Termination of contract due to hardship circumstance

The new Civil Code 2015 allows a party to a contract to (i) request the other party to re-negotiate the contract; or otherwise (ii) request the court to decide terminating or amending the contract if the circumstance has been substantially changed. A circumstance could be invoked as substantially changed if it satisfies the following conditions:

  • there is a change to the circumstance due to objective reasons occurring after the contract is entered into;
  • at the time when the contract is entered into, the parties are unable to foresee the change to the circumstance;
  • there is 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;
  • the continuation of performance of the contract without changing its content will cause serious loss and damage to one party; and
  • the party whose benefits are affected has taken all necessary measures to the best of its ability and appropriate with the contract’s nature but is unable to prevent or mitigate the level of affecting the benefits.

Although the Civil Code 2015 only comes into effect on 1 January 2017, parties to a contract should start considering whether to exclude the application of the hardship clause.