1
INTERPRETATION OF THE REBUS SIC STANTIBUS PRINCIPLE IN
INTERNATIONAL CIVIL CONTRACTS
Introduction
After the establishment of the United Nations in 1945, many agreements between
countries, both bilateral and multilateral, were made, and with this, the United Nations
(United Nations) made guidelines to become the basis for making agreements which are
currently still valid and used, namely the Vienna Convention on the Law of Treaties 1969
(Vienna Convention on the Law of Treaties 1969) made in Vienna on May 23, 1969 and
entered into force on January 27, 1980, which has been signed by 45 countries and ratified
by 114 countries including Indonesia which became Law Number 24 of 2000 concerning
International Treaties.
Nowadays, the use of international agreements is increasing due to the easier access to
communication and economic trade which further encourages globalization. The cooperation
carried out will require a limitation or legal umbrella for the parties to the cooperation by
making an agreement. The agreement must be futuristic, can anticipate if there are disputes,
events that are expected or unexpected by the parties and other agreement substance.
The use of international treaties does not necessarily forget the general principles of
law contained in the 1969 Vienna Convention or in the Vienna Convention on the Law of
Treaties between States and States International Organizations or Other International
Organizations in 1986.3 There is the principle of pacta sunt servanda which coexists with
good faith in Article 26 of the 1969 Vienna Convention although the principle is implied4
but is often used as a legal basis for making international agreements and there is a legal
principle regarding fundamental changes of circumstances that have occurred at the time the
agreement is made and which are not foreseen by the parties or commonly called rebus sic
stantibus (fundamental change of circumstances) contained in Article 62 paragraph 1 of the
Vienna Convention. which has occurred at the time the agreement was made and which was
not expected by the parties or commonly called rebus sic stantibus (fundamental change of
circumstances) listed in Article 62 paragraph 1 of the 1969 Vienna Convention on the Law
of Treaties which has exceptions to letters (a) and (b) of the article.
2
The existence of the rebus sic stantibus principle is certainly widely used as an excuse
for one of the parties to the agreement to terminate or withdraw from the agreement, which
in this study the author will discuss the interpretation of the principle associated with several
cases of international agreements in the form of bilateral agreements that terminate or
withdraw from agreements that do not violate Article 62 paragraph 2 of the 1969 Vienna
Convention on the Law of Treaties6 , namely regarding the conditions for terminating or
withdrawing from agreements that have been made with other parties.
There are several examples of this principle in international civil contracts entered into
(or involving interests) between two countries. It is certainly interesting to know how the
application of the principle of rebus sic stantibus by looking at the interpretations of various
countries regarding the principle of rebus sic stantibus whose use is increasing by various
parties in terminating international agreements made. Based on the description above, the
problem is formulated as follows:
How is the rebus sic stantibus principle applied to international civil contracts?
What is the essence of the rebus sic stantibus principle?
Purpose and Objectives
This research is written to find out the meaning of the rebus sic stantibus principle in
modern international society when entering into international civil contracts which are
usually carried out between two countries and usually concern the economic interests of
each country, but there are different applications in various national laws of the country. For
this reason, the application of the rebus sic stantibus principle, which has its roots in Article
62 of the 1969 Vienna Convention on the Law of Treaties, will be examined first and then
the meaning in the national laws of other countries.
Research Methodology
Type of Research
According to Soerjono Soekanto, in legal research methodology there are two types of
legal research, namely normative legal research and sociological or empirical legal
research.9 Based on the classification of these types of legal research, this research is
included in the type of normative legal research because the object of the legal research is
sociological or empirical studied is law in a normative concept. The research approach used
3
is normative. The choice of this approach is taken because what will be studied is not only
laws and regulations but also international cases that refer to international treaties.
Research Materials
Research materials or data needed in this research are by collecting, reading, studying,
and analyzing data in the form of secondary data and documentary materials obtained by
literature studies in literature, books, laws and regulations, theses, theses, dissertations,
journals, papers, and other valid sources that can help this research. The literature research
data can be classified into 3 (three) types, namely as follows:
Primary Legal Materials
Primary legal materials that the author refers to are legal materials in the form of laws
and regulations where these materials exist through legal mechanisms and these legal
materials have binding legal force as long as it is not determined otherwise. The primary
legal materials include the following:12
Vienna Convention on the Law of Treaties 1969;
Cooperation Agreement between the European Economic Community and the
Socialist Federal Republic of Yugoslavia 1980; and
Treaty on Development Cooperation between the Netherlands and Suriname 1975.
