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Ch.12 Exemptions

From: Damages Under the Convention on Contracts for the International Sale of Goods (3rd Edition)

Bruno Zeller

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

Subject(s):
Exemption from liability — Force majeure and contract — Termination/unwinding of contract — UN Sales Convention and damages

(p. 211) Chapter 12  Exemptions

Overview

12.01  This chapter explains the effects of unforeseen circumstances on a contract. In particular, the following points are discussed:

  • •  the concepts of force majeure and hardship as applied in municipal laws

  • •  the problem of interpretation of exemptions, and specifically the rejection of the Vienna Convention on the Law of Treaties as a tool to interpret the CISG

  • •  the new concept of ‘changed circumstances’ as used in the CISG

  • •  the reasonable steps that are required to avoid an impediment

  • •  the distinction between unavoidable and unforeseen

  • •  how far the defendant is responsible for the failure of third parties.

I.  Introduction

12.02  It is universally recognized that one of the important principles in contract law is the maxim pacta sunt servanda. This maxim supports the most fundamental principle of contract law, namely the sanctity of contracts.

(p. 212)

It is a fundamental principle of law, which is constantly being proclaimed by international [and also municipal] courts, that contractual undertakings must be respected. The rule pacta sunt servanda is the basis of every contractual relationship.1

In its ultimate extension this principle means that each party is responsible for the execution of an agreement and hence also for its non-execution. Non-execution, certainly under the CISG, must be understood to mean non-performance, late performance, or lack of conformity of the goods.2

12.03  The purpose of a contract is also to ‘forecast, define and clarify the intended and anticipated performance’.3 In this sense, each party will have allocated manageable risks to the contract and should be aware of the possibility of unforeseen circumstances. The problem is how to manage these unforeseen circumstances. In an economic sense, it is irrelevant whether the cause of the non-execution is outside the control of the breaching party or whether impediments to the execution of a contract were foreseeable. This principle arguably reflects natural justice, as it protects the interests of the other party by binding a person to their promise.4 The reason is that the aggrieved party will suffer damages or losses that need to be accounted for.

12.04  However, it is recognized that not all breaches of a contract can be treated in the same way; in certain circumstances, a party may be confronted by events that are beyond his control. Such events can make performance either impossible or too heavy a burden. In that sense, the principle of pacta sunt servanda will lead to the opposite of its aim to protect the parties to a contract. Such events do not foster the principle of natural justice either. Most countries have recognized this fact, and hence rules dealing with such situations are embodied in law. The principle that embodies the rule of changed circumstances is the doctrine of rebus sic stantibus. It must be understood that this doctrine is an exception and must be interpreted narrowly. It is only natural that the CISG should also embody such rules into its regime. This has been achieved in Article 79. In addition, the interrelationship between Articles 79 and 80 also needs to be understood. To successfully rely on Article 80, the respondent needs to show that the impediment was self-induced by the claimant. The advantage is that, as opposed to Article 79, Article 80 provides an exemption not only from damages but also from any other remedy the claiming party might have access to.

(p. 213) 12.05  The approach to changed circumstances varies from country to country, and there is simply no uniformity in approach. The classic concepts of force majeure and hardship (imprévision) are the basis on which attempts have been made to solve the problem of non-performance of a contract. Generally speaking, the aim of force majeure is to settle a contract through either suspension or termination of obligations.

12.06  What constitutes changed circumstances and hence the concept of the defence of force majeure also varies between domestic systems. It should be pointed out that these concepts namely force majeure and hardship are related to each other, as they share an underlying principle, but the distinctions are important enough to warrant a careful drafting of contracts.5 To understand Article 79, a basic understanding of hardship and force majeure is important.

12.07  A comparative understanding of the approaches of different legal systems will also help in understanding Article 79. But it has been confirmed by the Federal Court of Germany that the possibility of an exemption under Article 79 does not change the allocation of the contractual risks.6 The court went further to explain that, even if there is an impediment that could fall under Article 79, ‘the seller must overcome or avoid [such an impediment] according to the contents of the contract’.7

II.  The Concepts of Force Majeure and Hardship

12.08  Force majeure has its origins in the Code Napoleon and was adopted in different forms into municipal law. In Matsoukis v Priestman,8 the court argued that the term force majeure has a more extensive meaning than just an ‘act of god’. In Brauer & Co v James Clark,9 restrictions on the content of force majeure were explicitly stated. The party was not relieved from liability by the force majeure clause, ‘as there was no prohibition or embargo or physical or legal prevention of export’.10 The exporter claimed protection under the clause, as an export licence was not granted because the price was too low. The court held that the licence could have been granted if the seller had been prepared to pay a higher price and hence suffer a loss. Lord Denning pointed out: ‘It would be a strange thing if a seller could (p. 214) insist on the contract if the price fell and could escape his own obligations if it rose’.11

12.09  Force majeure exists when ‘the performance of a contract is impossible due to unforeseen events beyond the control of the parties’.12 The UNIDROIT Principles in general are very similar to Article 79; force majeure is covered by Article 7.1.7.

12.10  Hardship is frequently incorporated into contracts as an express clause. It normally includes matters in the execution of a contract that are thought to be detrimental but not impossible. These circumstances must be of a fundamental nature and beyond the control of either party. Most important, these occurrences must be uncontemplated and unforeseeable. Hardship has not found its expression in the CISG, despite some attempts to include such provisions.13 The UNIDROIT Principles have defined hardship in Article 6.2.2, which states:

There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished, and

  1. a)  the events occur or become known to the disadvantaged party after the conclusion of the contract;

  2. b)  the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract;

  3. c)  the events are beyond the control of the disadvantaged party; and

  4. d)  the risk of the events was not assumed by the disadvantaged party.

This is one of the situations where the CISG and the UNIDROIT Principles do not have the same skeleton. Therefore, hardship is not a term or principle that can be imported into the CISG via the Principles.

12.11  In sum, it can be argued that hardship occurs when the circumstances alter the contract in such a way that a new and different contract would, in effect, come into existence.

12.12  The concepts of hardship and force majeure are similar, as both intend to regulate the effects of changed circumstances. However, there are differences:

[H]ardship is at stake where the performance of the disadvantaged party has become much more burdensome, but not impossible, while force majeure means that the performance … [of] the party concerned has become impossible, at least temporarily.14

Despite an apparent understanding of what the two terms mean, their execution and interpretation from country to country vary greatly. Within the CISG, any (p. 215) situation that could be termed hardship needs to be viewed under Article 79 or treated as a breach. There appears to be no middle ground such as is found in other instruments or legal systems. Arguably, this is an outcome of the desire of the CISG to avoid any reference to domestic concepts.

12.13  There is ample evidence of courts falling into the ethnocentric trap when dealing with CISG provisions such as Article 35, which tracks domestic concepts. Recent decisions in Canada and Australia illustrate this point well. In Summit Chemicals v Vetrotex Espana SA,15 the whole point of the mandate of the CISG was missed, as neither the parties nor the court understood that the CISG must be read within its four corners. The facts are simple. Summit Chemicals, the importer, had to defend an action by Aqua Technics Ltd. for the supply of defective goods. The defendant wanted to join the Spanish manufacturer as a first third party to the litigation. In this matter, the defendant applied for leave to appeal as the court of first instance refused leave to amend third-party statements of claim. Instead of arguing the question of examination of goods pursuant to Article 38 and notification pursuant to Article 39, the court examined the domestic procedural law of amendment of third-party claim and hence statutory limitation, which was part of Article 39 anyway.

