Source: http://www.cisg.law.pace.edu/cisg/biblio/rimke.html
Timestamp: 2019-04-22 16:18:16+00:00

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D. Problems concerning Article 79 - are situations of hardship covered?
8. Case law: Nuova Fucinati S.p.A. v. Fondmetall Int'l A.B.
A basic and universally accepted principle of contract law is "pacta sunt servanda." This principle means that each party to an agreement is responsible for its non-execution, even if the cause of the failure is beyond his power and was not or could not be foreseen at the time of signing the agreement. The principle reflects natural justice and economic requirements because it binds a person to their promises and protects the interests of the other party. Since effective economic activity is not possible without reliable promises, the importance of this principle has to be emphasized.
On the other hand, practice has demonstrated that on many occasions application of this principle may lead to the opposite of its aim. That is to say, the situation existing at the conclusion of the contract may subsequently have changed so completely that the parties, acting as reasonable persons, would not have made the contract, or would have made it differently, had they known what was going to happen. This situation is unlikely to arise with short-term contracts, which often exhibit a simple structure where non-performances are exchanged for money. In international trade, however, many contracts are of a more complicated structure, and even if they are not long term contracts, they frequently exist over a substantive period. International trade transactions generally imply a greater element of uncertainty because they are subject to political and economic influences in foreign countries.
Different legal concepts deal with this problem of changed circumstances and provide for the discharge of the duty to perform of one or both parties when a contract has become unexpectedly onerous or impossible to perform. The classic concept of force majeure is primarily directed at settling [page 197] the problems resulting from non-performance, either by suspension or by termination. Concepts like imprévision or hardship are mainly directed at the adaptation of the contract.
Although all legal systems take notice of the situation of changed circumstances, the conditions under which they allow the defence of force majeure vary. Furthermore, the adaptation of the contract is not universally accepted. Attempts have been made to tackle these problems on an international level. In particular, the United Nations Convention on Contracts for the International Sale of Goods (CISG)  addresses the issue of changed circumstances. It avoids reference to the existing concepts because it has developed a system of its own. This concept, however, is generally not regarded as being able to solve the problem entirely. Parties to international sales transactions, therefore, frequently include special clauses in their contracts dealing with matters of hardship and force majeure.
This paper aims to give some idea of the concepts of hardship and force majeure in the context of international sales transactions. First, the concepts will be discussed on a theoretical basis. The different approaches to the situation of changed circumstances in the major legal systems will then be discussed. Article 79 of the CISG will be introduced, interpreted, and its scope determined. It will then be possible to ascertain if, to what extent, and what kind of clauses dealing with the matter of changed circumstances, should be inserted into international sales contracts. Force majeure and hardship clauses will then be discussed in more detail. Finally, the use of standard forms of contract, with special regard to the UNIDROIT Principles of International Commercial Contracts, will be considered, and a recommendation as to force majeure and hardship clauses will be made.
The two major legal concepts dealing with the problem of changed circumstances are those of force majeure and hardship. In order to understand the interpretation and discussion of Article 79 of the CISG and the deliberations [page 198] on force majeure and hardship clauses in international sales contracts, the two concepts first have to be considered on a general and theoretical basis.
The concept of force majeure, providing for the discharge of one or both parties when a contract has become impossible to perform, "has evolved progressively in international trade practice by assuming many original and autonomous features distinct from similar legal concepts." The approach of municipal legal systems to situations of force majeure varies from country to country. Despite these circumstances, certain general characteristics of the conception of force majeure can be determined.
The roots of the classic concept lie in the Code Napoléon, from which the words force majeure (an irresistible compulsion or coercion) are taken. An English court's interpretation of the words held that they have a more extensive meaning than "act of God" or "vis major." "Act of God" is defined as an event happening independently of human volition, which human foresight and care could not reasonably anticipate or avoid. According to the judgment, the words force majeure could cover the dislocation of a business due to a universal coal strike or accidents to machinery, but would not cover bad weather, football matches, or a funeral. In Brauer & Co. v. James Clark  it was held that a party could not rely on force majeure simply because the price it was required to pay for the goods was considerably in excess of the price at which it had contracted to sell them.
Force majeure occurs when the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which the performance is called for would render it impossible. I promised to do this but I cannot due to some irresistible unforeseeable and uncontrollable event.
A similar definition is contained in Article 7.1.7 of the UNIDROIT Principles of International Commercial Contracts where, under the headline of "Force majeure," it is stated that a party's non-performance is excused if that party proves that the non-performance was due to an impediment beyond its control, and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome the impediment or its consequences.
The aim of the classic concept of force majeure, as is reflected in Article 7.1.7 of the UNIDROIT Principles, is to settle the problems resulting from non-performance either by suspension or termination.
The concept of hardship is usually discussed in the context of hardship clauses, which are frequently introduced into contracts in international trade. The term "hardship," however, has also been used in legislation, e.g., in the Australian National Security (Landlord and Tenant) Regulations and the Landlord and Tenant (Amendment) Act 1948-1964. With respect to those rules, courts had to interpret the term "hardship" and determine its scope. Thus, it was held that hardship, as used in the National Security Regulations, may be regarded as the subjective effect of a detrimental nature upon the person concerned. In another decision interpreting the Landlord and Tenant Act, hardship was said to include any matter of appreciable detriment whether financial, personal or otherwise.
The circumstances in which hardship generally exists (as usually set out in hardship clauses) normally incorporate three elements. First, the circumstances [page 200] must have arisen beyond the control of either party; self-induced hardship is irrelevant. Second, they must be of fundamental character. Third, they must be entirely uncontemplated and unforeseeable.
(d) the risk of the events was not assumed by the disadvantaged party."
The concept of hardship intends to solve problems of such fundamentally altered circumstances by adapting the contract to the new situation.
The concepts of hardship and force majeure seem to be related to each other, particularly since they share some features: they both cater to situations of changed circumstances. The difference between the two concepts is most aptly described in such a way: hardship 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 . . . the party concerned has become impossible, at least temporarily. Moreover, there seems to be a functional difference between the two concepts. Hardship constitutes a reason for a change in the contractual program of the parties. The aim of the parties remains to implement the contract. [page 201] Force majeure, however, is situated in the context of non-performance, and deals with the suspension or termination of the contract.
The approach of municipal legal systems to the problem of changed circumstances varies from country to country. Although all these concepts are related to each other, since they share important features, the distinction between them is extremely important in drafting choice of law clauses in international contracts. Furthermore, it is important to have knowledge about the law that will apply when a force majeure or hardship clause is left out of a contract, and no unified international rules are applicable. Moreover, in order to have relevance and serve a purpose, force majeure and hardship clauses should differ from the doctrine that would be applicable to the problem of changing circumstances, if such clauses were left out of the contract. Thus, the scope of those doctrines has to be determined.
The illustration and comparison of force majeure and hardship will also give a deeper insight into the structure and functioning of these concepts in general. For this purpose English, American, French, German and South African law and their approaches to the situation of changed circumstances will now be analyzed.
Such a rigid interpretation prevailed in the United Kingdom until 1863. In Taylor v. Caldwell  the court changed its traditional opinion: the strict rule should only apply when the contract is positive and absolute, and not subject to any condition either express or implied. The court held that in contracts where performance depends on the continued existence of a given person or thing, "a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance." With this theory of implied condition, the doctrine of impossibility was introduced into English law.
The concept of frustration, which developed from the doctrine of impossibility, is based on the sole interpretation of the intent of the parties. If stemming from an act of God, "the performance of a contract is to take place under circumstances which are totally different from what the parties envisaged, and therefore, the agreement is frustrated." The concept originates from the famous Coronation cases. For instance, in one such case, an apartment was rented for one day because it afforded a privileged view of the Coronation parade of Edward VII. When the parade was cancelled due to the King's illness, the landlord sued for the rent. The court, however, decided the contract was frustrated because its execution was fundamentally and essentially different from what the parties had intended.
According to the doctrine of frustration, the concept dealing with situations of changed circumstances in English law today, a contract can be frustrated by impossibility, physical, e.g., destruction of the subject-matter, or for legal reasons, e.g., illegality, or by the occurrence of a radical change in circumstances, so that the foundation of the contract has been vitiated. If the contract were to retain its validity under such changed circumstances, it would amount to a new and different contract. The doctrine, by covering situations which do not amount to the impossibility of the performance is thus wider than the concept of force majeure. When a contract is frustrated, a judge cannot amend or adjust it to the new situation. Frustration simply discharges the contract. Although the prerequisites of frustration are rather [page 203] similar to those required by the concept of hardship, the former is final, by disallowing the adaptation of the contract, directed at another aim.
"Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event, the non-occurrence of which was a basic assumption in which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary."
U.C.C. Section 2-615 Paragraph (b) contains an allocation requirement in the event only part of a seller's capacity to perform is affected. Paragraph (c) states a notice requirement. According to its wording, U.C.C. Section 2-615 only excuses the seller from the delivery of the goods contracted for. The general belief, however, is that this provision is to be considered equally applicable to buyers.
The concept of commercial impracticability, which discharges a party's duty although the event has not made performance absolutely impossible, has been adopted in order to call attention to the commercial character of the context in which the excuse defence is used. Courts, however, have been reluctant to accept anything short of impossibility as an excuse for performance. The United States' approach to situations of changed circumstances is broader than that of the classical concept of force majeure. The United States' approach does not allow the adaptation of the contract and because of the court's way of treating "impracticability," it is not as far-reaching as the concept of hardship.
Under French law, the line is drawn between the impossibility of the performance on the one hand, i.e., force majeure, and, on the other hand, circumstances which destabilize the contract where economic conditions are such that fundamental and far-reaching changes occur. The latter is called the doctrine of imprévision.
In France, the principle pacta sunt servanda (as incorporated in Article 1134 of the French Civil Code) prevails over the principle rebus sic stantibus. If the contract does not contain any provision regarding events of changing circumstances, then, the performance of the contract will be enforced without any changes to the contract. A judge is not supposed to [page 205] appraise the economic situation of the parties or to rule in equity against the wording of a contract. In principle, the only excuse for non-performance of the contract is force majeure. The doctrine of imprévision has not been adopted by French courts.
Article 1142 of the French Civil Code stipulates that any obligation to do, or not to do, is dissolved by damages whenever the debtor does not execute the obligation. Article 1148, however, specifies that damages are not due in the case of force majeure. While courts have applied those Articles strictly, some change and more flexibility is noticeable in recent case law. Although courts do not apply the doctrine of imprévision, they have not explicitly rejected it.
(d) the debtor is not at fault: The event should be unavoidable and absolutely beyond the control of the debtor.
"Article 1148, in recognizing that a contract can be discharged due to force majeure, is not mandatory law. Parties are free to give their definition to force majeure events and the judge has to respect such definition."
The German approach to the problem is rather flexible. Under German law, the rule pacta sunt servanda is certainly not adhered to anymore in the strictest sense. This is not surprising in a country where, after World War I, the value of the items on the menu in a restaurant could change between the placing of the order and the arrival of the bill.
As a general rule, section 275 of the Bürgerliches Gesetzbuch discharges the debtor of his obligation if, after the conclusion of the contract, its performance was rendered impossible for reasons other than negligence, his own fault, or the negligence of his employees. The impossibility of performance ("Unmöglichkeit") can be of a physical or legal nature. The performance may still be possible at a later time without unreasonable damage to the other party.
As a consequence of World War I, some judges and legal scholars began advocating the doctrine of Unmöglichkeit for application to economic impossibility. According to such experts, the debtor cannot be forced to comply with efforts or sacrifices which are beyond what parties reasonably envisaged in good faith. This doctrine is called "Opfergrenze."
A line should be drawn between the so-called "ergänzende Vertragsauslegung" (an interpretation of the contract which fills gaps) and the Geschäftsgrundlagenlehre. According to the former, which requires a gap in the contract, the function of the judge is to complete the contract, whereby he should give an interpretation of what the parties actually would have wanted if a given event had been contemplated. According to the Geschäftsgrundlagenlehre, the judge is not only allowed to complete a contract, but depending on the object of the contract, the judge can also change its terms or terminate it.
There is a little difference -- and if so, not an essential difference -- between the reasoning in the classical force majeure concept and the German reasoning in the Unmöglichkeit. Furthermore, the doctrine of the Wegfall der Geschäftsgrundlage, aiming at an adaptation of the contract, is very similar to the concept of hardship.
Until 1919, there was a general assumption that . . . no difference between South African law and English law on the effect of supervening impossibility. The English approach was adopted in a number of cases until the case of Peters, Flamman and Co v. Kokstad Municipality  was decided. According to this case, "if a person is prevented from performing his contract by vis major or casus fortuitus . . . he is discharged from liability."
In applying the principle that supervening impossibility discharges the contract, impossibility must be given the same meaning as when initial impossibility is under consideration, i.e., the impossibility must be absolute (as opposed to probable and relative) and it must not be the fault of either party. Most important is the fact that, if vis major or casus fortuitus has made it uneconomical for a party to carry out its obligations, it does not [page 208] mean that it has become impossible. Additionally, since Peters, Flamman and Co. there is no room in South African law for the English doctrine of frustration.
The decision in the recent case of Kok v. Osborne and Another, however, could be a first step toward recognition of the concept of commercial impossibility in South African law. The plaintiff in this case (Mrs. Kok) entered into a contract of sale as the buyer . . . wrongly assumed that the seller had already been paid by a third person. The court held that the contract between the litigants hinged on the assumption that the defendant indeed had been paid, which in fact did not happen, and that the contract failed due to supervening impossibility of performance. In this case, the court's opintion was that South African law recognises commercial impracticability as a form of supervening impossibility as does the English.
This decision, however, has been heavily criticised by commentators for different reasons. As a result, the doctrine of frustration under the English law is not a recognised part of South African law. Moreover, it is properly stated that supervening impossibility is not applicable in the present case. For these reasons, it is not likely that the case of Kok v. Osborne and Another constitutes the starting point for a change in the South African approach to the problem of changing circumstances.
Thus, one can conclude that the South African approach corresponds with the concept of force majeure. Situations of hardship do not discharge a party of its liability.
Article 79 is the provision of the CISG, that deals with situations of changed circumstances. More precisely, it deals with the circumstances in which the [page 209] buyer or seller may be excused from performance of his contractual obligations because of an extraneous event that is judged sufficiently important to warrant the excuse. This is a situation which is referred to as frustration, force majeure or Wegfall der Geschäftsgrundlage in different legal systems.
In subsequent chapters the legislative history of Article 79 and its significance for international trade will be outlined. Its contents, scope of application, and legal effect will also be analysed and evaluated.
Never before has the increase in international commerce been as significant as it has been during recent decades. Many difficulties occur in the context of an international sale of goods as a consequence of the considerable differences in the national rules governing the law of sales. Thus, the expanding volume of international sales requires a common understanding of the legal rights and duties among partners to an international transaction.
Nations are now ratifying or acceding to this Convention at a pace comparable to that of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards when it was promulgated. The latter is said to be the most successful instance of international legislation in the history of commercial law. The CISG harmonised interests and ideas of different legal systems and of countries on different levels of economic development. Thus, a text that is suited for implementation in civil law countries and common law countries and for economies that are developed and those which are developing.
According to Article 1, the Convention applies to international contracts for the sale of goods (if the parties have not rejected its application in their contract - Article 6) when the States where the parties have their places of business, are in different contracting states, or the rules of private international law lead to the application of the law of a Contracting State. As more than fifty countries have already enacted the Convention, among them major trading nations like the United States, Germany, France, or China, the Convention can apply to a large number of transactions. This number will continue to increase with the accession of further countries to the CISG. Only ten years after entering into force, the Convention can already be considered a success. Its significance for international sales transactions will increase in future years.
As previously discussed, the CISG was created to free international commerce from a babel of diverse domestic legal systems. The ultimate goal of the Convention is the uniform application of the uniform rules.
The Convention will often be applied by tribunals (judges or arbitrators) who are only intimately familiar with their own domestic law. These tribunals will be subject to a natural tendency to read the international rules in the light of the legal ideas of those specific systems. In order to control the damage, there will be long-range correctives through international critique of questionable interpretations; to this end measures have been [page 211] taken for the collection and publication of caselaw produced under the Convention, e.g., CLOUT (Case Law On UNCITRAL Texts). These measures, however, take time to become effective. Fortunately, there need not be a delay in using the legislative history, which sets out the evolution of the uniform law, to counteract the tendency to view the Convention through the lenses of domestic law. The Convention's legislative history provides an international reference point in applying the uniform international law, and its record clarifies the purpose and intent of the Convention's words.