Secondary Legal Materials
Secondary legal materials are legal materials that explain the primary legal materials
used, such as reading materials written by experts, scientific journals, research results of
several academics both from within and outside the country, and others. S
Tertiary Legal Materials
Materials that provide guidance and explanations for primary and secondary legal
materials by providing understanding and understanding of other legal materials, such as
legal dictionaries, both in Indonesian and foreign languages, magazines and others.1
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
4
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
5
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
6
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
7
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
8
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
9
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
10
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
11
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
12
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
13
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
14
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
15
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
16
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
17
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
18
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
19
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
20
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
21
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
22
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
23
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
24
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
25
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
26
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
27
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
28
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
29
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
30
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
31
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
32
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
33
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
34
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
35
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
36
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
37
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
38
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
39
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
40
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
41
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
42
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
43
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
44
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
45
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
46
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
47
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
48
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
49
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
50
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
51
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
52
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
53
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
54
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
55
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
56
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
57
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
58
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
59
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
60
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
61
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
62
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
63
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
64
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
65
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
66
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
67
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
68
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
69
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
70
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
71
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
72
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
73
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
74
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
75
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
76
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
77
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
78
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
79
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
80
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
81
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
82
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
83
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
84
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
85
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
86
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
87
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
88
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
89
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
90
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
91
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
92
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
93
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
94
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
95
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
96
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
97
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
98
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
99
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
100
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
101
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
102
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
103
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
104
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
105
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
106
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
107
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
108
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
109
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
110
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
111
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
112
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
113
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
114
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
115
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
116
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
117
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
118
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
119
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
120
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
121
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
122
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
123
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
124
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
125
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
126
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
127
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
128
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
129
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
130
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
131
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
132
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
133
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
134
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
135
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
136
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
137
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
138
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
139
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
140
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
141
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
142
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
143
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
144
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
145
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
146
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
147
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
148
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
149
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
150
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
151
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
152
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
153
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
154
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
155
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
156
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
157
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
158
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
159
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
160
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
161
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
162
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
163
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
164
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
165
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
166
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
167
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
168
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
169
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
170
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
171
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
172
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
173
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
174
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
175
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
176
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
177
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
178
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
179
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
180
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
181
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
182
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
183
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
184
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
185
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
186
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
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points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
188
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
189
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
190
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
191
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
192
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
193
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
194
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
195
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
196
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
197
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
198
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
199
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
200
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
201
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
202
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
203
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
204
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
205
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
206
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
207
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
208
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
209
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
210
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
211
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
212
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
213
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
214
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
215
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
216
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
217
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
218
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
219
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
220
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
221
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
222
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
223
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
224
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
225
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
226
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
227
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
228
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
229
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
230
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
231
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
232
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
233
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
234
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
235
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
236
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
237
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
238
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
239
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
240
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
241
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
242
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
243
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
244
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
245
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
246
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
247
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
248
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
249
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
250
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
251
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
252
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
253
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
254
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
255
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
256
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
257
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
258
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
259
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
260
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
261
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
262
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
263
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
264
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
265
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
266
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
267
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
268
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
269
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
270
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
271
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
272
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
273
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
274
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
275
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
276
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
277
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
278
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
279
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
280
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
281
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
282
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
283
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
284
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
285
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
286
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
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contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
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South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
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contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
290
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
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fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
292
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
293
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
294
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
295
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
296
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
297
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
298
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
299
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
300
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
301
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
302
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
303
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
304
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
305
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
306
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
307
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
308
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
309
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
310
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
311
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
312
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
313
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
314
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
315
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
316
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
317
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
318
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
319
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
320
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
321
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
322
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
323
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
324
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
325
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
326
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
327
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
328
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
329
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
330
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
331
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
332
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
333
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
334
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
335
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
336
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
337
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
338
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
339
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
340
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
341
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
342
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
343
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
344
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
345
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
346
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
347
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
348
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
349
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
350
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
351
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
352
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
353
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
354
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
355
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
356
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
357
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
358
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
359
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
360
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
361
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
362
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
363
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
364
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
365
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
366
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
367
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
368
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
369
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
370
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
371
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
372
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
373
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
374
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
375
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
376
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
377
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
378
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
379
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
380
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
381
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
382
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
383
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
384
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
385
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
386
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
387
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
388
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
389
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
390
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
391
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
392
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
393
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
394
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
395
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
396
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
397
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
398
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
399
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
400
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
401
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
402
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
403
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
404
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
405
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
406
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
407
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
408
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
409
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
410
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
411
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
412
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
413
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
414
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
415
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
416
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
417
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
418
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
419
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
420
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
421
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
422
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
423
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
424
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
Discussion
Application of the Principle of Rebus Sic Stantibus
In general, bilateral agreements that are postponed on the grounds of rebus sic
stantibus are bilateral agreements governing economic cooperation. Although there is the
option of resolving disputes by amicable means, it is not costly, some cases of delay in the
implementation of bilateral agreements are often submitted to the International Court of
Justice on the basis of rebus sic stantibus but basically always rejected or not accepted.