12.14  It could be argued that because hardship is omitted, a gap exists in the CISG that needs to be filled by either domestic law or the UNIDROIT Principles or European Principles of Contract Law. The point to make is that for a gap to exist, a deficiency must exist. Arguably, the omission of a hardship clause does not create a gap, as the CISG can adequately resolve a breach of a contract where in domestic laws hardship would be pleaded. The history of the CISG rules out such an approach anyway.16

12.15  In sum, hardship as understood in many domestic laws has simply not been included in the CISG, but it has found its way into the UNIDROIT Principles and the Principles of European Contract Law. As no gap exists in the CISG, these principles are of little value, except perhaps in arbitration where the arbitrator has the liberty to choose the relevant legal principles.

12.16  In England the traditional approach to strict liability for a breach of contract, although rigidly applied earlier,17 was softened by a more pragmatic approach in Taylor v Caldwell.18 The court noted that ‘a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance’.19 Impossibility and frustration in executing the contract (p. 216) became central features and were translated into doctrines based on the interpretation of the intent of the parties.20 The concept of frustration found its expression in cases such as Krell v Henry,21 which is one of the Coronation cases where rent was charged to view the Coronation procession of Edward VII. The king fell ill, and the procession was cancelled. The rent could not be collected because the contract was frustrated; the reason for the contract (to view the procession) no longer existed, and hence the purpose of the contract had been vitiated. The point to be made is that, although the concepts of frustration and hardship are similar, frustration does not allow an adaptation of the contract to the changed circumstances. The term ‘changed circumstances’ is widely used to refer collectively to municipal and international principles that deal with changes in the economic, legal, and business circumstances underlying a contract.22

12.17  The doctrine of impossibility was developed further in the United States and found expression in UCC section 2-615 and section 268(2) of the Restatement (Second) of Contracts. UCC sect 2-615 provides that a seller may be excused for any delay when performance has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

12.18  Despite section 2-615 of the UCC pointing to impracticability as an excuse, courts have been reluctant to accept anything short of impossibility as an excuse for non-performance.23 US case law suggests that three conditions must be satisfied before performance is excused: (1) a contingency has occurred: (2) the contingency has made performance impracticable: and (3) the non-occurrence of that contingency was a basic assumption upon which the contract was made.24

12.19  UCC section 2-615 arguably introduced a flexible adjustment machinery instead of the common law test of impossibility.25

12.20  The basic principle of pacta sunt servanda is enshrined in Article 1134 of the French Civil Code and takes priority over the principle of rebus sic stantibus.26 This principle is not followed only in cases of force majeure pursuant to Article 1148. (p. 217) However, Article 1148 is not mandatory and a judge must always accept the definition of parties as to the meaning of force majeure.27 In addition to force majeure, the doctrine of imprévision plays an important part in French legal theory.

12.21  In contrast, the German approach is rather flexible; the principle of pacta sunt servanda is not strictly followed. Article 275 of the German BGB discharges the debtor if there is an impossibility (Unmöglichkeit) to perform the contractual duty. The impossibility is not restricted to physical impossibilities; it also covers legal impossibilities. The impossibility, of course, does not include the party’s own fault or negligence by himself or his employees.

12.22  The doctrine of Unmöglichkeit, when linked to economic impossibility, resulted in the creation of a new doctrine of Opfergrenze. This new doctrine appears to be the stepping-stone to the famous German doctrine of Wegfall der Geschäftsgrundlage.28 As soon as the basis on which a contract has been formed changes, the performance of the contract is no longer essential. Effectively, there is little difference between the classical force majeure and Unmöglichkeit, and the Wegfall der Geschäftsgrundlage is very similar to hardship. In sum, the German domestic system has managed to implement impediments with a view to economic reality and common sense.

III.  Problem of Approaches to the Interpretation of Article 79

12.23  It has been argued that Article 79 is not clear and that the words and concepts chosen will lead to controversy and differences of opinion.29 Honnold even went further and noted that Article 79 is ‘the convention’s least successful part of the half-century of work towards international uniformity’.30 The problem is that the nature of the delivery of goods is important because the performance should be possible before any circumstances of Article 79 come into play. Flechtner noted correctly:

(p. 218)

The ‘Rorschach-test’ nature of Art. 79 is illustrated by the different views that have been advanced concerning how the exemption provision applies when the seller delivers non-conforming goods.31

This point, however, has been resolved by the CISG Advisory Council, noting that:

Article 79 exempts a party from liability to pay damages for failing to perform any of its obligations, including the seller’s obligation to deliver conforming goods.32

What is not disputed is that national legal traditions and concepts are to be disregarded. The semantic, factual, or tactical approach is arguably not warranted, as already discussed in Chapter 2. König and others suggest that Articles 31 and 32 of the Vienna Convention on the Law of Treaties (Law of Treaties) ought to be consulted to assist in the interpretation of the CISG.33 It should be noted that, in the Law of Treaties, Article 61 regulates ‘impossibility of performance’ and Article 62 defines ‘fundamental changes of circumstances’ in terms of rebus sic stantibus. The argument König proposed was repeated by a Dutch arbitration tribunal, which suggested that ‘in solving interpretation issues attention is to be paid to Articles 31 and 32 of [the Law of Treaties]’.34

12.24  Within the context of the CISG, the Law of Treaties has to be disregarded for the following reasons. The obligations of the contracting states to each other are contained in section IV of the CISG. Interpretation and construction of this part must be undertaken within the confines of the Law of Treaties.

12.25  Sections I–III of the CISG, on the other hand, deal with the obligations between parties to a contract of sale and are therefore excluded from construction within the confines of the Law of Treaties. The CISG, through Article 7, has created its own rules of interpretation. Honnold puts forward the following argument:

Article 7 of the Sales Convention embodies mutual obligations of the Contracting States as to how their tribunals will construe the Convention. Hence the Vienna Convention would be pertinent to a question concerning the construction of article 7, but the Vienna Convention would not govern the interpretation of the articles dealing with the obligations of the parties to the sales contract, for these articles are to be construed according to the principles of article 7.35

(p. 219) Even more compelling is the fact that not all countries that have ratified the CISG have also ratified the Law of Treaties, and hence it would not be applicable. This would lead to a dual system of interpretation, which would be in breach of Article 7, the mandate for a uniform interpretation.

12.26  Article 79, as argued consistently throughout this book, must be interpreted with the help of Articles 7 and 8 only. This is important, as the question has been asked whether Article 79 merely bridges the restive common and civil law and nothing else.36 Furthermore, many commentators suggest that Article 79 is vague and contains ‘elastic words’ or is ‘a chameleon like example of superficial harmony’.37 As a result, the argument has been advanced that Article 7 is not equipped to solve the perceived ambiguities in Article 79, as there is a conflict between the impediment rule in Article 79 and the principle of good faith as expressed in Article 7.

12.27  The question does arise, because Article 79 refers, on the one hand, to ‘impossibility’ and, on the other hand, to ‘reasonableness’. This in itself does not pose a problem, as Article 7 imposes a flexible and not a restrictive interpretation of the convention as a whole. Therefore, to focus on words and revert to the textual approach is fundamentally flawed. The CISG is a living document, and where there are uncertainties or ambiguities, as in this case, jurisprudence will supply the answer over time. This is a lesson that ought to have been learned from the historical development of laws in all jurisdictions. The CISG is no different, as it is a legal system in its own right.

12.28  To summarize, the four-corner approach advocated throughout this book must be adopted in this instance as well. Ethnocentric interpretation and recourse to domestic principles must not be allowed.