Article 79 is a revised version of the exemption clause in ULIS (Article 74). Its development, as a part of the CISG, went through three stages: (1) The UNCITRAL Working Group (1970-1977); (2) Review by the full Commission (1977-1978); (3) The Diplomatic Conference (1980).
Article 74 ULIS was criticised during the discussions of the Working Group. The clause was thought to make it too easy for the promisor to excuse his non-performance of the contract. Grounds for relief were not only physical or legal impossibility, or circumstances which fundamentally altered the character of the performance owed, but the provision could also apply to situations where performance had unexpectedly been made more difficult. Several members of the Working Group were, therefore, in favour of restricting the grounds for relief and making them more objective. The Working Group set up a drafting party, but it could not agree on a revised wording. It submitted a draft which was provisionally adopted by the drafting party (Alternative A) and an alternative proposal of the Norwegian observer (Alternative B).
In reformulating the grounds for exemption in Article 51 of the 1977 Vienna Draft, the former Article 50, the requirement of the promisor not being at fault was abandoned and replaced by an objective test of the "impediment beyond control." The 1978 New York Draft adopted Article 51 of the Vienna Draft relatively unchanged as Article 65.
At the Vienna Conference, the Norwegian delegation proposed that paragraph (3) be supplemented by stating that if a temporary impediment ceased and the circumstances had radically changed to such an extent that it would clearly be unreasonable to continue to hold the promisor to his obligation, he should be released from that obligation. It was, however, argued that such an extension would introduce the théorie de l'imprévision into the Convention, and the proposal was therefore rejected. There was, nevertheless, agreement that the limitation in paragraph (3) should be deleted, i.e., that an exemption was "only" for the period during which the impediment existed.
Paragraph (1) sets out the conditions under which a party is not liable for a failure to perform any of his obligations. The expression "failure to perform" does not specify the nature of the non-performance. Thus, the scope of this expression has to be analysed first.
The term "failure to perform" must be considered here in the broadest sense of the word. Accordingly, the non-performance may be total or partial, delayed or defective. Article 79 refers to any obligation, no matter which party is concerned. Thus, the buyer and the seller are subject to the same conditions. The obligation to deliver conforming goods is also within the scope of Article 79.
The text is silent on the point of the time of the impediment's occurrence. Therefore, the question arises as to whether Article 79 applies in situations where the impediment existed at the time of the conclusion of the contract and was unknown to both parties. The Secretariat Commentary on the 1978 Draft affirms, without justifying its position, that Article 79 applies to this case. National laws often provide, . . . contracts regarding impossible performances are void, some authors believe that because of [page 214] Article 4(a), domestic law has to be applied so that the Convention becomes irrelevant in this context. In this case, however, it can be said that domestic laws which accord legal recourse in situations where a party errs about the goods to be delivered would not apply under the Convention. This applies in instances in which these problems are specifically and conclusively regulated by the Convention, as is the case in Article 79.
Thus, Article 79, in its general wording, applies to non-performances that may have occurred at any time.
(c) the impediment was reasonably impossible to overcome.
These elements constitute the traditional components of force majeure.
For an exemption to be granted, the non-performance of the contract must be due to an "impediment." Article 74(1) ULIS used the word "circumstances." "By adopting the word "impediment" the Vienna Conference's aim was at emphasizing the objective nature of the hindrance rather than its personal aspect." This wording, however, is very general and the actual meaning of the term "impediment" is unclear. This causes problems in determining the scope of the exemption provided by Article 79. These problems, however, will be dealt with in a later chapter.
In requiring that the impediment must be beyond the control of the party concerned, the scope of the latter's risk is determined. The question of fault is not involved here since this concept has been set aside by the [page 215] Convention. Within the control of the seller, for example, are all those factors which are connected with an orderly organisation of his manufacturing and/or procurement process, as are the personnel's qualifications, the technical equipment and the disposition of the required financial means to ensure manufacture and procurement. In the case of generic goods, the seller always bears the risk of procuring the goods. Other goods may be obtained to replace those that are lost.
The requirement that the impediment must be reasonably unforeseeable is consistent with the basic idea that if the event were foreseeable, the defaulting party should be considered as having assumed the risk of its realisation. "Foreseeability should not only relate to the impediment per se, but also to the time of its occurrence. The closure of the Suez Canal was, for example, foreseeable in the more or less distant future."
Everything regarding foreseeability, however, is a matter of measure, and it seems difficult to provide more details in a general text.
The parties are under an obligation to counteract the impediments. First, disturbances must be avoided. In order to achieve this, measures need to be taken against impediments which are generally looming. Second, if a disturbance has already revealed itself, it has to be overcome as quickly as possible; to overcome means to take the necessary steps to preclude the consequences of the impediment. The basis of reference is what can reasonably be expected from the party concerned, and that is what is customary, or what similar individuals would do in a similar situation. This criterion is, however, rather vague, and it will often be difficult to distinguish between what is possible and what is impossible to overcome. The issue raises the question of the distinction between impossibility and imprévision or hardship and whether cases of the latter fall within the scope of Article 79. This question is probably the most discussed problem in the context of Article [page 216] 79 and is of major significance for this paper. Therefore, it will be considered separately in another chapter.
The third person must be someone who has been engaged to perform the whole or a part of the contract. It does not include suppliers of the goods or of raw materials to the seller. There must be an "organic link" between the main contract and the sub-contract.
Article 79(3) deals with an impediment for a limited time, but makes no provision as to an impediment affecting part of the contract. Unlike some legal systems, Article 79 does not speak of nullity of "the contract" but instead asserts that a party is not liable for failure to perform "any" of its "obligations," -- language that permits exemption to the extent that the impediment applies.
Article 51(1) reflects a policy that is consistent with this result: "(1) If the seller delivers only part of the goods . . . articles 46-50 (provisions on remedies for breach) apply in respect or the part that is missing. . . ."
In the case of a failure of notification, it should be noted that the damages for which the non-performing party is liable are only those arising out of the failure of the other party to have received the notice, and not those arising out of the non-performance.
Paragraph (5) restrains the effects of the exemption to one remedy alone and reserves to the party who did not receive the agreed performance [page 217] all of its remedies except damages. These remedies include the right to reduce 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).
It could be argued that paragraph (5) entails unrealistic results. It would allow an action for specific performance in a case where the goods are destroyed and thus, the performance is physically impossible. A German proposal to extinguish the obligor's obligation to perform if the grounds for exemption existed was, however, rejected at the Vienna Conference. The foremost reason for the rejection was the fear that a release from the obligation to perform could also extinguish collateral rights and secondary claims such as interest. It was also argued that, in cases where obligations are physically impossible to fulfill, the domestic legal doctrine of impossibilium nulla est obligatio (applicable according to Article 28)  would generally prevent a demand for performance anyway. The general belief expressed at the Vienna Conference that judgment for a physically impossible performance would neither be sought nor obtained should lead to a reasonable limitation of Article 79(5).
D.	Problems concerning Article 79 - are situations of hardship covered?
The Convention has developed a system of its own with regard to impediments, which in fact result from a slow maturation process that began with ULIS. "The Convention's autonomy, illustrated by the lack of reference to accepted wording and concepts of domestic laws (force majeure, frustration, impracticability, Wegfall der Geschäftsgrundlage), renders the interpretation of Article 79 extremely difficult because one cannot resort to these laws as a guide."
Many commentators, however, state that Article 79 is "vague or imprecise" and contains "elastic words" that will be read in the context of each system's view. It is said that the general wording of Article 79, which makes use of phrases like "due to an impediment" and "not reasonably expected to overcome," leaves room for judicial interpretation. The judge or arbitrator will have a natural tendency to refer to similar concepts in his own law. Because Article 79 is a "chameleon-like" example of "superficial harmony," its character permits it to take on that meaning which best conforms to the reader's background. For example, an English court using the doctrine of frustration could apply this extensive approach without further consideration to Article 79 -- and cover both impossibility and unforeseen but surmountable contingencies. A French court would not follow suit.
The reference to domestic laws in interpreting Article 79 jeopardises uniformity in the application of the Convention. This uniformity is the Convention's major goal, as set out in Article 7(1).
