Introduction:

The principle of pacta sunt servanda, which means that contracts and clauses are laws
with binding force between parties, requires that every contracting party must keep
his promise and fulfill his obligation. However, commercial practice demonstrates that
there exists event or change, which may result in performance being impossible or
pointless or substantial breach of the economic balance between parties. In such
situations, the rigid application of the principle of pacta sunt servanda will lead to the
opposite of justice and generate unfairness. Therefore, it could be found the
contradiction between two principles in contract law, namely the principle of pacta
sunt servanda on the one hand and the principle of clausula rebus sic stantibus on the
other hand. Contract laws in every legal system have been adjusting the contradiction
between these two principles in order to get the best balance. This thesis is aimed to
make a general introduction to the rules on economic hardship in different legal
jurisdictions, including the doctrine of frustration, the rules on force majeure and the
rules on hardship. Then following the comparison, the trend of evolution of such rules
is summarized.
After the introduction in the first part, the second part is concerning both the legal
theories and practices in different legal jurisdictions, such as UK, US, France
Germany and Macau. The study also refers to two important international instruments:
United Nations Convention on Contracts for the International Sale of Goods (the
CISG) and the Unidroit Principles of International Commercial Contracts (the PICC).
In the third part, a brief analysis is made on the new judicial interpretations in the
Chinese Contract Law. Following the studies on the related articles and legal practices,
some suggestions about the Chinese law are given in the forth part. The conclusion is
stated in the last part.

Pacta sunt servanda

Pacta sunt servanda, is a brocard, a basic principle of civil law and of international law.
In its most common sense, the principle refers to private contracts, stressing that contained
clauses are law between the parties, and implies that nonfulfillment of respective obligations is a
breach of the pact.
In civil law jurisdictions this principle is related to the general principle of correct behavior in
commercial practice including the assumption of good faith is a requirement for the
efficacy of the whole system, so the eventual disorder is sometimes punished by the law of some
systems even without any direct penalty incurred by any of the parties. However, common law
jurisdictions usually do not have the principle of good faith in commercial contracts, therefore it
is inappropriate to state that pacta sunt servanda includes the principle of good faith.
With reference to international agreements, "every treaty in force is binding upon the parties to it
and must be performed by them in good faith."[2] Pacta sunt servanda is related to good faith,
while pacta sunt servanda does not equate with good faith. This entitles states to require that
obligations be respected and to rely upon the obligations being respected. This good faith basis

of treaties implies that a party to the treaty cannot invoke provisions of its municipal (domestic)
law as justification for a failure to perform. However, with regards to the Vienna Convention and
the UNIDROIT Principles it should be kept in mind that these are heavily influenced by civil law
jurisdictions. To derive from these sources that pacta sunt servanda includes the principle of
good faith is therefore incorrect.
The only limit to pacta sunt servanda are the peremptory norms of general international law,
called jus cogens (compelling law). The legal principle clausula rebus sic stantibus, part of
customary international law, also allows for treaty obligations to be unfulfilled due to a
compelling change in circumstances.

The Limits of Pacta Sunt Servanda in International Law

The debate on stability and change or the limits of pacta sunt servanda
has played a central role in the history of international law. The
question under which conditions a state may derogate from treaty obligations
in case of changed circumstances seems a constant. It is exacerbated
by the inherent characteristic of treaties to freeze law at the
moment of adoption, thus fixing it at a certain point in time. This distinguishes
treaties from international customary law, which based on
state practice and opinio iuris follows reality, in Dupuys words, in degrees
of mimicry. Contrary to the latter, treaties are in permanent tension
to the passing of time and changing circumstances.
Stability and change were discussed at different times with varying focus.
The most intensive debate surrounding these structural elements of
the law of treaties seems to have taken place in the inter-war period, in
the context of peaceful change: Article 19 of the Covenant of the
League of Nations adopted an institutionalized solution, conferring the
competence to the Assembly of the League of Nations to suggest treaties
that have become inapplicable for revision when these endangered
the peace of the world. After the failure of the League of Nations, the
mechanisms developed after 1945 rather focused on action taken by the
treaty parties. Articles 61 and 62 of the Vienna Convention on the Law
of Treaties (VCLT) respectively allow for treaty termination or suspension
in cases of supervening impossibility of performance and fundamental
change of circumstances.
Recent developments added new dimensions to the debate on stability
and change. First, the formation of the law of state responsibility as a
system of secondary norms and especially the therein conceptualized
circumstances precluding wrongfulness increased the available options
to accommodate subsequent changes. In particular the legalization
(Verrechtlichung) of the necessity defence, from necessity knows no
law to a strictly construed law of necessity, diversified states means
to derogate from treaty obligations without as such endangering treaty
stability. Thus, today, the force majeure and necessity defences incorporated
in the 2001 Articles on State Responsibility (ILC Articles; Articles

Abstract:
This paper explores the presumptive tension between the pacta sunt servanda rule (the rule that
commitments ought to be honoured) and the possibility for unilateral or consensual suspension or
termination of treaties. It argues that the pacta sunt servanda rule seems able to accommodate the
various methods of suspension or termination: under the general international law of treaties, termination
or suspension is not actually unilateral; only the invocation of relevant grounds is. Further, both grounds
for suspension or termination, as well as defences under the law of responsibility (which achieve results
similar to suspension) are narrow and thus hard to invoke successfully. Finally, the law allows states to
devise their own exit clauses in treaties. This leads to very broad exit clauses allowing for unilateral
termination or withdrawal. This however being part of the pactum, it does not formally put pressure on the
pacta sunt servanda rule