12.29  The drafters of the CISG created a ‘new concept by amalgamating different ideas, which, of course, has its positive and negative aspects’.38 Like many Articles within the CISG, Article 79 is a compromise between the civil and common law approaches. However, there was never any question that exemptions would turn on the issue of fault.39 For these reasons, Ziegel suggested that Article 79 is one of the most difficult Articles in the whole Convention.40

12.30  Article 79 releases a party from obligations and hence liability ‘if he proves that the failure was due to an impediment beyond his control’ and ‘he could not be reasonably be expected to have taken the impediment into account’ and further-more could not ‘have avoided it or its consequences’.41 It is important that the drafters (p. 220) specifically chose the word ‘impediment’ instead of ‘circumstance’, as present in Article 74 of ULIS (or ‘hardship’ or ‘force majeure’ for that matter). It should be noted at the outset that neither the CISG, the UNIDROIT Principles, nor the Principles of European Contract Law have defined what exactly is meant by the term ‘impediment’. However, it can be assumed that it describes an objective outside force that interferes with the performance of the contract and cannot be traced back to any national laws.42 Honnold put it succinctly when he noted that, when interpreting the word ‘impediment’, we should ‘purge our minds of presuppositions derived from domestic traditions and with innocent eyes, read the language of Article 79 in the light of the practices and needs of international trade’.43 Honnold alludes to the fact that the CISG must be read within its four corners, as explained in Chapter 2, but he does not define the term ‘impediment’.

12.31  Arguably, the sole purpose of this choice of wording was to provide an answer as to whether the party who failed to perform the contract should be liable for damages.44 This view has been confirmed by the Amtsgericht Charlottenburg.45 The facts of the case are simple. The defendant did not pay for shoes because they were in breach of Article 35; that is, they were defective. The court felt that the defendant did not have to pay for shoes that were defective. A demand for payment lacked common sense, and a reasonable person would expect that payment would be made only after some agreement had been reached. The non-payment could be justified under Article 79(1).46 Any claim for lost interest was also denied.

12.32  Another decision of interest that looked at a definition of impediment has been handed down by the German Federal Supreme Court.47 A German firm sold powdered milk to an enterprise in the Netherlands. The milk was subsequently found to be infected with lipase, which gave it a rancid taste. It was found that the seller was not responsible and hence could rely on Article 79 because the powdered milk was manufactured according ‘to the standard stock of knowledge of science and technology and … any existing lipase stock could have only been such stock that could have never been excluded based on standard procedure’.48

12.33  The claim for damages is further clarified in Article 79(5) itself, which notes that ‘nothing in this Article prevents a party from exercising any right other than to claim damages under this Convention’, and hence impracticability is not as far reaching as hardship.49 Simply put, Article 79 does not negate the undertaking of (p. 221) an obligor to perform the contract. If there are any doubts, then express clauses in the contract can be used to restrict or explain the performance that is guaranteed by the obligor. Only impediments beyond the control of the obligor are protected, provided they are not foreseeable or known to him at the conclusion of the contract.50 Nothing about the word ‘impediment’ restricts the external events that can give rise to an avoidance of the contract. These events can be of a social, natural, physical, or legal character.

12.34  The main problems in drafting arose because an attempt was made to combine the concepts of hardship, vis major, force majeure, and frustration into one Article.51 Vis major normally exempts a party from paying damages, and frustration releases the party from all obligations. To achieve a combination, the ‘middle road’ was chosen, which, in effect, linked the subjective and objective circumstances into the connecting factor.52 It has been suggested that ‘the outcome of a dispute governed by [Article 79] may ultimately turn on whether a court chooses to emphasize the common law or civil laws or that of the other legal systems throughout the world’.53

12.35  This is arguably not the case, as Article 8 has been recognized as the interpretive Article that will assist in determining unclear matters in interpreting not only the actions but also the intent of parties. The problem that might lead to controversy and difference of opinions over the CISG, and specifically over Article 79, is overcome, as an interpretation is firmly placed within the four corners of the convention.

12.36  Article 79 has clarified the situation somewhat in its subsections. Of some importance is subsection (4), which obliges the party who fails to perform its obligation to give notice to the other party within a reasonable time after ‘the party knew or ought to have known of the impediment’.54 If a party fails to do so, he is liable for damages. This is a clear reminder that Articles 7 (good faith) and 8 (the subjective and objective knowledge test) are to be taken into consideration when a party claims an exemption to avoid paying damages in case of non-performance of a contract. Of importance also is the mandate of Article 7, that the objective of the CISG is to promote uniformity in international trade. Specifically given that the CISG attempted to take ‘the middle road’, this mandate is important, and any recourse to national laws is to be avoided.

12.37  This is especially true where ‘national jurisprudence has developed solutions synthesized by academic writers under comprehensive concepts’,55 such as the (p. 222) French imprévision, or ‘frustration’ in common law, which is similar but not identical in meaning.

12.38  In the same context, where the CISG closely resembles domestic legislation the temptation of domestic courts to follow municipal law must be resisted. In this instance, the U.S. approach, which is not as restrictive as the civil law approach, does not follow the CISG as closely as it appears to at first glance. The mandate of Article 7 does not allow such an ethnocentric approach. However, it will be a long time before courts and tribunals understand Article 7 fully. It is rather disturbing that, despite ample academic literature, a court in 2004 could still maintain that ‘in applying Article 79 of the CISG, the court will use as a guide case law interpreting a similar provision of article 2–615 of the UCC’.56 This statement was in response to the plaintiff’s assertion that ‘[w]hile no American court has specifically interpreted or applied Article 79 of the CISG, case law interpreting the UCC [provides] guidance for interpreting the CISG article 79’.57 The correct approach pursuant to Article 7, as advocated throughout this book, would have been to consult international case law, which at that stage consisted of twenty-seven reported cases.

12.39  Another important point should be noted in regard to Article 79 of the CISG. A failure by a third party who is engaged to perform part of the whole of the contract does not automatically amount to an exemption. Article 79 can be pleaded only if the third party would also be exempt under subparagraph (1). This Article should be read in conjunction with Article 80, which provides that a self-made failure does not provide an excuse. In other words, a party cannot rely on the failure of a third party if the cause of that failure rests with the first party.58 The principle of a duty to cooperate is embedded in this Article.

12.40  Of importance also is subparagraph (3), which rules that an impediment can be of a temporary nature and that as soon as the impediment is removed, the normal obligations must be continued if possible.

12.41  A further point needs to be considered namely whether hardship is also included into the term ‘impediment’. The Advisory Council Opinion answered this question in the positive. They stated:

A change of circumstances that could not reasonably be expected to have been taken into account, rendering performance excessively onerous (‘hardship’), may qualify as an ‘impediment’ under Article 79(1). The language of Article 79 does not expressly equate the term ‘impediment’ with an event that makes performance (p. 223) absolutely impossible. Therefore, a party that finds itself in a situation of hardship may invoke hardship as an exemption from liability under Article 79.59

12.42  This position has been confirmed by a Belgian decision in Scafom International BV v Lorraine Tubes SAS.60 The facts are simple. Scafom concluded several contracts with Lorraine Tubes. After the contracts were concluded, the price of steel increased by 70 per cent, which was unforeseen. There was no price adaption clause in the contract. The court did come to the correct conclusion; however, several issues were not in line with the general application of the CISG. First, the court decided that there was a gap in the CISG, namely that hardship is not included. Interestingly, the Supreme Court noted that:

Changed circumstances that were not reasonably foreseeable at the time of the conclusion of the contract and that are unequivocally of a nature to increase the burden of performance of the contract in a disproportionate manner, can, under circumstances, form an impediment in the sense of this provision of the Convention.61

However, the court went on to argue that there is a gap which needs to be filled via Article 7 and hence they resorted to the UNIDROIT Principles. This in itself is not to be discounted as the Principles can be used to assist in the interpretation of the CISG where there is a general principle underlying the CISG.62 This view is inconsistent with the main argument of the Supreme court namely that hardship is included in Article 79.

