DISTINCTION BETWEEN FORCE MAJEURE, OBJECTIVE IMPEDIMENT, AND FUNDAMENTAL CHANGE OF CIRCUMSTANCES

During the performance of a contract, especially long-term contracts, a business may face extraordinary risks arising from natural, social, economic, political, or human factors, which can make the performance of obligations extremely difficult, costly, or even impossible.

Not all events that occur qualify as force majeure allowing the disadvantaged party to be exempted from obligations or to terminate the contract. Some events fall under the category of fundamental change of circumstances, in which case the parties adjust the contract so that performance can continue while striving to maintain a balance of benefits between the parties.

1. Force Majeure Event

Clause 1, Article 156 of the Civil Code 2015 defines a “force majeure event” as an event that occurs objectively, cannot be foreseen, and cannot be overcome despite having applied all necessary measures and the means permitted. Although this provision is included under regulations relating to limitation periods, this definition is widely applied in civil and commercial legal relations.

According to the above definition, an event is considered a force majeure event if it satisfies all three elements: objective, unforeseeable, and insurmountable. However, the Civil Code 2015 does not provide specific criteria for determining each element. The assessment of whether an event meets the criteria of a force majeure event depends on the perspective of the competent authority resolving the dispute (Court or Commercial Arbitration) when a dispute arises.

Specific cases considered as force majeure events include: natural events (such as earthquakes, storms, floods, tsunamis, fires, invasions, etc.) or human-made events (such as riots, uprisings, armed conflicts, opposition, sabotage, sanctions, sieges, blockades, any acts of war, or hostile acts by communities, whether or not war is formally declared).

The consequence of a force majeure event is that the affected party cannot perform its contractual obligations. Clause 2, Article 351 of the Civil Code 2015 provides:

“In cases where a party fails to properly perform its obligations due to a force majeure event, it shall not bear civil liability, except in cases where otherwise agreed or provided by law.”

2. Fundamental Change of Circumstances

According to Clause 1, Article 420 of the Civil Code 2015, a “fundamental change of circumstances” is established when all five of the following conditions are met:

• The change of circumstances arises from objective reasons after the contract has been concluded;

• At the time of concluding the contract, the parties could not have foreseen the change of circumstances;

• The change of circumstances is so significant that, had the parties known in advance, the contract would not have been concluded, or would have been concluded with entirely different content;

• Continuing to perform the contract without modifying its content would cause serious detriment to one of the parties; and

• The affected party has applied all necessary measures within the permitted capacity, in accordance with the nature of the contract, but cannot prevent or mitigate the impact on its interests.

Thus, a “fundamental change of circumstances” is also an objective and unforeseeable event. The distinction between a fundamental change of circumstances and a force majeure event lies in the following element: a force majeure event prevents the parties from overcoming the consequences even after using all available measures, whereas in the case of a fundamental change of circumstances, the parties can continue to perform the contract, but doing so would cause serious detriment to one party.

In addition, a fundamental change of circumstances does not provide a basis for suspension of performance or exemption from liability for the affected party. When a fundamental change of circumstances occurs, the affected party only has the right to request the other party to renegotiate the contract or to request the Court to amend or terminate the contract. However, the party receiving the request to renegotiate the contract is not obliged to negotiate or accept any proposals from the affected party.

3. Objective Impediment

Clause 1, Article 156 of the Civil Code 2015 defines an “objective impediment” as obstacles arising from objective circumstances that prevent a person with civil rights and obligations from knowing that their legal rights or interests are being infringed or from being able to perform their civil rights and obligations. An objective impediment is similar to a force majeure event in the element of objectivity, but it does not require the other two elements (unforeseeability and impossibility to overcome).

The consequences of an objective impediment are broader than those of a force majeure event, as it not only prevents the affected party from performing their obligations but may also apply in cases where the affected party cannot be aware that their legal rights or interests are being infringed.