In the Fisheries Jurisdiction Case (UK - Iceland) of 1973, Iceland invoked the
fundamental change of circumstances rationale which the Court subsequently adopted.
International by looking at Article 62 of the 1969 Vienna Convention, found that the
changes that occurred were not considered vital so that although international law recognizes
fundamental changes in circumstances, the granting of requests for termination of treaties
using rebus sic stantibus to the International Court of Justice is very rare because it must
meet two elements, namely the change must be vital16 and unforseenable, such as in the case
between BG Group (UK) against the Republic of Argentina where Argentina used rebus sic
stantibus in its defense in the arbitration court for the country's inflation spike so that it was
unable to pay its obligations to BG Group.
In another case where the use of rebus sic stantibus as a basis for delaying the
425
implementation of the agreement was completely rejected, namely in the Gabčíkovo -
Nagymaros case (Hungary - Slovakia), which in essence Hungary claimed a violation of the
agreement made with Slovakia regarding the construction of a dam. In addition, at the
arbitration level there was LAFICO (Libyan Arab Foreign Investment Company) v. The
Republic of Burundi.
The strictness of the fulfillment of the elements of rebus sic stantibus is related to the
great opportunity for the state that entered into the agreement to postpone the bilateral
agreement it made easily. Many proposals to terminate treaties by using the principle of
rebus sic stantibus are rejected for another purpose, namely so that respect for international
treaties made remains and cannot be easily postponed or terminated by one party arbitrarily.
Based on the explanation that it is difficult to grant the basis for postponement of the
treaty using rebus sic stantibus above, we will describe 3 (three) examples of the application
of the principle of rebus sic stantibus which have been rejected or accepted by the
International Court of Justice or other courts on bilateral treaties.
The author found, namely:
Racke Case (Yugoslavia - European Community) (1998)
Racke Gmbh & Co, a wine company located in Germany, entered into a cooperation
agreement with Yugoslavia (formerly Serbia) under the Cooperation Agreement between the
European Economic Community and the Socialist Federal Republic of Yugoslavia
('Cooperation Agreement') on April 2, 1980 in Belgrade. There is an amendment to article
22 of the agreement that there is a new trade arrangement, namely the obligation to tax the
import of fresh grapes with payment per quota 545,000 hectolitres. However, if the other
party wishes to cancel the agreement by notifying the other party, the agreement will expire
six months after notification.
Then, there was Decision 91/586/ECSC made by the European Economic Community
(EEC) on November 11, 1991 which suspended the implementation of the Cooperation
Agreement on the war in Yugoslavia on the basis of United Nations Security Council
resolution 713 (1991), which said that the situation in Yugoslavia was a threat to
international peace and security.20 Thus, there was a radical change in the broad trade and
economic relations between Yugoslavia and the EEC. There was an appeal by the EEC
426
within the framework of the European Political Cooperation on October 6, 1991. However,
upon the declaration made on October 6, 1991, the EEC member states requested the
termination of the agreement behind closed doors.
Between November 6, 1990 and April 27, 1992, Racke imported wine from a wine-
growing region in Kosovo that had already paid taxes in Germany on its private cellars. On
May 7, 1992, Racke announced a declaration for wine shipments based on the calculated tax
rates in the Cooperation Agreement concluded in 1980.22 On May 27, 1992, Haupzollamt
Mainz (German tax office) requested a differentiated third country tax rate because the wine
had been imported from Serbia, a former Yugoslav country. Racke took the matter to the
Finance Court, which agreed in respect of wine imports prior to November 15, 1991, but
dismissed the request from the court due to lack of evidence as a residual ground for
annulment of the rules established by the Cooperation Agreement justified by a fundamental
change of circumstances, namely the war in Yugoslavia.
