Can Financial Crisis Lead to the Application of the Institute of Changed Circumstances Under Croatian Law?
The consequences of the global financial crisis which began to manifest in Croatia during 2008 have not ended to this day. Doing business during the financial crisis is significantly hampered and imposes the need to devote special attention to the question of binding nature of a contract whose performance would be excessively onerous or would cause an excessive loss for one contracting party.
Croatian law adopts the clausula rebus sic stantibus as a theoretical concept that defines the limits of attachment to a contract. Therefore, the consequences of the financial crisis may be considered only within the framework of the general rule on variation or termination of contract in case of change of circumstances. Contracting parties may invoke on an event as a consequence of the financial crisis as a changing circumstance only if all statutory requirements are fulfilled. Hence, the authors provided analysis of statutory requirements for termination or modification of the contract. Furthermore, the authors analyse the circumstances which the court should take into consideration when deciding on variation or termination of the contract, underlining the principle of good faith and fair dealing as the fundamental criterion by which the courts should be governed.
Clausula rebus sic stantibus is an instrument of great importance, especially in the times of a financial crisis, because its purpose is to maintain the proper balance between principle of pacta sunt servanda on one side with the principle of good faith and fair dealing and the principle of equal value of performances on the other side.
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