12.43  As observed above the Advisory Council supports the view that Article 79 also includes hardship in the definition of ‘impediment’ whereas other academics have questioned this approach by arguing that an impediment must be something more than a mere hardship.63 In relation to the decision of the Belgian Supreme Court Professor Flechtner was very direct in responding to the Court’s argument that the CISG incorporates, as part of its general principles, the ‘Hardship’ provisions (Articles 6.2.1 through 6.2.3) of the UNIDROIT Principles of International Commercial Contracts. He argued that ‘this decision distorts the meaning of the CISG, violates the mandate to interpret the Convention with regard for its international character, and threatens the political legitimacy of the treaty’.64

(p. 224) 12.44  As can be seen the decision in Scafom International BV v Lorraine Tubes S.A.S. is no to be taken as a good example of the application of Article 79 as it lacked the rigorous analysis of the Article which will be subject of the following parts in this chapter.

IV.  Reasonable Steps to Avoid an Impediment

12.45  As stated above, Article 79 describes three conditions that must be satisfied before an exemption can be claimed. First, the impediment must be beyond the party’s control. Secondly, it is not reasonable to expect the party to have taken the impediment into account at the time of the conclusion of the contract. In other words, the impediment is unforeseeable. Importantly, as a third requirement, the impediment could not have been avoided or overcome in substance or consequence.65

IV.1.  Beyond Control

12.46  Several general principles of the CISG are contained within this Article and must be taken into consideration when applying or interpreting Article 79. First, the principle of reasonableness suggests that the occurrence of an impediment alone is not sufficient cause to invoke this Article. A party must take reasonable steps to make sure that he has a good chance or expectation that the fulfilment of the contract is possible. A Budapest arbitration proceeding confirmed this view.66 A Hungarian buyer could not pay the Yugoslav seller because UN (United Nations) sanctions prevented such payments. The UN sanctions were considered to be an impediment that could fall under Article 79 but did not do so in this case as the buyer should have paid the price before the sanctions were implemented, and hence he was in default. The tribunal noted that the ‘status of defaulting party cannot be changed by a later force majeure’.67

12.47  This suggests that an obligor must control all those items that are essential to fulfilling the contract he has guaranteed. In the strictest sense, an obligor cannot rely on Article 79 if despite his ability to control events, he failed to do so.

12.48  The crucial time to measure the elements required to fulfil the contract is at the conclusion of the contract. As such, similar expectations to those in Article 74 are to be met, and therefore the foreseeability principle will apply equally well here as it does in Article 74.

(p. 225) 12.49  It should be noted that Article 79 cannot be invoked for any claim under Article 35 that relates to delivery of faulty goods. In this case, an importer is obliged to examine the goods and then give notice of the fault pursuant to Articles 38 and 39. This would suggest that any impediments the importer will suffer are entirely due to his failure to follow the mandate of the CISG.

12.50  Schlechtriem, with regard to the obligations of the seller, pointed out that two lines of argument must be distinguished: first, whether non-conformity of the goods is a failure to ‘perform any of his obligations’,68 as stated in Article 79(1),69 and, secondly, whether non-conformity is beyond the seller’s control and ‘he could not have reasonably been expected to have taken the impediment into account’.70 If the seller produces the goods himself, he will always be able to control the goods, even if matters outside the control of the manufacturer, such as power failures, have an effect on the goods. It needs to be remembered that a late delivery is not to be confused with a delivery of faulty goods. Goods can always be examined, and only in exceptional circumstances will an examination be beyond the control of the seller. Schlechtriem simply argues that the failure to comply with a contract in relation to Article 35 occurs within the seller’s ‘sphere of control’, as he cannot always control the physical nature of the goods but he can control the risk of damage liability.71

12.51  Kruisinga appears to follow the reasoning of Schlechtriem when he proposes: ‘The prevailing view nowadays is that the provisions in art. 79 CISG may be applicable in the case of the delivery of non-conforming goods’.72 Schlechtriem is correct in his argument as far as the seller is concerned. However, the problem remains that the duties of the buyer and the seller are somewhat different. The buyer has no choice but to conform with Articles 38 and 39. Hence, an impediment ‘beyond his control’ is possible only if the buyer is prevented from either examining the goods or giving timely notice of the defects. Even if a temporary impediment would prevent a buyer fulfilling his requirements of notice, Article 39 gives the buyer a period of two years to give notice. The argument, then, is not whether an impediment prevented the notice but whether the notice was given within a reasonable time.

(p. 226) IV.2.  Unforeseen

12.52  Even if an impediment beyond the control of a party has occurred that was not reasonably foreseeable, the party relying on Article 79 still must show that he has taken reasonable steps to either overcome or avoid the impediment. It has been argued that the word ‘reasonable’ is connected only to the first subjective requisite;73 however, it should also be read to cover the third prerequisite, namely to clarify the reasonable expectations of the parties, because the Articles within the CISG were never intended to be read in isolation but to be put into the context of the four corners of the convention. Article 7(2), in particular, makes this plain and clear, as explained in Chapter 2. Therefore, there is a financial burden on the party claiming relief. However, such an expense cannot be claimed, as it is specifically excluded in subsection (5). Therefore, this expense is assumed to be part of the normal risk a buyer or seller undertakes in international sales. What is clear is that it is a question not of strict liability but of the ‘classical extent of duty’ concept found in the English concept of frustration and the Roman–German doctrine of Unmöglichkeit.74

12.53  The UNCITRAL Secretariat Comments clarify this point:

This rule reflects the policy that a party who is under an obligation to act must do all in his power to carry out his obligation and may not await events which might later justify his non-performance. This rule also indicates that a party may be required to perform by providing what is in all the circumstances of the transaction a commercially reasonable substitute for the performance which was required under the contract.75

There is, therefore, no confusion as to the application of Article 7, specifically given that the Article addresses two issues. First, the reference to the promotion of uniformity in international trade clearly stipulates that municipal rules are to be disregarded in favour of the CISG and is embedded in the general principles. Thus, good faith and reasonableness are expected not only from the parties but also from those who interpret and apply the convention, the courts and tribunals. A Russian arbitration hearing made this point when it found that the respondent acted in bad faith, was therefore in breach of a duty of good faith, and was held responsible for such a breach.76 The buyer (respondent) argued that he should be exempt from paying damages, or any liability for that matter, because he did not have an official licence from the Bank of Russia to apply for the purchases in foreign currency. The court noted that this was not an insurmountable impediment, (p. 227) as the respondent ought to have foreseen that he would need such a licence to perform the contract.

12.54  Admittedly, as Tallon commented:

The borderline between impracticability and a reasonably insurmountable impediment is, of course, uncertain. But if the Convention appears to refer to a more flexible standard than the traditional force majeure, it is undoubtedly stricter than frustration or impracticability.77

However, foreseeability is a difficult issue. In a sense, all potential impediments are foreseeable and hence can be avoided. The problem with many impediments is that they are foreseeable, but the timing of the events is not. Hence, it is equally important to judge the impediment per se and when the impediment is likely to occur. Stoll suggests that the views of ‘the pessimist who foresees all sorts of disasters’ should not be taken into consideration, nor those of the optimist ‘who never anticipates the least misfortune’.78 This view may be true, but this type of knowledge is of little value in a commercial sense. The better view is that judges and arbitrators should use the CISG itself; the general principle of ‘reasonableness’ can be of assistance. In other words, would a reasonable person equally situated have foreseen the event or impediment? It is assumed that the contract does not state and has not envisaged the possible impediment; that is, with the help of Article 8, no such impediment can be ascertained as being part of the contract.