Based on the annulment, the Cooperation Agreement should have been canceled on
May 26, 1992. Racke claimed that the regulation was invalid and void because the EEC had
violated customary international law.24 The Court of Justice of the European Communities
examined the validity of the regulation in three stages. Firstly, the court recalled a previous
judgment in which an article of a treaty made by the EEC with a non-member state
(Yugoslavia was not a member state of the EEC) made it clear that there was a negotiated
individual right if consideration was given to the meaning and purpose and nature of the
treaty itself, and the article contained a clear and precise obligation that it was not subject to
the adoption of subsequent measures.25 Article 22, paragraph 4 of the Cooperation
Agreement meets these criteria.
Secondly, the Court examined whether the individual seeking enforcement of the
treaty right to prove the invalidity of the EEC regulation as well as the inconsistency of the
treaty and was not justified by customary international law. The Court examined that pacta
sunt servanda is a principle of every legal order. In light of the Court's reasoning in its
previous decisions in Poulsen and Diva Navigation, Racke could not deny the right to claim
the validity of the regulations by invoking obligations arising from the rule of law
international custom underlying the abrogation and suspension of treaty relations.
Third, the Court considered whether the regulation could, in fact, be justified by a
427
fundamental change of circumstances. Due to the complexity of the rebus sic stantibus, the
Court limited the judicial review27 to whether, by adopting the postponed regulation, the
EEC Council had made "manifest errors of assessment" regarding the use of rebus sic
stantibus. In view of the objective of the treaty, "to promote the development and
diversification of economic, financial and trade cooperation," the Court found that the
maintenance of peace in Yugoslavia, and the existence of institutions capable of ensuring
implementation in order to take account of cooperation, formed an essential condition for the
carrying out and pursuit of such cooperation.
The Council's assessment that "the pursuit of hostilities and their consequences on
economic and trade relations constitute a radical change"29 is not manifestly wrong. The
conditions of radical change do not require difficulties in implementation.30 The Court also
held that the procedural safeguards contained in Article 65 of the Vienna Convention did not
derogate from customary law and did not prejudice EEC action. The Court concluded that
the examination of the leading questions of customary law had no bearing on the validity of
the regulations made by the EEC.31 Although this is the first time that customary law has
been ruled out of EEC regulations, it is true that each country applies customary law to its
own national laws, such as the Netherlands, Spain, Denmark, Ireland and the United
Kingdom. The United Kingdom says that customary international law is based on statutes
enacted by parliament. While Germany, Austria, Italy, France, Greece and Portugal say that
customary law is included in their national laws.
Icori Estero S.p.A. and Kuwait Foreign Trading Contracting & Investment Co. (1985)
An ad hoc tribunal under the UNCITRAL Rules considered a contract made by an
Italian construction company in 1985 with the Kuwaiti government for the construction of
Kuwait's diplomatic missions in Algeria, in a contract made under Algerian law. The
currency of payment was U.S. Dollars. Algeria is one of the few countries that has a clause
requiring contracts to adapt their contents to changed circumstances. In the arbitration
proceedings, two arbitrators accepted the lowering of the value of U.S. Dollars with respect
to the value of the Italian Lira regarding the 35% change in circumstances, adjusting to
compensate the contractor for the large expenditure incurred in Italian Lira.33 Thus, the
change in currency value in this case was accepted by the UNCITRAL ad hoc tribunal and
can be used as a reason for the use of rebus sic stantibus.
428
Netherlands - Suriname (1982)
In February 1980 the Surinamese government was overthrown in a military coup d'etat
led by Colonel Bouterse. The Netherlands, responding to the human rights violations in
Suriname, announced the suspension of the 1975 Treaty on Development Cooperation
between the two countries, the purpose of which was to provide financial assistance from the
Netherlands to Suriname. In doing so, the Netherlands circumvented the normal procedures
provided in the Treaty in the agreement requested as a justification of the rebus sic stantibus
principle, which must be prompt and immediate in its effect.
The Netherlands used the excuse that the delay was carried out on the basis of human
rights, but this was not included as a basis for canceling the agreement in the agreement
between the Netherlands and Suriname, so the Netherlands only became a Third Party
affected by Countermeasure.