The fact that Article 79 presents problems of application might tempt one to consider solving that problem by applying Article 7(2). Article 7(2) permits recourse to the applicable law by virtue of the rules of private international law when questions are not expressly settled by the CISG. The problem of hardship could thus be regulated by rules of domestic law if [page 219] there was a gap in the CISG regarding the promisor's invocation of radically changed circumstances, making its performance more onerous.
"If, as a result of special events which occurred after the conclusion of the contract and which could not have been foreseen by the parties, the performance of its stipulations results in excessive difficulties or threatens either party with considerable damage, any party so affected has a right to claim adequate amendment or its termination."
In support of this proposal, it was stated that one of the most important problems for parties to a contract of sale of goods was the problem of changed circumstances which could not have been foreseen by the parties at the time of the conclusion of the contract. These changes could result in excessive difficulties for one of the parties. The committee, however, did not retain this proposal. Furthermore, a Norwegian proposal submitted at the Vienna Conference was rejected because it was feared that the théorie de l'imprévision would be introduced into the CISG by the suggested alteration.
The problem of hardship has thus been considered during the drafting process of Article 79, but a provision which specifically dealing with it has been deliberately omitted from the CISG. The history of Article 79 excludes the possibility that there is an unstated hardship in the Convention. Article 79's purpose of establishing definite limits as to a promisor's responsibility for breach of contract supports this conclusion. Resort to domestic laws is precluded by Article 7(2). If the domestic law applicable under conflicts rules were applied to fill a supposed gap, there would be a danger of the CISG's liability system "bursting." This is due to the fact that domestic legal [page 220] systems differ greatly from each other in regard to rules of hardship or imprévision.
To avoid the problem of undermining this objective of the CISG, it has been suggested that a comparative law approach be applied in interpreting Article 79. This approach seeks guidance from the prevailing patterns and trends of modern domestic law insofar as they are consistent with the necessities of international trade. The approach is supported by the fact that comparative studies, stimulated in part by the Convention, are proceeding apace. However, the idea of a comparative law approach is subject to criticism. Although it may prove rewarding in other circumstances, it would yield only limited results in the present case since no specific overall trend may be traced.
Contract provisions on impediments to performance have special value because impediments arise in a countless variety of circumstances. Contracts can and do take account of the conditions and needs presented by various types of transactions. Here the contractual practice can help to obtain ideas for the interpretation of the grounds for exemption of Article 79. Clauses, model contracts, and the like, which have prevailed in a certain context, can play a role in this regard. Principles of efficiency and fairness can best be distilled from contracts prepared with the cooperation of members from all the different interest groups involved. For example, the UNIDROIT Principles of International Commercial Contracts, which contain force majeure and hardship clauses state in their Preamble (Purpose of [page 221] the Principles) that the Principles may be used to interpret or supplement international uniform law instruments. The role of the UNIDROIT Principles in this regard will be dealt with in a later chapter.
The drafting history of Article 79 reveals some interpretative insight into the problem discussed here. The drafters of the forerunner of Article 79 CISG, Article 74 ULIS, have already faced the dilemma of which obligations to excuse from non-performance. At the 1964 Hague Conference, the controversy centered on the choice between the terms "circumstances" and "obstacles" as the triggering events for excuse. The German delegation urged the use of the term "circumstances" because it feared that the use of "obstacle" might refer only to supervening and external events. This is in contrast to the more personal issue regarding the seller's due care or fault and might bar excuse based on an extreme and onerous change in economic circumstances.
As has been shown, Article 74 ULIS had been criticised during the discussions of the UNCITRAL Working Group. Because the clause could also apply to situations where performance had unexpectedly been made more difficult, it was thought to make it too easy for the promisor to excuse his non-performance of the contract. Therefore, wording of Article 74 was revised and the term "circumstances" was replaced by "impediments." This illustrates the intention to narrow the scope of the exemption and to introduce an objective and more certain criterion. Thus, Article 79 CISG represents a retreat from the more lenient grounds for excuse in ULIS.
There was agreement at the Vienna Convention, however, that the limitation in paragraph (3) should be deleted, i.e., that an exemption was "only" for the period during which the impediment existed. This agreement can be interpreted as indicating that after a temporary impediment has ceased, a final exemption for the promisor on account of a change in circumstances cannot be ruled out.
The legislative history of Article 79 indicates that the promisor cannot claim relief on the ground that performance has become unforeseeably more difficult or unprofitable. The majority of commentators, however, want to allow those changes in circumstances to be seen as impediments in serious cases. According to some of these authors, this is a natural consequence of the literal interpretation of the provision of Article 79. The issue here is the obligation to avoid and/or overcome the impediment. If one takes this wording literally and applies it to the main case of changed circumstances, i.e., to the changes in the ratio between performance and counter-performance, it has to be noted that the subsumption is not actually that extraordinary.
(2) An impediment to performance may result from general economic difficulties and dislocations only if they constitute a barrier to performance that is comparable to other types of exempting causes.
Thus, the CISG is said to refer to a more flexible standard than that of traditional force majeure, but it is undoubtedly stricter than frustration or hardship.
Another approach to the problem of an extreme and onerous change in circumstances is to base exemption in those cases on the principle of good faith, as stated in Article 7(1) CISG. This approach is taken mainly by German commentators who refer to cases of imprévision or great difficulty to perform as "economic impossibility" (wirtschaftliche Unmöglichkeit).
In the event of a subsequent, unforeseeable impediment to performance as a result of a material change in economic conditions, there must be a "limit of sacrifice" (Opfergrenze). Beyond this, in view of the severe economic disadvantages involved, the promisor can no longer be expected to perform the contract. Some authors base this result on Article 79 in connection with Article 7(1). Others, taking an outsider position and denying that economic impossibility constitutes an impediment in the meaning of Article 79, find it purely through the requirement that good faith in international transactions should be promoted.
In the latter case, renegotiation of the contract may be allowed in extreme situations. This position, however, has rightly been heavily criticised: The principle of good faith must not be used to bypass explicit provisions of the Convention particularly Article 79(5), which states the legal effects of the exemption. Furthermore, the notion of good faith is of practically no avail to the judge. If it were to be regarded as the legal basis of [page 224] the theory of imprévision in international sales, harmony would be jeopardised and the aim of the Convention, as stated in Article 7(1), would not be attained.
Very little case law on Article 79 exists. In a 1989 case involving an Egyptian buyer and a Yugoslavian seller, an ICC arbitral tribunal, ruled that a 13% rise in the world market price of steel was neither sudden, substantial, nor unforeseeable, and would not exempt the seller from his obligation to perform under Article 79. In a Russian arbitral tribunal case, a seller claimed that he should be discharged from liability because the manufacturer of the contracted for goods refused to supply them. The tribunal held that the seller should bear liability for failure to fulfill his obligation because he was unable to establish that he could not have been expected to take that obstacle into account, or to avoid or overcome the obstacle or its consequences.
a.	Nuova Fucinati S.p.A. v. Fondmetall Int'l A.B.
There is only one case that expressly deals with the question of whether instances of hardship fall within the scope of Article 79. This is the decision of the Italian Tribunale Civile di Monza in the case Nuova Fucinati S.p.A. v. Fondmetall International A.B. An Italian seller of metal (Nuova Fucinati) sought to be excused from his sales contract with a Swedish buyer (Fondmetall Int'l) on the grounds of hardship. In terms of the February 3, 1988 contract, the seller was to deliver 1,000 tons of ironchrome. The contract permitted the buyer to choose a delivery date between March 20, 1988 and April 10, 1988.
Between the date the contract was entered into and the date selected by the buyer for delivery, the price of the ironchrome increased by almost 30%. Apparently, the contract did not contain a clause specifically providing [page 225] for excuse of performance in cases of force majeure. At a hearing before the court, the seller argued that the contract should be avoided because of "supervening excessive onerousness" caused by the market price increase.
The court voided the contract because of the seller's non-performance, and rejected the seller's request for dissolution on the basis of supervening excessive onerousness. The court held that the CISG did not apply in this case. The court concluded that even if Article 79 had applied, it only provided release from a duty made impossible by a supervening impediment, similar to the rule in Article 1463 of the Italian Civil Code. According to the court, Article 79 -- in contrast to Article 1467 of the Civil Code -- does not seem to contemplate the remedy of dissolution of contract for supervening excessive onerousness.