12.55  An illustrative case at hand is Raw Materials Inc. v Manfred Forberich GmbH & Co. KG.79 Rails, which had to be delivered to the United States, were loaded in St Petersburg. The plaintiff contended that the freezing of the port was a foreseeable event, as the port regularly froze over. It was pointed out to the court that: ‘it hardly could come as a surprise to any experienced shipping merchant (or any grammar school geography student) that the port of St. Petersburg might become icy and frozen in the Russian winter months’.80

12.56  The court disagreed with this contention after examining the facts. It is undisputed that the port does freeze over, but this normally happens in January, and it does not prevent shipping because icebreakers are working in the port. However, the winter of 2002 was the worst in sixty years, and even the ice-breakers were stuck. The court considered that the defendant had a viable defence under Article 79.

(p. 228) 12.57  In the final analysis, a case-by-case consideration is the only practicable course of action to ascertain whether the impediment was foreseeable.

IV.3.  Unavoidable

12.58  Just because the impediment is not foreseeable does not necessarily indicate that recourse can be had to Article 79. The party relying on Article 79 must in addition prove that he could not have overcome or avoided the impediment.

12.59  The party who is under an obligation to act must do all he can to perform the contract and cannot just wait for events to happen that might later justify recourse to Article 79. This is aptly demonstrated in a Dutch decision in a dispute between a Dutch exporter and an importer from Singapore.81 The problem was that it was not established whether the Singapore authorities would allow the milk powder to be imported with the agreed radiation level of ten becquerels. The buyer, after being informed of the seller’s concern, offered to receive the milk powder in the Free Trade Zone, which was not subject of the possible destruction of the goods. In a sense, therefore, he did act to overcome the impediment. The court noted that first, the seller knew or at least ought to have known of the Singapore attitude to foodstuffs and, secondly, the possible destruction of the milk powder is not a force majeure. Hence, the seller was not entitled to rely on Article 79.

12.60  Two steps must be taken. First, the possible impediment must be avoided and positive steps need to be taken to do so. For example, if part of a contract for manufacturing furniture is delivery, the choice of the mode of transport is important. If there is a likelihood of rain and it is forecast, the furniture must be transported in an enclosed truck not an open one. The impediment of rain is known, and steps have been taken and are possible to overcome it.

12.61  Secondly, where the impediment has revealed itself, it has to be overcome as quickly as possible. In the above example, if rain was not expected but suddenly an unexpected storm develops, the furniture must be covered or shelter must be taken. The problem is that this is a matter not of law but of fact, and hence decisions must be taken on a case-by-case basis. Enderlein correctly pointed out that:

The yardstick used to measure the efforts of the party concerned is again that which can reasonably be expected from him. And that is what is customary, or what similar individuals would do in a similar situation. The exemption is thus granted when efforts would have been necessary that go beyond the former.82

(p. 229) In measuring the standard of care, note must be taken that only efforts that are within reasonable economic boundaries are taken into consideration. Most impediments can be overcome but overcoming many is economically not viable; a party cannot be expected to perform miracles, and the standard in essence is the reasonable person test.

12.62  One further point needs to be considered: If an impediment occurs only because the performance was late or delayed, Article 79 does not offer any protection. This was confirmed in Raw Materials Inc. v Manfred Forberich GmbH & Co. KG,83 where the question had arisen of whether the contract stipulated that delivery had to take place before the 31 December loading of the ship. As the port froze over in mid-December, the answer to this question determines whether Article 79 is applicable or not. If delivery is a term in the contract, Article 79 will not apply, as the port froze over after the ship should have left.

IV.4.  Responsibility for Third Parties

12.63  Article 79(2) stipulates that:

if the party’s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if;

  1. (a)  he is exempt under the preceding paragraph, and

  2. (b)  the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.

It is not unusual in international trade for contracts not to be performed by the contracting parties themselves, as they are brokers arranging the export or import of goods to other countries. It follows that the non-performance is due to a breach by the third party. The CISG has recognized the potential problem from two points of view. It would not be appropriate to simply allow an importer, say, to hide behind the non-performance of his supplier; at the same time, it would not be just to make the importer liable for the non-performance of his supplier. The CISG has chosen a middle ground where certain excuses are treated as detriments, whereupon an innocent party can rely on Article 79.

12.64  In simple terms, the CISG extended the regime of Article 79(1) to third parties. As far as ‘third persons’ are concerned, the internal relationship between the contracting party and any person who performs under his instruction is irrelevant. It can be an employee, agent, subcontractor, or independent firm supplying material. The point is that if a party has control over a third party, he assumes responsibility and cannot use Article 79 to overcome his failure to control that party.

(p. 230) 12.65  The question in relation to suppliers is a more difficult one to answer. It should be noted that whether suppliers are included in the regime of Article 79(2) is still being debated. The Secretariat Commentary, in comment 12,84 does state that the third person must be someone who has been engaged to perform the whole or a part of the contract and it does not include suppliers of the goods or of raw materials. Furthermore, Jenkins suggests:

Non-performance by a general supplier of goods would not constitute the kind of impediment necessary for the seller to qualify individually under article 79. Although more comprehensive in the type of third parties, the availability under the Convention is more restrictive because of the scope of impediment necessary to establish the right to an exemption.85

Flambouras advocates a similar approach by suggesting that the seller’s suppliers should not be considered third parties pursuant to Article 7(2) as they simply create the preconditions or assist in the performance of the contract.86 Admittedly, suppliers do not perform a part or the whole of the contract, but it makes little difference to the performance of the contract if through force majeure a supplier cannot deliver an important part.

12.66  It should be considered that, just because the Secretariat Commentary suggests a particular interpretation, this is not necessarily binding; it is of only a persuasive nature. As mentioned in other chapters, the CISG is a living document. Economic changes must be taken into consideration; otherwise the CISG would fossilize and become irrelevant. In today’s economic climate, any third party will arguably fall under Article 79(2). The point is that it really makes no difference to the performance of the contract whether the raw material or the finished product is not supplied. This view has been confirmed by the Federal Court of Germany, which commented that ‘from a buyer’s point of view, it makes no difference whether the seller produces the goods himself, … or whether the seller obtained the goods from suppliers’.87 The court pointed to another situation within the CISG, the timely delivery of goods. A general principle arguably exists within the CISG that the ultimate seller is responsible for ensuring that the goods that he needs to deliver in a timely fashion are also free from defects. For both breaches, the same standard of liability applies.88

(p. 231) 12.67  It is useful to illustrate the point further. Assume that two Australian firms export computers to France. One supplier imports computer parts and then assembles the parts in Australia, whereas the other supplier imports the complete computers and exports them to France without doing anything at all to the computers. Say floods destroy the Chinese factory and therefore neither the parts nor the computers can be delivered.

12.68  It would make little sense to argue that one supplier can rely on Article 79 whereas the other cannot. In essence, the only difference between the two firms is that one firm, owing no doubt to economic considerations, imports the finished computers, whereas the other does not. The important point in the end is whether the contract is fulfilled, and if not for what reasons. It is therefore argued that Article 79(2) should extend to all third parties outside the direct control of the concerned party.

