Change of Circumstances

Change of Circumstances is an important principle in contract law. It refers to a situation where, after the formation of a contract, due to reasons not attributable to either party, a major change occurs that was unforeseeable at the time of contracting and is not force majeure, causing the foundation of the contract to be shaken or lost, and continued performance would be manifestly unfair. In foreign trade, change of circumstances is often invoked when sharp exchange rate fluctuations, soaring raw material prices, government policy adjustments, war, or trade sanctions lead to a sharp increase in costs or difficulty in performance. Unlike force majeure, change of circumstances does not make performance impossible, but rather makes performance difficult or manifestly unfair; therefore, the party cannot directly claim exemption but must request a court or arbitration institution to modify or terminate the contract. When invoking change of circumstances, note: 1) the change must occur after contract formation and before complete performance; 2) the change must be unforeseeable and not attributable to the parties; 3) continued performance must be manifestly unfair; 4) the party should promptly notify the other party and negotiate, and if negotiation fails, may seek adjudication. Foreign trade contracts often include a change of circumstances clause to clarify risk allocation and renegotiation mechanisms.