Hardship Clause Under Dutch Law

In the Netherlands, we have an equivalent on so-called Hardship Clauses under Common law. A Hardship clause under Dutch law can be found with so much in Article 6:258 of the Dutch Civil Code (“DCC” or “BW”). This Dutch article of law offers the possibility to change the consequences of a contract or to dissolve it in whole or in part on the basis of unforeseen circumstances. Under Dutch law, these unforeseen circumstances must be such that, according to Dutch standards of reasonableness and fairness, the other party cannot expect the contract to be maintained unchanged.

Key aspects of the Dutch hardship clause

Key aspects of this provision under Dutch law include:

1. Mandatory nature: Article 6:258 DCC is mandatory law and cannot be excluded by contract.
2. High threshold: Dutch courts apply this provision very reservedly, emphasizing the importance of business certainty in Dutch contract law.
3. Dutch court intervention: Modification or termination based on unforeseen circumstances under Dutch law can only be obtained through Dutch court proceedings.
4. Retroactive effect: The Dutch court’s decision may have retroactive effect (“terugwerkende kracht“), potentially healing what was originally considered a breach of contract.

Example of a Dutch hardship clause

An example of a situation where a reliance on unforeseen circumstances under Dutch law was honoured is when the contractor had not yet incurred any costs to perform the contract and had not claimed anything about lost profit. In that case, the contract was retroactively terminated in its entirety. It is also important that parties can include provisions in an agreement that affect the operation of Article 6:258 DCC.

If the possibility of the occurrence of certain circumstances is explicitly or implicitly discounted in the agreement, these circumstances can no longer be considered unforeseen.Under Dutch law, the concept of hardship is primarily addressed through the doctrine of unforeseen circumstances (“onvoorziene omstandigheden”), as outlined in Article 6:258 of the Dutch Civil Code (DCC). This provision allows for the modification or termination of a contract due to unforeseen circumstances that make it unreasonable to expect the unaltered continuation of the agreement.

What Hardship Clauses Are in the Dutch Civil Code?

Two relevant clauses in the Dutch Civil Code come into play here, both of which play an essential role in managing unforeseen challenges and ensuring contractual balance is maintained:

• Article 6:75 DCC (force majeure in the Netherlands): A shortcoming under Dutch law cannot be attributed to the debtor if it is not their fault, nor are they responsible by law, legal act, or prevailing views. This means that if the debtor is unable to fulfill their contractual obligations due to external factors entirely beyond their control, they may not be held liable. However, the threshold for proving this is high, and courts generally assess whether the party could have reasonably taken action to prevent the shortcoming. The focus here is on whether the performance was genuinely impossible and not merely burdensome or inconvenient.
• Article 6:258 DCC (unforeseen circumstances): The court may modify or dissolve a contract under Dutch law, in part or in full, due to unforeseen circumstances that make maintaining the contract unreasonable. The aim of this provision is to rebalance the contractual relationship when external events significantly alter the original terms. This article is particularly relevant in times of economic crises, geopolitical conflicts, or unexpected regulatory changes that make the performance of a contract excessively difficult or unfair for one of the parties. It allows the court to step in and adapt the agreement to the new reality, thereby avoiding undue hardship and preserving fairness in commercial dealings.

Criteria for Invoking Unforeseen Circumstances under Dutch law

For a party to successfully invoke Article 6:258 DCC, several conditions under Dutch law must be met:

1. There must be unforeseen circumstances, i.e. circumstances that occurred after the conclusion of the contract and which the parties did not take into account when concluding the contract.
2. These circumstances must be of such a nature that the other party should not expect unchanged maintenance of the contract according to standards of reasonableness and fairness.

It is important to note that Dutch courts should exercise restraint when accepting a reliance on unforeseen circumstances under Dutch law. After all, reasonableness and fairness require fidelity to the given word in the first place and allow deviation from it only in highly exceptional cases.

In a 2020 Rotterdam District Court case, the court ruled that performance becoming onerous wasn’t enough to qualify as force majeure. The performance had to be practically impossible. The court concluded that the party could have procured similar products from a different country unaffected by U.S. sanctions to meet its obligations to an Iranian client. This suggests that proving force majeure under Dutch law isn’t straightforward unless performance is truly impossible.

Do You Need a Specific Force Majeure Clause under Dutch law?

Including a specific force majeure clause under Dutch law is highly advisable. It helps avoid disputes about whether certain events fall under force majeure, thereby reducing uncertainty and potential conflict. By having such a clause, the parties can clearly establish the types of situations that qualify as force majeure, allowing both sides to understand their rights and responsibilities more comprehensively. Under Dutch law, parties have the freedom of contract, meaning they can define in the agreement what events are considered force majeure, thus tailoring the clause to fit the specific needs and risks of their particular business arrangement.

