The Rebus Sic Stantibus Clause in International Contracts – Complex Scenarios and Case Law

Written by Manoel Lima

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In the realm of international contracts, the concept of rebus sic stantibus often remains overshadowed by the better-known force majeure clause. Although both deal with unforeseen changes, their legal approaches and implications are quite distinct. While force majeure applies in cases of events that make contract performance impossible – such as natural disasters or political crises – the rebus sic stantibus clause addresses the possibility of adapting contract terms when unexpected circumstances profoundly alter the reality under which the agreement was made. In an increasingly globalized world, understanding this distinction is essential for maintaining balance between the parties in international agreements.

Leandro Felippini, a lawyer with notable experience and academic contributions in the field of Civil Law and International Contracts, explains that the relevance of the rebus sic stantibus clause has grown in recent years, especially in a global context marked by economic crises and rapid geopolitical changes.

“Unlike force majeure, which directly addresses impossibilities, rebus sic stantibus allows for negotiation and revision, aiming to preserve fairness in contractual relationships,” says Felippini.

He emphasizes that this clause can be crucial in ensuring that one party is not excessively burdened when the conditions existing at the time of signing the contract change drastically.

With a law degree from the University of Ribeirão Preto and a master’s degree in Diffuse and Collective Rights, Felippini has a practical perspective on the challenges companies face when dealing with the application of this clause. He points out that, although less known, rebus sic stantibus can be a powerful tool for renegotiating contractual terms, especially in long-term contracts. “Often, an unexpected event doesn’t make fulfilling the contract impossible, but transforms the context so deeply that it becomes necessary to revise the terms to maintain proportionality and fairness between the parties involved,” he explains.

Rebus sic stantibus vs. Force majeure: Differences and intersections

Leandro Felippini argues that “the rebus sic stantibus principle should not be seen as an easy way out of contractual obligations, but rather as a mechanism that ensures fairness in situations of extreme imbalance.” According to Felippini, this clause becomes relevant in international contexts because it allows for contract adjustments in light of supervening events. He highlights that the COVID-19 pandemic brought these issues to the forefront, as many companies sought relief from contractual obligations due to the severe disruptions caused by global lockdowns, travel restrictions, and economic instability.

Felippini emphasizes that “while force majeure deals directly with impossibility of performance, rebus sic stantibus seeks to adapt contractual conditions to preserve equity between the parties.” He illustrates that during the pandemic, many contracts were affected not because it was impossible to fulfill obligations, but because the terms became disproportionately burdensome for one party. “Imagine a hotel chain that, although allowed to remain open during lockdowns, operated at a severe loss due to the absence of guests. In such cases, renegotiating rent with property owners through the rebus sic stantibus clause would reflect the new economic reality,” Felippini explains.

Jurisprudence and criteria for application

The application of the rebus sic stantibus clause varies across legal systems, making it a contentious issue in international contracts. Leandro Felippini notes that “in some countries, courts adopt a conservative approach, applying the clause only in exceptional circumstances to avoid undermining contractual predictability.” He mentions that under Brazilian jurisprudence, application of the clause is appropriate only when the change in circumstances significantly disrupts contractual balance and cannot be corrected by other means.

To invoke the clause, most jurisdictions require:

• Fundamental change in circumstances: The change must be unforeseen and beyond the control of the parties, altering the core of the contract and breaking the original balance of obligations.

• Excessive burden on one party: The new circumstances must impose a disproportionate burden on one party, making fulfillment of obligations excessively difficult or financially unfeasible.

• Good faith negotiations: Felippini underscores that “before resorting to the judiciary, parties are expected to attempt good-faith negotiations, reflecting the collaborative spirit of the clause.”

He adds that this step is crucial to avoid overburdening the courts with contractual disputes that could be resolved amicably.

Practical examples: The COVID-19 pandemic

The COVID-19 pandemic was a significant example where the rebus sic stantibus clause was considered in various types of contracts. Felippini comments that “courts in several countries recognized that the pandemic not only created obstacles but also drastically altered the economic expectations of the parties.”

• Commercial lease agreements: “Many entrepreneurs, especially in hospitality and retail sectors, struggled to pay rent during lockdown periods,” says Felippini. He explains that even with continued access to the premises, tenants’ ability to generate income was severely impaired. In some jurisdictions, this led to temporary rent reductions.

• Supply contracts: The pandemic also affected supply contracts. “Manufacturers faced supply chain disruptions that drastically increased costs or delayed deliveries,” notes Felippini. Application of rebus sic stantibus allowed adjustments to delivery schedules and even pricing, aiming to preserve the contract’s economic balance.

• Loan and mortgage agreements: Although monetary obligations are less likely to be modified under force majeure, Felippini notes that “the rebus sic stantibus clause allowed some borrowers to renegotiate payment terms.” He mentions that, due to job losses and revenue declines, adjusting payment schedules was more appropriate than simply suspending payments.

Challenges and criticisms

Leandro Felippini acknowledges that the flexibility of the rebus sic stantibus clause is a “tool for contractual justice” but also warns of the risks of its indiscriminate use. “If parties see the clause as an easy way out of unfavorable contracts whenever conditions change, the stability of international trade may be compromised.” He stresses the importance of clear criteria to avoid inconsistent court decisions, especially in cross-border agreements.

To mitigate these risks, Felippini suggests that “parties should include hardship clauses in contracts, defining in advance how to deal with supervening changes. This provides a more predictable framework and preserves the original intent of the contract.”

Conclusion: Finding the balance

“The rebus sic stantibus clause, alongside other contractual provisions like force majeure, plays a crucial role in adapting agreements amid uncertainty and profound changes,” says Felippini, emphasizing the importance of clear criteria for its application. He highlights that in international contracts, the complexity of unforeseen circumstances requires an approach that balances fairness and predictability in the relationship between the parties involved. This flexibility is particularly relevant in global crises like the COVID-19 pandemic, which introduced new challenges for applying this type of clause.

Felippini concludes that, despite its potential benefits, the use of rebus sic stantibus must be approached with caution. “It is essential that parties understand this clause should not be used as an easy escape, but rather as a tool to preserve the integrity of the agreement in scenarios of extreme imbalance,” he stresses. For him, the inclusion of hardship clauses that anticipate how to handle drastic changes can ensure a safer and more stable environment for international business, upholding the spirit of cooperation and adjusting obligations to new realities without compromising contractual predictability.