12.69  This does not suggest that a contractual party can hide behind the failure of a supplier of raw material, as he still has to show that the third party can withstand the examination of Article 79(1). Simply put, actions for breach of a contract will follow contractual lines. In the first place, there is always the possibility that a supplier who breaches his contract can be sued directly. The problem then arises whether, using the above example, the French importer can sue the Australian supplier. Obviously, he can, as there is a breach of a contract. However, the question would be whether the Australian supplier could claim an exemption under Article 79(1). It would appear that he can do so, but arguably there should always be scope for recourse to Article 79(2). There is little difference between Article 79(1) and Article 79(2) as far as solutions to situations like the one described above go. It therefore makes little sense to be restrictive in the interpretation of ‘third person’. The decision of the German Federal Court in the ‘vine wax case’89 brought ‘needed clarity in this respect’.90 The facts of the case are that the vine wax was bought by the plaintiff from the defendant, who bought it from a wholesaler. This is, in effect, the situation Article 79(2) envisaged. However, the court noted that the defendant could not rely on Article 79(2). The reason was that the impediment was not beyond the defendant’s control, as he could have had the wax tested. Furthermore, the defendant had commissioned the development of the new wax, and exhaustive testing would have been within the defendant’s control.

12.70  Therefore, in the application of Article 79(2), three situations can be distinguished. First, Article 79(2) cannot be invoked if the impediment is caused by a third party over which or over whose work the obligor had direct control. The obligor is personally responsible. Secondly, it is settled law that Article 79(2) is (p. 232) applicable if the obligor engaged a third party to fulfil his contractual obligation to the other party.91 As pointed out above, the exemption is applicable only if the third party himself could rely on Article 79(1). The third situation is not entirely clear. One view seems to be that if a third party’s performance is a mere precondition for the fulfilment of the obligor’s obligation, then Article 79(1) would be applicable. In this case, there is no need to invoke Article 79(2). However, if Article 79(1) is not directly applicable but an impediment nevertheless exists as a result of the performance of a third party that is unforeseen and beyond the control of the obligor, then Article 79(2) is applicable. The important consideration must be that if all the requirements of Article 79(1) are present, then the CISG will apply.

IV.5.  Temporary Impediment

12.71  Article 79(3) provides: ‘The exemption provided by this Article has effect for the period during which the impediment exists’. It appears uncontroversial that as soon as the impediment ceases to exist, the exemption granted by Article 79 is lifted. Article 79(3) arguably applies only to those impediments that could be termed temporary. A good example would be a forty-eight-hour ban on transport. As soon as the ban is lifted, the impediment will cease to exist. In effect, the contract is suspended.

12.72  The practical effect of a temporary impediment is that the contract can be avoided pursuant to Article 49. If that option is not exercised, the contract will be reinstated, and the parties will continue with their obligations under the contract.

IV.6.  Duty to Notify

12.73  The CISG, like many domestic systems, obliges the defaulting party to give notice of the impediment within a reasonable time. Article 79(4) states:

The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediments, he is liable for damages resulting from such non-receipt.

The general principles of good faith and reasonableness are thus embedded in this Article. Similar requirements are found in Articles 38 and 39 in relation to the duty to notify. The rationale behind a duty to notify is simply to avert unpleasant surprises and give affected parties an opportunity to make provisions to overcome the impediment.

12.74  The duty to notify is sharpened by the mandate that the obligor must make sure that the innocent party receives such notification. If he does not, the breaching (p. 233) party is liable for a class of damages that he would not be liable to pursuant to Article 79(5). This class of damages is specifically mentioned by the Secretariat Commentary as only those arising owing to the lack of notice and not general damages pursuant to Article 74.92 It should also be noted that Article 79 reverses the mandate of Article 27, which, in effect, allows a party a right to rely on this communication: ‘[its] failure to arrive does not deprive that party of the right to rely on the communication’.93

V.  Effect of Article 79

12.75  Article 79 does state that a party is not liable for a ‘failure to perform any of his obligations’94 in cases of force majeure. Article 79(5) clarifies what effect force majeure has on a contractual relationship. The Article states: ‘Nothing in this Article prevents either party from exercising any right other than to claim damages under this Convention’. Simply put, the breaching party is exempt only from damages; all other remedies such as avoidance of contract or reduction of price are still open to the other party. Rimke explains the effects succinctly:

Paragraph (5) restrains the effects of the exemption to one remedy alone and reserves to the party who did not receive the agreed performance all of its remedies except damages. These remedies include the right to reduce the price (Article 50), the right to compel performance (Articles 46 and 62), the right to avoid the contract (Articles 49 and 64) and the right to collect interest as separate from damages (Article 78).95

The importance of Articles 46 and 61 is again highlighted. In the end, any disturbance of a contract will arguably focus on these two Articles for a solution.

12.76  There are, however, two problems to be looked at. First, how are damages defined? Secondly, what is the correct interpretation of the right to performance?

V.1.  Problem of Damages

12.77  A first reading of Article 79(5) seems to be straightforward, as it does not allow any claim for damages. The question has been asked whether damages include penalty or liquidated damages.96 It is difficult to allow penalties under the CISG, as there are no Articles or general principles that would allow such inclusion. It is a matter for domestic law to ascertain whether any penalties ought to be imposed on a party that claims an impediment under Article 79. A Russian appellate court (p. 234) confirmed this view by deciding that a penalty for violating the customs rules can be enforced only as set forth in the Russian domestic law but that an impediment excused a party from liability for damages under the CISG.97

12.78  This view has also been confirmed by the Secretariat Commentary:

It is a matter for domestic law not governed by this Convention as to whether the failure to perform exempts the non-performing party from paying a sum stipulated in the contract for liquidated damages or as a penalty for non-performance.98

The question of whether interest is an allowable form of damages appears not to be in dispute. Enderlein and Maskow99 have alluded to the fact that interest is an allowable form of damages, and so has the Secretariat Commentary.100 The right to claim interest pursuant to Article 78 is an independent right not subject to Article 74. It is an automatic right, as discussed in Chapter 8.

V.2.  Problem of Performance

12.79  As stated specifically in Article 79(5), the only remedy that is not available to the plaintiff is the right to claim damages. In that sense, all other remedies are available, including the right to demand specific performance of the contract, pursuant to Articles 46 and 62. First, it is difficult to imagine that even if a party were to ask for specific performance in the face of an impediment that made performance impossible, such performance would be forthcoming. Secondly, it is difficult to imagine that a party would ask for such performance knowing that the other party cannot perform the contract.

12.80  Article 79(5) contains at least one unrealistic expectation. It can equally be argued that Article 79(5) merely allows the full spectrum of remedies to apply knowing that specific performance is possible only if pursuant to Article 28 it would be allowed in domestic law. Such expectations are beyond the realms of the CISG. It would be realistic to assume that a party will not ask for a remedy that they know perfectly well cannot be enforced. It could, therefore, be argued that the drafters of the CISG relied on economic reality and hence saw no need to complicate the regime of remedies.

12.81  It can be argued that specific performance is still possible—not of the original goods but of substitute goods that would serve the same or similar purpose as envisaged by the original contract. There is also the possibility that if specific performance is asked for, the mandate of Article 49 (namely the extra time or Nachfrist) will be satisfied, which will then give rise to a fundamental breach. It (p. 235) should be noted that an impediment in itself does not terminate the contract. The mandate of Articles 25 and 49 must always be adhered to.

12.82  Article 49, the fundamental breach doctrine, is not easily invoked, and through this mechanism the problem of phrasing an exemption clause or a different path to claim a fundamental breach has been avoided. A problem will arise when the breaching party offers substitute goods that are rejected. Arguably, this could amount to a breach of good faith. However, as no direct penalties or consequences are attached to a breach of good faith, the court would need to determine whether the substitute goods conform in substance to the contract. The determination of the court or tribunal will arguably be influenced by whether there was a breach of good faith. Schlechtriem suggested that the drafters of the convention believed that a demand for a physically impossible performance would not be made, or accepted, by any court or tribunal.101 In sum, the question regarding specific performance is left to domestic law pursuant to Article 28; common sense or economic reality will prevent a party from claiming an impossible specific performance.