Meaning of Rebus Sic Stantibus
It has been explained previously that the court in accepting the fundamental reason of
change of circumstances must fulfill several requirements as stated in Article 62 of the 1969
Vienna Convention on the Law of Treaties. So it can be seen that the meaning of the rebus
sic stantibus principle in each case has a difference in determining and resolving existing
cases. In the Racke case, which was initially questioned whether the use of the principle
could be defeated by customary law in the European Community jurisdiction, but in fact the
use of the rebus sic stantibus principle still refers to the 1969 Vienna Convention.
In the case of Icori Estero S.p.A. and Kuwait Foreign Trading Contracting &
Investment Co. the settlement was made using arbitration services. The request was granted
to change the contents of the agreement on the basis of rebus sic stantibus and the arbitrators
considered it with Algerian law, because the jurisdiction used in resolving this case was in
Algeria, and in Algerian civil law it is allowed to use rebus sic stantibus related to
significant changes in currency values. Finally, in the Netherlands-Suriname case, the use of
rebus sic stantibus refers entirely to the contents of the agreement they made themselves.
That the agreement can be canceled if there are human rights violations that occur in the
place where the implementation of the agreement takes place.
In addition to the explanation of the meaning of the rebus sic stantibus principle in the
429
above case example, We will broaden our view of this principle if we look at the meaning of
rebus sic stantibus theoretically in the national laws of European and American countries
and Latin America, which is as follows:
French law
The use of rebus sic stantibus in French law is referred to as théorie de l'imprévision
or commonly known as imprévision alone, seen from the existing doctrine that the execution
of the contract can still be done, but it can be burdensome for one of the parties because of
an unforeseen event. Imprévision is also differentiated from force majeure or cas fortuity
because the party owed is released from its obligations without any further responsibility
while imprévision is subject to an obligation to renegotiate and even if possible find a
solution.
This traditional doctrine of French law states that the use of imprévision is so strongly
opposed that the French Supreme Court (Cour de Cassation) has never dismissed or
modified any contract on the grounds of imprévision. In contrast, the modern doctrine of
French law, as found in their Code Civil, favors the use of imprévision although in practice it
is rare to find other solutions in resolving cases through the courts so the use of traditional
doctrine is more often used.
Although there have been many developments regarding imprévision, the French
Supreme Court has only emphasized that there should only be renegotiation for losses
suffered by one party. Even if there is a renegotiation clause in the contract, it does not
necessarily make the opposite party of the injured party to accept the modification of the
contract, but only with the intention of carrying out the principle of good faith and honest
negotiation, and finding a way for the parties to adapt to the changed circumstances.
Spanish Law
Spanish civil law, due to the importance of the doctrine of the principle of pacta sunt
servanda (found in Spanish Civil Code Article 1901), rejects the fulfillment of the
exemption from liability in performing the agreement on the grounds of hardship (change of
circumstances). The Spanish Supreme Court (Tribunal Supremo), however, recognizes the
principle of rebus sic stantibus which allows a party who is severely burdened by a
fundamental change to be released from the contract or is advised to request the adaptation
430
of the contract to the fundamental change in court. However, there is little Spanish literature
on this principle.
There are several expert opinions in both subjective and objective views regarding
rebus sic stantibus clauses. In the subjective view, some authors argue that the clause is in
every contract because of the wishes of the parties, and in the objective view, Professor
Lasarte,40 relates to Spanish Civil Code Article 1258 that the justification for the use of this
clause is not based on the wishes of the parties, but rather, on the principle of good faith.
According to Lasarte, because of this, many students in Spain misinterpret that every
contract must have this clause.
The Supreme Court provides several restrictions on the use of this clause in 5 (five)
points, namely:42
The contract must be a long-term contract or one in which no obligations have been
performed at all or one party has performed its obligations and the other party has not
performed its obligations;
There must be a change in the basis of the contract. It is possible when a contract
becomes unusually burdensome for one of the parties or the original purpose of the
contract is severely hindered;
The change in circumstances must be extraordinary and unforeseen. Neither party
could have manifestly removed the impediment at the time of contracting;
Neither party has to take the risk of change circumstances as a contractual obligation.
The doctrine of rebus sic stantibus cannot be used in aleatory contracts or insurance
contracts;
The person invoking the change of circumstances cannot be held liable under contract
or public opinion.