The distinction between "impossible" and "excessively onerous" performance is a crucial one in the court's reasoning because it highlights the important role of the structure of the Italian Civil Code in the outcome of the case. From the court's first mentioning of Article 79 CISG, Italian domestic law was used as a frame of reference for deciding the meaning of an "impediment" to performance. Even if the court had found that the CISG did apply to the dispute at hand, it would have read the "impediment" term as meaning "impossible" -- which is suggested by the Civil Code.
This case, which excludes situations of hardship from the scope of application of Article 79, illustrates the aforementioned danger that judges interpreting Article 79 would refer to similar concepts in their own law.
The majority of commentators rightly want to allow for changes in circumstances, those making performance more expensive or difficult, to be seen as impediments in serious cases. Although the reasoning differs, there is evidence that the barrier evoked by the use of the term "impediment" is not limited to physical or legal bars to performance.
Despite the fact that Article 79's "impediment" connotes a barrier that prevents performance, it refers to a more flexible standard than force majeure. It is, however, not evident how insurmountable the standard should be in practice. There may be a nuance between great difficulty of performance and absolute impossibility. Here, a case-by-case analysis is required. [page 226] Article 79 is a rather young provision, and there is very little case law dealing with it. In this absence of an "acquired patina of legal meaning", it is probable that elastic terms like "due to an impediment" will be read in the context of each system's view of the limits within which an excuse of that kind should be admitted.
The discussion shows that at present it cannot be determined with sufficient certainty how the issue of radically changed circumstances, where the performance of one of the parties has become much more onerous and difficult, can be decided on the basis of the CISG. Furthermore, the appropriate legal remedy in such cases of hardship or imprévision is principally the right to renegotiate the contract and to adapt it to the changed circumstances. The adaptation of the contract by the judge, however, is not expressly allowed by the CISG, and must therefore be regarded as impossible.
In light of Article 6 contracting parties are urgently recommended to include in their contracts a provision which defines impediments and excuses and the consequences thereof, in the manner desired by the parties.
Some legal systems have not accepted hardship as an excuse for non-performance. As a result of this fact and the unwillingness of courts and legislatures in many countries to assist parties in modifying their contracts to fit fundamentally changed circumstances, hardship clauses have been introduced into these contracts. The CISG has not resolved the existing problems. Hardship clauses may, therefore, be highly desirable in cases where the CISG applies.
Hardship clauses organise the revision of the contract whenever a change of circumstances significantly modifies the economy of the contract. They apply to situations of changed circumstances in which the parties intend not to dissolve the contract but to continue it. Sometimes, the parties are compelled by economic circumstances to consider the continuation rather than the dissolution of their contract, in spite of changed circumstances. The construction of a factory, for example, has to be completed, or the supply of crude oil or natural gas has to be continued in spite of those changes.
Hardship clauses always consist of two main parts. The first part of the clause defines the hypothesis when the clause applies. The second part deals with the effects of hardship, i.e., what happens whenever the hypothesis is realised.
The hypothesis of a hardship clause has two aspects: the clause sets out the circumstances in which hardship exists; it then describes the consequences or effect of these circumstances on the parties to the contract.
Hardship clauses usually state that the circumstances at the time of the conclusion of the contract have changed. This change of circumstances must be serious or substantial and beyond the control of either party. [page 228] Finally, the change must be entirely uncontemplated and unforeseeable. The wording of hardship clauses can be very broad and refer to "events" as the circumstances which are to be considered. Sometimes, the wording is more specific. For example, "monetary events," or specific changes in environmental conditions are taken into account. In sum, it seems advisable to use broad wording, give a list of specific circumstances as examples, and insert the excluded circumstances.
The effect of the change in circumstances is that the contract is out of balance, leading to a substantial economic hardship. Here, some clauses set out the requirement that a party is prejudiced. This, however, seems too extensive. The use of more subjective criteria, such as "unfair" or "inequitable" should also be avoided due to their vagueness.
Usually, hardship clauses provide for revision of the contract. Some clauses set out criteria for the revision of the contract. An example of such a clause is, "to restore the equilibrium between the parties as it was at the time of the conclusion of the contract." A more subjective approach would be, for example, "with fairness" or "equitable adjustment."
In a case where no agreement between the parties can be reached, hardship clauses provide for sanctions. The stipulation of revision of a contract is only useful if it is followed by a sanction that deals with the situation in which no agreement can reached. "A hardship clause without a sanction is hardly worth the paper on which it is written." Sanctions are usually the termination of the contract or adaptation of the contract by a third person. In the latter case, provision can be made for the intervention of an arbitrator, an expert, or even a court.
Force majeure clauses, often very detailed, are almost invariably included in international business contracts, irrespective of their proper or [page 229] selected governing law. They only have relevance, however, if they differ from the doctrine of force majeure that would be applicable without the existence of such a clause.
Force majeure clauses are generally drafted in such a way as to offer a definition of the concept, followed by a non-exhaustive list of the events agreed upon by the parties as constituting force majeure. Furthermore, a duty of notification, obliging the affected party to give notice of the force majeure event, is often provided. Finally, force majeure clauses set out the legal effect of a force majeure situation.
The prerequisites for a given event to constitute force majeure in international trade practice are less restrictive than in municipal law. Thus, in some modern clauses, events of force majeure are defined as events that do not necessarily render the contract performance impossible, but hamper the normal discharge of the contract obligation, or make it exorbitant from a commercial standpoint. An overlap with situations of hardship is evident here. Even the requirement of the unforeseeability of the event, always present in municipal law, is sometimes relaxed in international trade practice or, as suggested by some authors, omitted entirely. The requirement of domestic law, however, that the force majeure events must not be attributable to the obligee and must be irresistible or beyond the control of the parties, is also contained in force majeure clauses in international contracts.
(b) turmoil of a social nature (strikes, lock-outs).
Another feature of force majeure clauses is a formal obligation of notification. Such a provision can require that a party that wishes to be excused from performance under the clause give prompt notice of such an intention to the other party, unless the other party has actual notice. Failure to provide such notice often results in drastic consequences where one cannot rely on the clause to excuse non-performance. Such a situation, however, is not thought to result automatically from a failure to provide timely notice; there is usually an express provision in the contract.
The general rule as to the consequences of a situation of force majeure is that it implies a disclaimer of liability for the effects of such an event, such as a delay in performance, or for the failure to perform. Thus, the promisor is not liable for damages, as he would be under the general doctrine of contract. The ultimate consequence is that the risk connected with the occurrence of the force majeure event is shifted from the promisor to the other party of the contract.
Unlike most municipal laws which adopt the notion of force majeure, international trade practice force majeure does not necessarily result in the termination of the contract. More often, in international trade practice [page 231] there is provision for two stages with respect to the effect of force majeure. In the first stage, either the duty to discharge the obligation is suspended for the duration of the force majeure condition or the time of performance of the contract is extended for a specific period. If the event which constitutes force majeure is permanent or continues after the expiration of that period, each party is entitled to terminate the contract. If the force majeure condition ceases before the expiration of the additional period of time, however, the contract revives without consequences.
In departing from the traditional approach to drafting force majeure clauses, modern clauses of this kind contain renegotiation provisions, obliging the parties to renegotiate the terms of the contract and adapt it to the new circumstances. Whether or not drafters put such provisions into their force majeure clauses will, inter alia, depend on what value they attach to their relationship. As an alternative to renegotiation, or in the case of its failure, force majeure clauses may also contemplate recourse to arbitration or some other kind of alternative dispute resolution, such as a technical expertise procedure. It is evident that these broad force majeure clauses providing for the adaptation of the contract again overlap with hardship clauses. In conclusion, unlike the approach of the CISG and municipal systems, international trade practice is evolving in the direction of preserving the agreement to the greatest degree possible.
The use of standard forms of contract is widespread in international trade. These standard forms often explicitly make provision for the consequences of serious impediments to performance. They are valid if the parties have expressly or impliedly concluded their contract by reference to them. Thus, for example, the standard contracts of the United Nations Economic Commission for Europe (ECE) are widely referred to in contracts between European parties. Sometimes, on the initiative of the European exporter, they are even used in contracts governing the export of goods from Europe to America, Africa or Asia. Another example of rather common contract forms are those of the FIDIC  Conditions of Contract for Works of Civil Engineering Construction.
Document No. 421 of the International Chamber of Commerce provides another approach to the introduction of standard force majeure clause into an international contract. It contains a rather elaborate model force majeure clause and responds to many of the defects that have been ascribed to Article 79 CISG. The clause, however, does not provide for the adaptation of the contract.