VI.  Introduction to Articles 79 and 80

12.83  Despite the fact that the principle of fault is rejected by the CISG, the effects of a breach are somewhat softened by exemptions listed in Articles 79 and 80 where the failure is caused by an impediment beyond the control of the party in default. Article 80 states: ‘A party may not rely on a failure of the other party to perform to the extent that such failure was caused by the first party’s act or omission’.

12.84  Tallon described the relationship between the two Articles in the following way:

First, there must be a ‘failure of the other party (A) to perform’. The expression is very broad. It is the key of the distinction between Article 79 and Article 80 at least in the maximalist interpretation adopted here, based on the respective wording of the two texts. If the failure is due to an impediment, as defined by Article 79, this text will apply with all its consequences. If the failure is due to A, then Article 80 will deal with the consequences of the aggrieved party’s own failings, which may be a cause of exemption for A. Thus, the two articles are in perfect harmony.102

This is true, but it must also be noted that: ‘the underlying principles of the provision may be relied upon to provide for either total or partial modification of legal consequences since the underlying principles do not require a non-performance of contract to apply’.103 As Neumann correctly noted, Article 80 does not include (p. 236) the word ‘breach’; hence, Article 80 leads to some remedies for the aggrieved party which are caused by Article 79.104 The effect of the relationship between Article 79 and 80 where the former only exempt from labiality to pay damages whereas the latter affects all available remedies.105 Simply put:

In regard to article 80 it is seen that the promisor who fails to perform the contract may be exempt from responsibility if the promisor can make probable that the cause of the non-performance was the promisee. Here, any causation is relevant and the promisee’s assertion that he is without fault is immaterial and not a defence against the application of article 80. It is therefore no defence against applying article 80 that the promisee’s act or omission was due to an impediment beyond control.106

In addition, jurisprudence does also indicate that inconvenience caused to the promisor can trigger Article 80 as seen in the Yellow Phosphorus Case.107 Neumann commented that ‘the “inconvenience threshold” is not being applied in regard to article 79 according to which the seller is not excused at all, but in regard to article 80 it is’.108

12.85  From the promisee’s point of view Article 80, specifically the words ‘may not rely on’ excludes ‘any remedy by the promisee that would normally be available and not only damages as is the case with for example article 79’.109

12.86  Butler also noted that this position is similar in the UNIDROIT Principles.110 In addition, the Principles of European Contract Law, in a round-about way, reach the same result. Article 8:101 lists the remedies available, but they are dependent upon whether the non-performance is excused or not excused or stems from the behaviour of the other party.111 Arguably, the Principles of European Contract Law have not improved on Article 45; on the contrary, Articles 8:101 and also 8:102 are far too unwieldy and could have been written better. However, the result appears to be the same.

12.87  A further important issue is raised in paragraph (3), namely that it is not permissible for any state court or arbitral tribunal to grant a period of grace. The effect (p. 237) here is that the délai de grâce of French origin cannot be implemented. The reason is obvious: In international trade a party cannot afford to wait until a judge decides whether to allow avoidance and hence damages. In addition, the Secretariat Commentary makes it clear that it would be ‘particularly inappropriate … [to] expose the parties to the broad discretion of a judge who would usually be of the same nationality as one of the parties’.112 This rule is directly linked to, and emanates from, Article 7 itself. The international character of the convention and the avoidance of municipal law wherever possible are demonstrated in Article 45(3). It would have been in direct conflict with the principles contained in Article 7 if such a rule as stated above had not been implemented. Arguably, paragraph (3), in the light of Article 7, demands that remedies for a breach of contract should be taken exclusively from the CISG and not from any municipal law.113

12.88  In summary, fault does exist in the CISG, but only in relation to ‘impediments beyond his control’, which can be classed as a defence or lack of fault. However—and significantly within the same Article—such defenses protect the breaching party only from damages claims, not from the other party’s right to avoid the contract. In contrast to civil and common law, the principle of strict liability of fault has been reduced to the four corners of the CISG. A much simpler and clearer picture emerges from the substantive rule in Article 45.

VII.  Concluding Argument

12.89  As the above discussion indicates, termination of a contract is always the last resort. The CISG attempts to keep the contract alive as long as is practicably possible. Article 79 indicates that a settlement of the dispute and hence a continuation of contractual obligations is possible. There are some problems in interpretation within Article 79, specifically with regard to the word ‘impediment’. However, any interpreter should keep in mind that the CISG used ‘earthy’ words devoid of domestic meanings. An impediment is, therefore, what it indicates: a problem that has dramatically altered the relationship between parties or the ability to perform the obligations of a contract. The CISG has also taken into consideration that any export or import activity relies on third parties such as transport or warehousing. Article 79(2) explains the particular relationship between a third party and the plaintiff.

12.90  The CISG simply offers solutions to either continue with a contract once the impediment has subsided or modify the contract by allowing the delivery of substitute goods. Only in cases where the impediment falls under Articles 49 and (p. 238) 25 can the contract be avoided. However, as damages cannot be claimed in case of an impediment, the tendency ought to be to continue with the contract and recoup as much of the profit as possible. It appears to be an economic mandate that will ultimately decide how parties will react in cases where Article 79 has to be invoked.

12.91  Schlechtriem, commenting on the decision of the Federal Court of Germany, also made the following observation:

‘Control, meaning foreseeability, availability, and ability to overcome impediments within the meaning of article 79(1), has always been understood as physical control.’ This decision demonstrates, however, that it is also a matter of economic risk control.114

In addition, this chapter has also demonstrated that article 79 cannot be applied in isolation without taking note of article 80 as it not only affects the promisee but also the promisor.

Footnotes:

1  Sapphire v National Iranian Oil Co. [15, March 1963] ILR (1967) 136, 181.

2  P Schlechtriem, Uniform Sales Law: The UN Convention on Contracts for the International Sale of Goods (Manz 1986) 100.

3  K Krüger, ‘Financial Force Majeure’ http://www.cisg.law.pace.edu/cisg/biblio/kruger2.html.

4  J Rimke, ‘Force Majeure and Hardship: Application in International Trade Practice with Specific Regards to the CISG and the UNIDROIT Principles of International Commercial Contracts’ (1999–2000) Pace Review of the Convention on Contracts for the International Sale of Goods 201.

5  ibid 197.

6  Bundesgerichtshof, Germany (24 March 1999) http://cisg3.law.pace.edu/cases/990324g1.html.

7  ibid.

8  (1915) 1 KB 681.

9  (1952) 2 All ER 497.

10  ibid.

11  ibid 501.

12  Rimke (n 4) 198.

13  Chengwei Liu, ‘Remedies for Non-Performance’ ch 21 http://www.cisg.law.pace.edu/cisg/biblio/chengwei-79.html.

14  Rimke (n 4) 201.

15  [2004] WASCA (27 May 2004) http://www.business.vu.edu.au/cisg/.

16  Rimke (n 4) 219.

17  Paradine v Jane 82 ER 897 (KB) 1647.

18  3 B & S 826 (1863).

19  ibid 839.

20  Rimke (n 4) 202.

21  2 KB 740, 1903.

22  N Nassar, Sanctity of Contracts Revisited (Kluwer 1995) 193 http://tldb.uni-koeln.de?TLDB.html.

23  Rimke (n 4) 204.

24  Waldinger Corp. v CSR Group Engineers, Inc., 775 F 3d 781, 786 (7th Cir 1985).

25  Nassar (n 22) 194.

26  This is defined as meaning that all agreements are concluded with the implied condition that they are binding only as long as there are no major changes in circumstances (Black’s Law Dictionary).