Based on the above requirements, the Spanish Supreme Court has resolved many cases
on the grounds of these clauses by rejecting, accepting the adaptation of the contents of the
contract and even terminating the existing contract. However, the Spanish Supreme Court
has mostly used the adaptation of the content of the contract rather than terminating the
existing contract.
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Italian Law
In Italian civil law, the discussion of contractual equitable interference caused by
unforeseen circumstances falls under two different legal concepts namely eccessiva
onerositá (in the 1947 Codice Civile or Italian Civil Code Articles 1467 to 1469) and the
theory of presupposizione, both of which evolved due to various case law. Although the
concepts are related, the foundations, conditions of use and results are different. For this
reason, the term often used is eccessiva onerositá.44
The Codice Civile historically derived from France's Code Civil, causing law Italy not
include article that When the debtor is harmed by a change in circumstances, the debtor can
request compensation in the event of force majeure. Meanwhile, if the debtor is harmed due
to an increase in the price of materials or labor, no compensation will be given.45 The use of
equity clauses is more accepted than causa46 in legal doctrine to be the basis for the proper
use of eccessiva onerositá, because shows the mutual cooperation between the parties in
sharing the risk when a loss occurs.
What the article means is that when a contract that is periodically performed is subject
to unforeseen circumstances, the aggrieved party may request termination, which is
excluded if the event is one of the usual risks, and the party seeking termination can prevent
it by offering terms in the contract, which are emphasized, equitably.
Based on Article 1467 of the Civil Code, the party affected by the unforeseen event is
entitled to request termination of the contract. It is also emphasized in Italian legal doctrine
that the termination of the contract will not occur automatically, but must request the
termination to the court, so that even though there is eccessiva onerositá in the contract, it
does not necessarily mean that the injured party will get freedom from its obligations, or
called dichiarazione hiudiziale which means that the termination of the contract must be
approved by a court decision even though in practice some court decisions provide for
automatic release of contractual obligations.
South African law
The use of rebus sic stantibus in South Africa still has influence from English law. South
Africa uses the term "Frustration". Based on several civil cases heard by the courts, many
have abused frustration by seeking compensation (restitutio).49 However, all of the cases
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share the same objective of ensuring contractual fairness.
South African law does not accommodate a specific doctrine of change of
circumstances or frustration of purpose. The few cases that do exist are given different
solutions. There is ambiguity in South African law with English law as to whether this is
different or similar. There are still many authors who say that change of circumstances
should be accompanied by the principle of good faith. The South African Commission also
requested the integration of Article 2.117 in the Principles of European Contract Law in
order to codify the law on change of circumstances.
From what Phillip Carl concludes, there is a lack of clarity on the meaning of causa
finalis (contractual purpose) in particular and there is no clear meaning of contract in
general in South African Law, the existing court decisions only emphasize what does not
constitute causa finalis but there is no explicit definition of it.
Law in Latin America (Chile and Argentina)
Although Latin America is located far away from Europe, the connectivity in civil law
issues can still be seen today. Due to colonization in the 19th century, civil law influences
from France, Spain, Portugal, Italy and Germany were taken from the best essence and made
into legal guidelines for Latin Americans. Chile has had a Civil Code since 1857 which is
considered as a country that is quite good at developing civil law in Latin America. The
mention of unexpected circumstances in Chilean and Argentinian law is similar to that of
France, namely the teoría de la imprévision or simply called imprévision. With the
imprévision, the good faith in Article 1546 Civil Code54 becomes a barrier for creditors and
debtors when the contract that runs between them experiences unfavorable and unexpected
events when they make the contract.
There is a Chilean legal doctrine regarding the requirement of imprévision, that the
event changing the content of the contract was unforeseeable at the time of signing the
contract, the event affected the aggrieved party severely, the event changing the content of
the contract was free of will and beyond the control of the parties,56 and imprévision only
applies to long-term or changing contracts. In Argentine law, changed circumstances have
been the subject of several court decisions and case law has played an important role in the
development of Argentine law. Initially, there was no general article on imprévision in the
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Argentine Civil Code, that is, the debtor's only freedom when the loss is due to force
majeure until the reform of the Argentine Civil Code in 1968.58
Article 1198 of the Civil Code, inspired by Article 1467 of the Codice Civile, states
that in commutative contracts and those that interfere with the performance of the contract, if
the event was unforeseen, the injured party may request termination of the performance of
the contract. The same applies to aleatory (insurance) contracts. In perpetual contracts,
termination of the contract does not affect performance that has already taken place. Above
all, the main rule in contract interpretation is the use of good faith.