The parties to an international sales transaction can also agree that the UNIDROIT Principles of International Commercial Contracts shall govern their contract. The UNIDROIT Principles do not fit into any of the traditional categories of legal instruments that have up to date been prepared on an international level, as they are neither model clauses (such as Document No. 421 of the ICC) nor standard forms of contract. In their preamble, however, it is stated that the Principles shall be applied when parties have [page 233] agreed that their contract be governed by them. The Principles, thus, may also have the function of standard forms of contracts.
With respect to situations of changed circumstances, the UNIDROIT Principles could offer sufficiently elaborate and widely accepted rules on hardship and force majeure. The group that prepared the rules was not bound by governments' instructions and their mostly conservative attitude towards new legal inventions. The combined knowledge of different facets of legal theory and practice in the group could be used in order to elaborate rules which fit international contractual practice. For this reason, the UNIDROIT Principles and their force majeure and hardship clauses will now be considered in more detail.
The UNIDROIT Principles represent an attempt to unify international trade law. It was felt that international conventions or model laws are often fragmentary in character and that model clauses and contracts, formulated by the interested business circles, are frequently drafted in a one-sided manner presupposing a more general regulatory system within which to operate. The aim of UNIDROIT was to specifically elaborate a general regulatory system which could apply universally and restate the general principles of contract law, thus reflecting all the major legal systems of the world.
In 1980 a special Working Group began the task of preparing the various draft chapters of the principles. It consisted of members of the major legal and socioeconomic systems of the world. These members, most of them academics, were leading experts in the fields of comparative law and international trade law. They each sat in a personal capacity and did not express the views of their governments. After the draft Principles had been [page 234] transmitted to the Governing Council of UNIDROIT for final consideration, the Principles were published in June 1994.
Each article of the Principles is accompanied by a commentary forming an integral part of the rule itself. The commentaries explained the reasons for the rules and the different ways in which they may operate in practice.
Because the Principles are not in the form of a convention or a model law, they do not have a binding effect. They will be applied in practice only because of their persuasive character. Application in five different contexts is possible.
Where the parties agree that their contract shall be governed by the UNIDROIT Principles, the Principles are undoubtedly applicable because they are incorporated into the contract like any other contractual clause. Because such an agreement is normally considered mere assent to the incorporation of the Principles into the contract, the law governing the contract still has to be determined on the basis of the private international law of the forum. As a result, the principles will bind the parties only to the extent that they do not contradict mandatory rules of the applicable law.
According to the preamble, the Principles may also apply when the parties have agreed that their contract be governed by "general principles of [page 235] law" or the lex mercatoria. Here the UNIDROIT Principles provide both the arbitrator and the parties with some rules that clarify the vague concepts of "general principles" and lex mercatoria, as these have often been criticised as unpredictable and uncertain.
The Principles may also serve as a model to national and international legislatures for the drafting of legislation in the field of general contract law, or with respect to special types of transactions. At an international level they could become an important term of reference for the drafting of conventions and model laws. Misunderstandings due to inconsistencies in terminology could be avoided if the terminology of the Principles were to be adopted as an international uniform glossary.
As set out in the preamble, the Principles may also be of relevance if the contract is governed by a particular domestic law, even though the application of the Principles is not provided for in the contract. This is the case, whenever dealing with a specific issue, it proves impossible to establish the relevant rule of that particular domestic law and a solution can be found in the principles. Recourse to the Principles, however, as a substitute for otherwise applicable domestic law is a last resort.
The UNIDROIT Principles may further serve as instruments for the interpretation and filling the gap of international uniform law. The main idea is to preclude an easy resort to the domestic law indicated by the conflict of laws rule by the forum. The principles provide guidelines for an [page 236] "autonomous" interpretation -- an interpretation based upon the uniform law's international character. The judge or arbitrator is offered a rule that is likely to be more suitable to an international commercial contract than a domestic rule of contract law. Supplementing an international instrument with the UNIDROIT principles has the additional advantage of enhancing consistency and fairness in the adjudication of international commercial disputes.
Article 7(1) CISG expressly sanctions this approach of the UNIDROIT Principles. Article 7(1) provides that, in the interpretation of the CISG, one must pay regard to its international character and the need to promote uniformity in its application. The potential use of the UNIDROIT Principles as a means of interpreting and supplementing the CISG must be examined in the light of Article 7(2) CISG. This provision states that questions falling within the scope of the CISG, but not expressly settled by its text, are to be settled in conformity with the general principles on which the CISG is based. Only as a last resort should there be reference to the domestic law indicated by the conflict of laws rules of the forum.
The CISG, however, fails to indicate which provisions are the "general principles" on which it is based. Moreover, it is not always easy to determine whether a given issue, which is not specifically addressed by the CISG, actually falls under its scope. In order to achieve the aim set out in Article 7(1), the UNIDROIT Principles could in some instances be a component part of the "general principles" underlying the CISG. If it is possible to determine that a provision of the CISG contains a gap and a certain issue is not expressly dealt with in the CISG, the UNIDROIT Principles can be expressed as a possible basis for supplementing this provision.
In conclusion, it can be said that the UNIDROIT Principles apply only if incorporated into the contract, or if they find enough favour with an [page 237] arbitrator or judge looking for a rule to fill a gap encountered in the regulation of a given international commercial contract.
In this paper, the relationship between Article 79 CISG and the provisions on situations of changed circumstances of the UNIDROIT Principles is of specific interest. In order to develop this issue, the relevant provisions of the Principles have to be introduced.
Article 7.1.7 of the UNIDROIT Principles seems to be very similar to Article 79 CISG. In Article 7.1.7 of the Principles, however, the function of force majeure as an exemption has been enlarged in comparison with the CISG. In Article 79 CISG the effect of the exemption is reduced to claims for damages only. The Principles use quite the opposite approach. They adhere to the principle that the excuse is general, but in paragraph (4) they make important exceptions in determining certain claims which are not affected by force majeure. These include the right to terminate the contract, withhold delivery, or request interest on money due. The case of force majeure, performance, as well as damages and penalties, cannot be claimed.
Article 79 CISG does not contain a gap that could be filled by the provision on force majeure of the UNIDROIT Principles. Although the wording of Article 79(5) would allow a claim for performance in situations where obligations are physically impossible to fulfill, it is believed that in domestic courts a judgment for physically impossible performance would neither be sought nor obtained. There are no compelling reasons, therefore, to substitute the provision of Article 79 CISG with that of Article 7.1.7 of the UNIDROIT Principles.
Article 6.2.2 contains the definition of hardship. This definition has the form of a general description and states that hardship is a situation where the occurrence of events fundamentally alters the equilibrium of the contract, provided that those events meet the requirements which are laid down in subparagraphs (a) to (d). Whether an alteration is "fundamental" will of course depend upon the circumstances in every case. Additionally, the commentary on Article 6.2.2 states that if the performances are capable of precise measurement in monetary terms, an alteration amounting to fifty percent (50%) or more of the cost, or the value of the performance, is likely to amount to a "fundamental" alteration. Article 6.2.2 further states that a "fundamental" alteration in the equilibrium of the contract may manifest itself in two ways -- either there is an increase in the cost of the disadvantaged party's performance, or a decrease in the value of what it has to receive.
The additional criteria for an event to constitute hardship are: (1) the events occur or become known after the conclusion of the contract; (2) the events could not reasonably have been taken into account by the disadvantaged party; (3) the events are beyond the control of the disadvantaged party; (4) the risks must not have been assumed by the disadvantaged party.
The effects of hardship (Article 6.2.3) have both procedural and substantive law aspects. The procedural aspect starts with the right of the disadvantaged party to request renegotiation. "The request shall be made without undue delay and shall indicate the grounds upon which it is based." If the disadvantaged party fails to comply with these requirements, it does not lose its right to request renegotiation. This failure may, however, affect the finding as to whether hardship actually existed and its consequences for the contract.