27  Rimke (n 4) 205.

28  ibid 206.

29  See J Vilus, ‘Provisions Common to the Obligations of the Seller and the Buyer’ in P Sarcevic and P Volken (eds), International Sale of Goods: Dubrovnik Lectures (Oceana 1986); D König, ‘Voraussehbarkeit des Schadens als Grenze vertraglicher Haftung’ in Ernst von Caemmerer, Hans Georg Leser, and Wolfgang Marschall von Bieberstein (eds), Das Haager Einheitliche Kaufgesetz und das Deutsche Schuldrecht, Kolloquim zum 65. Geburtstag von Ernst v Caemmerer (C F Müller 1973).

30  J O Honnold, Uniform Law for International Sale under the 1980 United Nations Convention (3rd edn, Kluwer International Law 1999) 484.

31  H Flechtner, ‘Article 79 of the United Nations Convention on Contracts for the International Sale of Goods (CISG) as Rorschach Test: The Homeward Trend and Exemptions for Delivering Non-Conforming Goods’ (2007) 19 (1) Pace International Review 29, 32.

32  CISG Advisory Opinion No 7, ‘Exemption of Liability for Damages Under Article 79 of the CISG’ https://iicl.law.pace.edu/cisg/scholarly-writings/cisg-advisory-council-opinion-no-7-exemption-liability-damages-under-article.

33  See eg König (n 29).

34  Netherlands Arbitration Institute, the Netherlands (15 October 2002) Case No 2319, http://cisg3.law.pace.edu/cases/021015n1.html.

35  Honnold (n 30) 159.

36  Krüger (n 3).

37  Liu (n 13) ch 21.

38  Vilus (n 29) 254.

39  Schlechtriem (n 2) 100.

40  J Ziegel, Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods (1981) http://www.cisg.law.pace.edu/cisg/text/ziegel79.html.

41  CISG art 79(1).

42  Liu (n 13).

43  Honnold (n 30) 476.

44  Vilus (n 29) 254.

46  ibid.

47  Bundesgerichtshof, Germany (9 January 2002) http://cisg3.law.pace.edu/cases/020109r1.html.

48  ibid.

49  CISG art 79(5).

50  Schlechtriem (n 2) 100.

51  Vilus (n 29) 255.

52  ibid.

53  Liu (n 13) ch 19.

54  CISG art 79(4).

55  Krüger (n 3).

56  Raw Materials Inc v Manfred Forberich GmbH & Co. KG, US District Court of Illinois http://cisg3.law.pace.edu/cases/040706u1.html.

57  ibid.

58  CISG art 80.

60  Court of Cassation (19 June 2009) http://cisgw3.law.pace.edu/cases/090619b1.html.

61  ibid.

62  A Veneziano, ‘UNIDROIT Principles and CISG: Change of Circumstances and Duty to Renegotiate According to the Belgian Supreme Court’ (2010) 15 Uniform Law Review 137, 141.

63  See generally B Zeller, ‘The UNIDROIT Principles of Hardship and the Application of Article 79 CISG: Are they Compatible?’ in I Schwenzer and L Spagnolo (eds), State of Play: 3rd Annual MAA Schlechtried CISG Conference (Eleven International Publishing 2009) 113.

64  M Flechtner, ‘The Exemption Provisions of the Sales Convention, Including Comments on “Hardship” Doctrine and the 19 June 2009 Decision of the Belgian Cassation Court’ (2011) 59 (3) Belgrade Law Review 84, 84.

65  Krüger (n 3).

66  Hungary (10 December 1996) Vb 96074 http://cisg3.law.pace.edu/cases/961210h1.html.

67  ibid.

68  CISG art 71(1).

69  P Schlechtriem, ‘Uniform Sales Law in the Decisions of the Bundesgerichtshofhttp://cisgw3.law.pace.edu/cisg/biblio/schlechtriem3.html.

70  CISG art 79(1).

71  Schlechtriem above, note 69.

72  S A Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: A Uniform Concept? (Intersentia 2004) 130.

73  Krüger (n 3) n 39.

74  ibid.

76  Russia (24 November 1998) http://cisg3.law.pace.edu/cases/981124r1.html.

77  D Tallon, ‘Article 79’ in C M Bianca and M J Bonell (eds), Commentary on the International Sales Law (Giuffre 1987) 592.

78  H Stoll, ‘Damages’ in P Schlechtriem (ed), Kommentar zum Einheitlichen UN-Kaufrecht (3rd edn, Beck 2000) 608.

79  United States (6 July 2004) Federal District Court (Raw Materials Inc. v Manfred Forberich GmbH & Co., KG) http://cisgw3.law.pace.edu/cases/040706u1.html.

80  ibid.

81  Malaysian Dairy Industries v Dairex Holland (2 October 1998) District Court http://cisg3.law.pace.edu/cases/981002n1.html.

82  F Enderlein and D Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods (Oceana 1992) 324.

85  S. H Jenkins, ‘Exemption for Nonperformance: UCC, CISG, UNIDROIT Principles—A Comparative Assessment’ http://www.cisg.law.pace.edu/cisg/biblio/jenkins.html.

86  D P Flambouras, ‘The Doctrines of Impossibility of Performance and clausula rebus sic stantibus in the 1980 Vienna Convention on Contracts for the International Sale of Goods and the Principles of European Contract Law: A Comparative Analysis’ (2001) 13 Pace International Law Review 274.

87  Bundesgerichtshof, Germany (24 March 1999) http://cisg3.law.pace.edu/cases/990324g1.html.

88  ibid.

89  Bundesgerichtshof, Germany (24 March 1999) http://cisg3.law.pace.edu/cases/990324g1.html.

90  Schlechtriem (n 2).

91  Liu (n 13) ch 20.

92  Secretariat Commentary UNCITRAL, comment 14, http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-79.html.

93  CISG art 27.

94  ibid art 79(1).

95  Rimke (n 4) 217.

96  Liu (n 13).

97  Russia (4 February 2002) http://cisg3.law.pace.edu/cases/020204r1.html.

98  Secretariat Commentary UNCITRAL, comment 9.

99  See Enderlein and Maskow (n 82) 311.

100  Secretariat Commentary UNCITRAL, comment 9.

101  Schlechtriem (n 2) 103.

102  Tallon (n 77) 597.

103  T Neumann, The Duty to Cooperate in International Sales—The Scope and Role of Article 80 CISG (Sellier European Law Publishers/De Gruyter 2012) 144.

104  ibid.

105  Markus Müller-Chen, ‘Commentary on Article 45’ in Ingeborg Schwenzer (ed), Peter Schlechtriem & Ingeborg Schwenzer Commentary on the UN Convention on the International Sale of Goods (CISG) (3rd (English) edn, Oxford University Press 2010) 705–23.

106  Neumann (n 103) 146.

107  China International Economic & Trade Arbitration Commission [CIETAC], China, Yellow Phosphorus Case (9 August 2002).

108  Neumann (n 103) 159.

109  ibid 181.

110  A Butler, ‘Limitations of Remedies Due to Failure of Performance Caused by Other Party: Comparison between the Provisions of CISG Article 80 and Counterpart Provisions of the Principles of European Contract Law’ in J Felemegas (ed), An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law (Cambridge University Press 2007) 506.

111  O Lando and H Beale, Principles of European Contract Law (Kluwer 2000) 359.

112  Secretariat Commentary, Official Records, I, 39.

113  Enderlein and Maskov (n 82) 190.

114  ibid.