For instance, the clause could state that there is force majeure if a party cannot deliver due to government sanctions, war, natural disasters, pandemics, or other extraordinary circumstances beyond their control. Including a well-drafted force majeure clause provides a stronger starting point and helps ensure you can be released from obligations when such situations arise. Moreover, the inclusion of a clear notification procedure—whereby a party must inform the other party within a specific timeframe of the occurrence of a force majeure event—can further clarify the process and reduce delays or misunderstandings. This approach ensures that each party knows exactly what is expected of them, thus facilitating smoother communication.

Additionally, a robust force majeure clause can specify the consequences of a force majeure event, such as a temporary suspension of obligations, an extension of performance timelines, or even termination rights in case the event persists for an extended period. This flexibility can be crucial in managing unexpected disruptions effectively, helping to maintain the balance of the contract without unfairly penalizing either party. The more specific and well-thought-out the clause, the less room there is for disputes, thereby enhancing overall contract stability.

Dutch Hardship Clauses in Practice

While Article 6:258 DCC provides a statutory basis for addressing hardship, parties often include specific hardship clauses in their contracts:

1. Contractual freedom: Dutch law recognizes the freedom of contract, allowing parties to define what constitutes hardship in their agreement.
2. Renegotiation obligation: Hardship clauses typically require parties to renegotiate contract terms when unforeseen circumstances arise. This can help prevent a complete breakdown in the relationship and foster an atmosphere of cooperation.
3. Specific scenarios: Clauses may outline concrete situations that trigger the hardship provision, such as extreme price increases, significant currency fluctuations, or major supplier delays. By specifying these scenarios, parties can minimize ambiguity.
4. Risk allocation: Well-drafted hardship clauses can help prevent disputes by clearly allocating risks between parties. This allocation provides a sense of predictability and control, which is crucial for maintaining stable commercial relationships.

Comparison Hardship clause with Force Majeure under Dutch law

It’s important to distinguish hardship from force majeure under Dutch law:

1. Force majeure: Deals with situations where performance becomes impossible due to circumstances beyond a party’s control. This typically involves events that are sudden, unpredictable, and completely prevent any performance.
2. Hardship: Addresses situations where performance is still possible but has become excessively burdensome. Unlike force majeure, the obligation is not impossible but disproportionately more difficult.
3. Legal basis: Force majeure is governed by Article 6:75 DCC, while hardship falls under Article 6:258 DCC. Each article serves a distinct function within the broader framework of contract law.

What Are “Unforeseen Circumstances” in Dutch Law?

Beyond force majeure, Dutch law also recognizes ‘unforeseen circumstances’ under Article 6:258 DCC. This concept is akin to the hardship doctrine in common law or imprévision in French law. It allows for relief when unexpected changes make performance excessively difficult for one of the parties, potentially rebalancing the contractual obligations.

The doctrine of unforeseen circumstances is significant because it provides a statutory escape mechanism for parties facing substantial changes that impact the contract’s foundation. However, invoking Article 6:258 is far from straightforward. Dutch courts maintain a high threshold for successfully claiming relief, emphasizing the principle of pacta sunt servanda—agreements must be kept—unless continuing with the contract would be manifestly unreasonable.

For a claim of unforeseen circumstances, it is crucial to establish that the circumstances were not anticipated when the contract was signed. It is important to note that the mere foreseeability of an event does not disqualify it as unforeseen; what truly matters is whether the parties considered such risks and explicitly accounted for them while drafting the contract. If significant external events, such as sanctions or war, weren’t anticipated in the contractual agreement, they could qualify as unforeseen circumstances. This distinction is critical, as even reasonably foreseeable events might be considered unforeseen if the parties did not expressly address them in their risk assessment.

Moreover, the courts will assess whether the contractual equilibrium has been fundamentally disrupted—meaning that the balance between the parties’ obligations has changed in such a way that one party would suffer an unfair burden if required to continue without modification. The courts also consider whether the new situation undermines the original purpose of the contract, rendering its continuation meaningless or extremely unfair.

However, even then, Dutch courts exercise restraint in accepting such claims, since reasonableness and fairness favor keeping to the original contract as much as possible. The guiding principle of Dutch contract law is to honor agreements, which means the courts are generally reluctant to intervene unless the circumstances are truly exceptional. The Supreme Court of the Netherlands has consistently reiterated that judicial intervention under Article 6:258 should be reserved for cases where strict adherence to the original terms would be patently unreasonable, necessitating adaptation or dissolution of the agreement.

This careful approach reflects a desire to uphold contractual predictability and the sanctity of contracts, ensuring that commercial parties cannot simply walk away from obligations lightly. As such, parties looking to invoke unforeseen circumstances must provide strong evidence that the changes are indeed extraordinary and that adhering to the original terms would lead to an outcome that is clearly unfair or unjust. This high burden of proof serves as a deterrent to frivolous claims and ensures that only those facing genuinely substantial and unforeseen disruptions are given relief.

It is also noteworthy that, where possible, Dutch courts often opt for partial modification of the contract instead of complete dissolution. This is done to preserve as much of the original agreement as possible while rectifying the imbalance caused by unforeseen events. For instance, the court may adjust specific payment terms or extend performance timelines to accommodate the changed circumstances, thereby striving for a solution that respects both parties’ interests without nullifying their entire contractual relationship.

