Justice, Business Law, Elements of Law, International Private Law, Deontology of Public Servants; the author of 7 articles and the co-author of 25 articles published in various national and international journals.
Carmina Aleca, Dr., lecturer at the Faculty of Juridical and Administrative Sciences of the University of Pitesti, Romania. She is an active member of the Paul Negulescu Institute of Administrative Sciences of Romania--the national section of the International Institute of Administrative Sciences in Brussels (2005), a member in the European Association for Banking and Financial Law (2011). Since 2010, Dr. of Criminal Law at the Faculty of Law of the University of Bucharest. She has undertaken scientific research as the author and co-author of more than 30 studies published in specialised journals and also has participated in various international conferences.
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|Author:||Duminica, Ramona; Aleca, Carmina|
|Publication:||Issues of Business and Law|
|Date:||Jan 1, 2012|
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