If the parties fail to reach agreement on the adaptation of the contract to the changed circumstances within a reasonable time, Article 6.2.3 (3) authorises either party to resort to the court. Paragraph (4) provides certain [page 239] substantive rules for this case which give a legal basis for constructive legal decision making. According to these rules, a court which finds that a hardship situation exists may react in a number of different ways. It, therefore, has the possibility to terminate the contract (Paragraph (4)(a)). The court can also adapt the contract with a view to restoring its equilibrium (Paragraph (4)(b)). In so doing, the court will seek to make a fair distribution of the losses between the parties. If neither termination nor adaptation is appropriate in certain circumstances, the only reasonable solutions are for the court to either direct the parties to resume negotiations or to confirm the terms of the contract as they stand.
For judges and arbitrators, the provisions on hardship of the UNIDROIT Principles may serve as a means of interpretation of, or supplementation to, Article 79 CISG. This requires that Article 79 contain a gap with respect to situations of hardship. It has been shown that it cannot be determined with sufficient clarity how the issue of radically changed circumstances can be decided upon, on the basis of Article 79 and the CISG in general. Furthermore, the adaptation of the contract by the judge is not expressly allowed by the CISG, and must therefore be regarded as impossible. It is also clear that the CISG does not contain a specific provision dealing with hardship.
It is generally believed, (as is proven in the history of Article 79) that Article 79 does not contain a gap as to situations of imprévision or hardship. Proposals brought forward during the drafting process of the CISG to make provision for those situations were expressly rejected. Moreover, the purpose of Article 79 is to set definite limits on the promisor's liability for breach of contract. Judges and arbitrators, therefore, cannot use the provisions on hardship of the UNIDROIT Principles to interpret or supplement the CISG.
Parties to a contract which is governed by the CISG, however, are free to agree on the applicability of the UNIDROIT Principles to their contract. [page 240] In this case, the Principles' provisions on hardship become a part of their agreement and thus supplement Article 79 CISG. It is also possible for the parties to include only the Principles' hardship provisions into their contract. In view of the narrow scope of Article 79 and the uncertainties surrounding it, the contractual supplementation of Article 79 with the respective provisions of the UNIDROIT Principles may be strongly advisable. Depending on the needs and features of their transaction, the parties can adapt the provisions of the Principles so as to take into account these needs and features.
As it has been shown, provision should be made for situations of changed circumstances in international commercial contracts. Because of the shortcomings of the CISG with regard to this problem, making such provisions is advisable in situations where the Convention applies to the contract.
With respect to these provisions it is suggested that, for the sake of uniformity, simplicity and efficiency, the contract should contain only one clause covering the problem of changed circumstances. Here, the scope of a force majeure clause can be broadened as far as the limits of freedom of contract permit. As shown, this is already the case in modern contractual practice where force majeure clauses overlap to a great extent with provisions on hardship. Despite the fact that the concept of hardship also relates to changed circumstances, such a force majeure clause should be considered capable of covering the entire problem.
In general it must be said that, depending on the scope and duration of the transaction in question, the topic of changed circumstances is too important to be addressed in standardised force majeure or hardship clauses. If necessary, those standard clauses should be tailored to the needs of the contract in which they must serve.
The concepts of hardship and force majeure constitute exceptions to the principle "pacta sunt servanda." They apply in situations where the circumstances existing at the conclusion of the contract have subsequently changed so drastically that the parties would not have made the contract, or would have made it differently had they known what was going to happen. Hardship occurs where the performance of the disadvantaged party has become much more burdensome, but not impossible. On the other hand, force majeure, means that the performance of the party concerned has, at least temporarily, become impossible. The classical concept of force majeure is primarily directed at settling the problems resulting from non-performance, either by suspension or by termination. The concept of hardship, however, is mainly directed at the adaptation of the contract.
The conceptions of municipal legal systems dealing with situations of changed circumstances are oriented on the two basic concepts of force majeure and hardship and, thus, share important features. Nevertheless, these conceptions also differ from each other and no specific overall trend may be traced.
The problem of changed circumstances is clearly an issue in the field of international trade. Here, many contracts have a complicated structure, and even if they are not long-term contracts, they frequently exist over a significant period of time. Furthermore, they are subject to political and economic influences in foreign countries. This means that international trade transactions may entail a great deal of uncertainty.
The CISG addresses this issue in Article 79 in an attempt to create uniformity and tackle the problem of changed circumstances on an international level. It avoids reference to existing concepts as it develops a system of its own. This concept does not solve the problem entirely. It is likely that [page 242] Article 79 will be the Convention's least successful provision. The most discussed problem in the context of Article 79 is whether radically changed circumstances, where the performance of one of the parties has become much more onerous and difficult, but not impossible, falls within the scope of this provision. Because of Article 79's vagueness, however, it cannot be determined with sufficient certainty how this issue can be decided on the basis of the CISG. The adaptation of the contract by the judge is, moreover, not expressly allowed by the Convention, and must therefore be regarded as impossible. For these reasons, contracting parties are urged to include in their contracts a provision dealing with the matter of changed circumstances in the manner desired by the parties.
* LLM, University of Stellenbosch. Mr. Rimke would like to thank his supervisor, Charl Brand, Professor Charl Hugo and Jennifer Moffatt fort their assistance and helpful advise.
1. See A.H. Puelinckx, Frustration, Hardship, Force majeure, imprévision, Wegfall der Geschäftsgrundlage, Unmöglichkeit, Changed Circumstances, 1986 J. Int'l Arb. 47 (1986).
2. See Dietrich Maskow, Hardship and Force Majeure, 1992 Am. J. Comp. L. 657, 658 (1992).
4. See Clive M. Schmitthoff, Schmitthoff's Export Trade 146 (8 ed. 1986).
5. See Horn, Die Anpassung langfristiger Vertrage im internationalen Wirtschaftsverkehr, kotz 9 (v. Bieberstein ed., 1984).
6. United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, U.N.Doc.A/CONF.97/18, reprinted in 19 I.L.M. 668 [hereinafter "CISG" or "the Convention"].
7. See Ugo Draetta, Force Majeure Clauses in International Trade Practice, 5 Int'l Bus. L. J. 547 (1996).
8. See The Oxford Companion to Law 478 (1980); see also James Stroud's Judicional Dictionary II 1008 (1986).
9. See Matsoukis v. Priestman & Co, 1 K.B. 681 (Eng. 1915).
10. See Oxford Companion To Law, supra note 8, at 14.
11. Brauer and Co. v. James Clark, 1952 W.N. 422 (Eng. 1952).
12. See Wouter Den Haerynck, Drafting Hardship Clauses in International Contracts, in Structuring International Contracts 231,232 (Dennis Campbell ed., 1996).
13. Puelinckx, supra note 1, at 50.
14. See Returned Soldiers, etc. League of Australia Incptd. v. Abbott, S.A.St.R. 270 (Austl. 1946).
15. See F.G. O'Brien Ltd v. Elliott, ___ N.S.W.R. 1473 (Austl, 1965).
16. See Clive M. Schmitthoff, Hardship and Intervener Clauses, J. Bus. L. 82 , 85 (1980).
17. See Maskow, supra note 2, at 663.
18. See id. at 664.
19. See Draetta, supra note 7, at 548.
20. See Paradine v. Jane, 82 Eng. Rep. 897 (K.B. 1647).
21. See Taylor v. Caldwell, 3 B & S 826 (Eng. 1863).
23. See Draetta, supra note 7, at 548.
24. See Puelinckx, supra note 1, at 49.
25. See, e.g., Krell v. Henry, 2 K.B. 740 (Eng.1903).
26. See Schmitthoff, supra note 4, at 154.
27. See Restatement (Second) of Contracts 261 (1979).
28. See Uniform Commercial Code � 2-615 (1979) [hereinafter "U.C.C."].
29. Restatement, supra note 27.
30. See U.C.C., supra note 28.
31. See Draetta, supra note 7, at 548.
32. U.C.C., supra note 28.
33. See P.J.M. DeClercq, Modern Analysis of the Legal Effect of Force Majeure Clauses in Situations of Commercial Impracticability, 15 J.L. & Com. 213, 255 note 18 (1995).
34. See id. at 222.
35. See Draetta, supra note 7, at 548; Declercq, supra note 30, at 222.
36. See Puelinckx, supra note 1, at 55.
37. According to the latter a contract shall cease to be obligatory as soon as the circumstances on which it is founded have substantially changed.
38. See Den Haerynck, supra 12, at 232.
39. See Puelinckx, supra note 1, at 55; Den Haerynck, supra note 12, at 233.
40. See Puelinckx, supra note 1, at 56.
43. Karl Larenz, Lehrbuch des Schuldrechts I 330, (14th ed. 1987); see Puelinckx, supra note 1, at 60.
44. Larenz, supra note 43, at 324.
45. Rebus sic stantibus is defined as: "The principle 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 (7th ed. 1999).