Practical Considerations for Dutch Hardship Clauses

When dealing with hardship clauses under Dutch law, consider the following:

1. Burden of proof: The party invoking unforeseen circumstances bears the burden of proof, which is typically high. This requires substantial evidence to convince the court of the severity and impact of the unforeseen event.
2. Duty to mitigate: Parties are expected to take reasonable steps to mitigate the effects of hardship. This could include finding alternative suppliers, adjusting timelines, or negotiating temporary solutions that prevent the complete collapse of obligations.
3. Good faith negotiations: In case of hardship, parties are expected to act in good faith to find a joint solution. The Dutch legal system highly values the principle of good faith, requiring parties to make reasonable efforts to adapt.
4. Foreseeability: Courts may consider whether similar circumstances were foreseeable at the time of contract conclusion. If a party could reasonably have anticipated certain events and failed to account for them, invoking hardship may be unsuccessful.

What Happens if Foreign Law Applies and Sanctions Are Involved?

If the contract is governed by a foreign law (outside the EU), then generally the courts in that jurisdiction will have authority. The foreign court could decide whether to follow or disregard EU sanctions. However, if a Dutch court has jurisdiction, it will apply EU Regulations even if the contract is governed by foreign law. This ensures that EU sanctions are enforced within the EU’s legal domain, offering consistency and legal certainty in international agreements.

Can a Sanctioned Party Sue for Non-Performance under Dutch law?

In general, EU Regulations bar claims from entities in sanctioned countries for contract enforcement or compensation. These regulations are strict and are meant to ensure that entities in sanctioned regions cannot benefit from enforcement in the EU, thereby supporting the effectiveness of the imposed sanctions. A claim brought by a sanctioned party would likely be dismissed unless the claimant provides compelling evidence that the dismissal is unjustified. This could involve demonstrating that the sanctions do not apply to their particular circumstances, or that an exemption should be made. A judge in the EU would apply the sanctions regulations, making it very challenging for a sanctioned entity to succeed without such proof. Even if a claim proceeds, the burden of proof on the sanctioned entity is exceptionally high, and courts are obligated to prioritize the enforcement of EU regulations, further reducing the chances of a favorable outcome for the claimant. Moreover, sanctions are dynamic and evolve based on international developments, which adds another layer of complexity for any sanctioned entity attempting to pursue legal action. This combination of regulatory rigor and evolving policy makes it highly unlikely for sanctioned entities to successfully bring claims within EU jurisdictions.

Conclusion & Recommendations

The possibility of being excused from contractual performance due to war or sanctions remains uncertain under Dutch law. While there are provisions for force majeure and unforeseen circumstances, much depends on the terms of the contract. The risk of being sued by a sanctioned counterparty is low if the case is decided by an EU court.

Practical recommendation: Look closely at your force majeure clause in new contracts. For international agreements, opting for the exclusive jurisdiction of EU courts can be helpful to ensure EU sanctions are respected. Given past rulings, such as those during the COVID-19 crisis, courts may expect parties to anticipate and plan for circumstances that have now become foreseeable, including potential sanctions and conflicts.

Adding specific clauses to address war or sanctions is a prudent step for mitigating future risks. Moreover, including hardship clauses that address the need for renegotiation in cases of severe disruptions can provide greater contractual stability. Such clauses are useful tools to navigate unforeseen challenges and help reduce uncertainties in commercial contracts.

Finally, taking a proactive approach by considering risk allocation during the drafting phase, including foreseeability assessments, and establishing clear protocols for good faith negotiations can be instrumental in minimizing future conflicts. This ensures that all parties involved are prepared to adapt in an ever-changing legal and geopolitical environment, thereby safeguarding the long-term success of the contractual relationship.

Dutch law firm specialised in contract law

For any legal inquiries or support in the Netherlands regarding a hardship clause under Dutch law, please feel free to contact our adept team at MAAK Advocaten. Committed to excellence, our Dutch lawyers provide superior legal services tailored to your distinct needs. You can reach our law firm in the Netherlands through our website, by email, or phone.

Our approachable and skilled staff at MAAK Attorneys will be delighted to assist you, arranging a meeting with one of our specialized attorneys in the Netherlands. Whether you need a Dutch litigation attorney or a Dutch contract lawyer in Amsterdam, we are eager to guide you through the legal intricacies and secure the most favorable results for your situation.

Contact details

Remko Roosjen | attorney-at-law (‘advocaat’)
+31 (0)20 – 210 31 38
remko.roosjen@maakadvocaten.nl

The information on this legal blog serves purely for educational purposes and should not be taken as specific legal guidance. While we endeavor to maintain accurate and current information, we do not assert its absolute completeness or relevance to your particular situation. For advice tailored to your legal concerns, we urge you to engage with a licensed attorney. Please note that the blog’s content may change without notice, and we are not liable for any inaccuracies or missing information.