Extraordinary change of circumstances and contractual risk at the date of conclusion of the contract

An analysis of where this boundary lies has been the subject of hundreds of court rulings based on various sets of facts. In light of the numerous studies in this area, it must be concluded that a definitive answer to the question of identifying the aforementioned boundary is impossible, as its location simply depends on the circumstances of the specific case, which relate both to the circumstances at the time of contracting and those arising after the date of contracting.

However, this does not mean that no general principles worth identifying have emerged in this matter.

Indeed, the term ‘extraordinary change in circumstances’ should be understood to mean a state of affairs which occurs rarely, yet is unusual, unprecedented, exceptional, and normally unheard of, whilst at the same time being widespread (not affecting a party individually). As is evident from a review of case law, an extraordinary change in circumstances may have a natural cause (crop failure, an exceptionally harsh winter) or a social one (war, a sudden change in the political system). Examples of events causing an extraordinary change in circumstances include epidemics, military operations, general strikes, various types of natural disasters, and an extraordinary, particularly profound change in the economic situation, manifested by hyperinflation, a sharp decline in national income, and mass corporate bankruptcies. It is also sometimes accepted that these may include unexpected changes in customs or tax rates.

The change in circumstances must therefore be extraordinary in nature. An extraordinary nature should be attributed, amongst other things, to such changes in circumstances as: hyperinflation, an economic crisis, a sharp change in price levels in a specific market, a prolonged paralysis of transport or communications, or a change in the political and socio-economic system of the state.

The legislator links the issue of unpredictability not to the parties’ ability to foresee events that cause a gross loss to one of them, but to their ability to foresee the consequences of such events; in essence, it concerns predictability in relation to the parties’ future situation. This is inextricably linked to the question of determining whether a party is making decisions within the bounds of normal contractual risk—that is, the risk that must be taken into account when entering into any contract—or whether a case of extraordinary risk is involved.

There is no doubt that the parties entering into a contract must bear the ‘ordinary contractual risk’ associated with the constant, normal changes occurring in socio-economic relations. Those changes which are of an extraordinary nature, as generally indicated above, go beyond this risk.

To summarise the above, Article 3571 of the Civil Code should apply where certain events bring about a change in circumstances that no longer falls within the bounds of that ordinary risk.