The peculiarities of Argentina's imprévision are inflation was categorized earlier as an
extraordinary and unexpected event. This is because Argentina has experienced economic
crisis three times. On the basis of legal doctrine and case law, for Argentina inflation is no
longer an unforeseeable event as it has happened more than once, however, inflation remains
a substantial risk in the contract so that the debtor cannot seek termination of the contract in
accordance with Article 1198 of the Civil Code.
It is concluded that although Chilean and Argentine law have the same origins, the
application of the law is different. That Argentina already has a lot of doctrine regarding
imprévision especially since the inflation incident in 1975 so that it has been analyzed in
theory and practice. Whereas Chile has not explicitly explained or regulated imprévision, but
rather emphasized the use of good faith, due to the lack of development of imprévision
theory in Chilean legal doctrines.60
United States Law
In American legal doctrine, fundamental change of circumstances is known as
impracticability or impossibility of performance.61 A distinctive feature of American law is
that impracticability is not only developed by case law and legal doctrine, but also expressly
recognized in the articles of the Uniform Commercial Code (UCC) (Section 2-615).
Impracticability is defined as a waiver of performance by a party who has suffered extreme
hardship, unreasonable and unforeseen by the unforeseen event.
The key condition in determining impracticability is that performance of the obligation
is impossible and is caused by an unforeseeable event that was not foreseen when the
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contract was made. It is emphasized in Section 2-615 that the unforeseen event is
'scientifically' impossible. Then if there is no impracticability clause in the contract then it is
conceptually very difficult to enforce the obligation courts in releasing when there are
unforeseen events that make it difficult to enforce the contract. The use of contract
renegotiation is recognized in US legal doctrine but sometimes the court does not give the
parties the option of contract renegotiation.
Based on the explanation of various national laws in the previous sub-chapter, it can
be concluded that the use of rebus sic stantibus in France, Spain, Italy, Argentina and Chile
(which are colonies of France, Spain, Portugal, etc.) as adherents of Continental European
law, do not like the use of rebus sic stantibus as a reason for terminating the agreement but
still recognize and there is a lot of literature about rebus sic stantibus and do not emphasize
the existence of a fundamental change of circumstances clause in the contract made, so that
filing on the basis of rebus sic stantibus can be done without being bound by the agreement.
Unlike the law in the United States as an adherent of Anglo-Saxon law, it is emphasized that
there must be a rebus sic stantibus clause in the contract made so that rebus sic stantibus is
used very often and many courts accept this reason in various disputes involving the United
States.
The use of rebus sic stantibus is still minimal in Indonesia, so practitioners in
Indonesia can examine and study the application of the principle as discussed in the national
laws of other countries in the previous sub-chapter. In countries that adhere to Continental
European law, the use of rebus sic stantibus is not very accepted, but they still recognize the
existence of the principle and the solution provided by the national law of each country is
more inclined to adapt to changes in fundamental circumstances that have occurred, while in
countries that adhere to Anglo-Saxon law, the use of the principle is accepted and the
solution of the national law is to renegotiate the contract. It is not mentioned in the literature
that discusses rebus sic stantibus whether the national law must mention the change of
fundamental circumstances clause in writing in the agreement regarding the change of
fundamental circumstances. Because the element of rebus sic stantibus one of them is
unexpected or unforseenable, so when the agreement is made the parties do not know what
events will occur, so that many cases regarding the termination of contracts are submitted to
the International Court of Justice, arbitration bodies or other international dispute resolution
institutions, so it is not required to include the rebus sic stantibus clause in the contract or
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agreement made.
Conclusions
Based on the above description, two conclusions can be obtained, namely:
In the European region, rebus sic stantibus is considered by using customary
international law, if customary international law is deemed unable to accommodate the
solution of the dispute, the 1969 Vienna Convention is still used. Dispute resolution
can look at the civil law of the region where the dispute is resolved. Finally, if it is not
possible to go to court or the agreement does not facilitate dispute resolution but it is
explained about the termination of the implementation of the agreement, the
agreement can be terminated.
Regarding the meaning of the rebus sic stantibus principle, it has the same meaning as
a fundamental change of circumstances or impracticability or hardship, namely a
fundamental change of circumstances. What is different is the application of each
country's civil law and the most important condition that must be met is that the
change is vital and unforeseen.
