Requirements for the application of the 'rebus sic stantibus' clause
The rebus sic stantibus clause allows for the revision of obligations and contracts when, due to supervening circumstances, the economic equilibrium of the contract has been broken and it is impossible or very burdensome for one of the parties to fulfil it. Could it be applied as a consequence of the Covid-19 pandemic in company or labour matters?
At Euriux Lawyers as legal specialists with more than 300 professionals in 52 offices in Spain, today we are going to analyse why this clause is applied and what are the criteria to follow, according to the jurisprudence.
As a general rule, we know that contracts must be performed on their own terms, which is known in law as Pacta sunt servanda. However, there are exceptions to the performance of a contract. One of them is when events or circumstances occur that may give rise to an imbalance in the obligations that the parties have assumed in the contract.
After the Spanish Civil War, the doctrine of the "rebus sic stantibus clause" arose in our country, the effects of which are to admit the modification of the contractual relationship in order to restore the imbalance caused by unforeseeable events occurring subsequently, which alter the circumstances in which the contracts were granted.
The Supreme Court has been demanding the following requirements for their admission:
- Extraordinary alteration of circumstances at the time of performance of the contract in relation to those prevailing at the time of conclusion of the contract;
- An exorbitant disproportion, beyond all calculation, between the performances of the contracting parties, which truly collapses the contract by annihilating the equilibrium of the performances, and
- That all this happens due to the occurrence of radically unforeseeable circumstances.
Case law has also declared that the clause is only applicable to long-term contracts or contracts of successive tract and deferred execution and that it only operates in cases of an extraordinary alteration or a disproportion, beyond all calculation, between the claims of the contracting parties, which truly collapse the contract as a consequence of the occurrence of radically unforeseeable circumstances. This is the most open and willing doctrine for the application of the rebus sic stantibus clause of the Supreme Court, as set out in the judgments of 30 July and 15 October, in both cases in 2014, with the same speaker.
The declaration of a pandemic by the World Health Organisation (WHO) does constitute an unforeseeable or unavoidable situation that cannot be associated with a risk that is inherent to contracts, so it is foreseeable that this fact may allow for a review of the circumstances of each contractual relationship.