46. See Puelinckx, supra note 1, at 60. The doctrine provides that the contract ceases to be obligatory as soon as the circumstances on which it is founded have substantially changed.
47. See Larenz, supra note 43, at 331, 332.
49. See R. H. Christie, The Law Of Contract In South Africa 563 (2d ed. 1991).
50. 19 A.D. 427 (S.Afr. 1919).
52. See Christie, supra note 49, at 563.
54. See MacDuff & Co. Ltd. v. Johannesburg Consolidated Investment Co. Ltd., 1924 A.D. 573, 601-602 (S. Afr. 1924).
55. 1993 (4) SA 788 (SEC) (S.Afr.1993).
57. See Floyd Pretorius, Mistake and Supervening Impossibility of Performance, Tydskrif vir Hedendaagse Romeins-Hollandse reg 325, 328 (1994) .
58. See Ramsden, Could Performance Have Been Impossble in Kok v. Osborne & Another?, South African Mercantile Law Journale 340, 342 (1994).
59. See Albert H. Kritzer, International Contract Manual - Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods - Detailed Analysis 623 (1994).
60. See Posch, On the Law of International Sale of Goods: An Introduction, in Survey of the International Sale of Goods 3 (Lafili, Gevurtz & Campbell eds., 1986).
61. See Kritzer, supra note 59.
62. The International Institute for the Unification of Private Law (UNIDROIT).
63. See Posch, supra note 60, at 6.
64. See Kritzer, supra note 59.
65. More than 100 States have ratified this Convention.
66. See John O. Honnold, Documentary History of the Uniform Law For International Sales 2 (1989).
67. See id. at 185.
69. See Stoll, in Commentary on the UN Convention on the International Sale of Goods, at 602 (Peter Schlechtriem ed.,1998).
70. See Honnold, supra note 66, at 349.
72. See Stoll, supra note 69.
73. See Honnold, supra note 66, at 602-603.
74. The final official text of Article 79 CISG reads: "(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken that impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.
if the provisions of that paragraph were applied to him.
75. See Fritz Enderlin & Dietrich Maskow, United Nations Convention on Contracts for the International Sale of Goods 320 (1992); Denis Tallon, in Commentary on the International Sales Law - The 1980 Vienna Sales Convention 576 (C.M. Bianca & M.J. Bonnell eds.,1987); Magnus, in Kommentar zum UN- Kaufrecht 986 (Honsell ed., 1997); Ziegler, Leistungsstörungsrecht nach dem UN-Kaufrecht 218 (1995); Keil, Die Haftungsbefreiung des Schuldners im UN-Kaufrecht 33 (1993).
76. See Tallon, supra note 75, at 577; Ziegler, supra note 75; Enderlein/Maskow, supra note 75, at 321; Barry Nicholas, Force Majeure and Frustration, 27 Am. J. Comp.L. 231, 240 (1979); but see John Honnold, Uniform Law for the International Sales under the 1980 United Nations Convention 534; 534-537 (2d ed.1991).
77. See Honnold, supra note 61, at 445.
78. Stating that the Convention is not concerned with the validity of the contract.
79. See Tallon, supra note 75, at 578.
80. See Kritzer, supra note 59, at 628; Enderlein & Maskow, supra note 70, at 323; Burghard Piltz, Internationales Kaufrecht 162 (1993) 162; Stoll, supra note 69, at 610.
81. See supra Parts II.1, III.3 to compare definitions.
82. See Tallon, supra note 75, at 579.
83. See Enderlein/Maskow, supra note 75, at 322.
84. See Tallon, supra note 75, at 582; Stoll, supra note 64, at 613-614; Magnus, supra note 75, at 688.
85. See Tallon, supra note 75, at 580, 581.
86. See Enderlein/Maskow, supra note 75, at 324.
87. See Tallon, supra note 75, at 581.
88. See Secretariat Commentary, supra note 66, at 446.
89. Kritzer, supra note 59, at 631.
90. Honnold, supra note 66, at 459.
91. See Secretariat Commentary, supra note 66, at 446.
92. See Tallon, supra note 75, at 588.
93. Article 28 states that no court is bound to enter a judgment for specific performance unless the court would do so under its own law.
94. See Honnold, supra note 66, at 604-06.
95. See Kritzer, supra note 59, at 642.
96. See Enderlein & Maskow, supra note 75, at 320; Tallon, supra note 75, at 574.
97. See Kritzer, supra note 59, at 623.
98. See Tallon, supra note 75, at 594.
99. See Kritzer, supra note 59, at 624.
100. See Honnold, supra note 66, at 349-350.
101. See id. at 350.
102. See supra Part IV.B.
103. See Stoll, supra note 69, at 618; see also Rudolph, Kaufrecht der Export-und Importvertrage 399 (1996).
104. See Honnold, supra note 76, at 537.
105. See Tallon, supra note 75, at 595; see also Enderlein & Maskow, supra note 75, at 320.
106. See supra Part III.
107. See Honnold, supra note 76, at 532-533; see also Enderlein & Maskow, supra note 75, at 320.
108. See Todd Weitzmann, Validity and Excuse in the U.N. Sales Convention, 16 U.Pitt.J.L. & Com. 265 (1997); Barry Nicholas, Force Majeure and Frustration, 27 Am.J.Comp.L. 231 (1979); Honnold, supra note 76, at 534-535.
110. See Honnold, supra note 76, at 535; Nicholas, supra note 108, at 240.
111. See Honnold, supra note 66, at 603.
112. See Keil, supra note 75, at 190-191; Stoll, supra note 69, at 603.
113. See Honnold, surpa note 76, at 543; Enderlein & Maskow, supra note 75, at 325.
114. See Enderlein & Maskow, supra note 75, at 325.
115. Tallon, supra note 75, at 592.
116. Honnold, supra note 76, at 544.
117. See Tallon, supra note 75, at 592.
118. See Stoll, supra note 69, at 618; see also Enderlein & Maskow, supra note 75, at 25; Keil, supra note 75, at 191; Rudolph, supra note 103, at 399.
119. See id.; see also Keil, supra note 75, at 191.
121. See Rudolph, supra note 103, at 399; Stoll, supra note 69, at 618.
122. See Tallon, supra note 75, at 594.
123. See Case Law on UNCITRAL texts (Egypt v. Yugo.), Int'l Comm. Arb. No. 6281 (1989), available in <http://cisgw3.law.pace.edu>.
125. See Trib. Civile di Monza, 14 Jan. 1993 n.R.G. 4267/88, available in <http://cisgw3.law.pace.edu>.
126. See Weitzmann, supra note 108.
127. See Kritzer, supra note 59, at 640.
128. See Tallon, supra note 75, at 592.
129. See Honnold, supra note 76, at 47.
130. See Schmitthoff, supra note 16, at 84.
131. See Den Haerynck, supra note 12, at 234.
132. See Schmitthoff, supra note 4, at 648.
133. See Den Haerynck, supra note 12, at 235.
134. See Schmitthoff, supra note 16.
136. See Den Haerynck, supra note 12, at 237; Horn, supra note 5, at 27.
137. See Den Haerynck , supra note 12, at 238.
138. See id. at 239.
139. Schmitthoff, supra note 16, at 88.
140. See Draetta, supra note 7, at 550; Schmitthoff, supra note 4, at 164.
141. See Declercq, supra note 33, at 213.
142. See Draetta, supra note 7, at 551.
143. See Declercq, supra note 33, at 213.
144. See Draetta, supra note 7, at 552; Horn, supra note 5, at 27.
145. See Declercq, supra note 33, at 248; Draetta, supra note 7, at 552.
146. See Declercq, supra note 33, at 233.
147. Draetta, supra note 7, at 552.
148. See Horn, supra note 5, at 33.
149. See Draetta, supra note 7, at 552.
150. See id. at 553.
151. See Schmitthoff, supra note 4, at 165; Horn, supra note 5, at 33-34.
152. See Declercq, supra note 33, at 245; Horn, supra note 5, at 34; Draetta, supra note 7, at 551.
153. See Declercq, supra note 33, at 245.
154. See Draetta, supra note 7, at 551.
155. See Stoll, supra note 69, at 624; Bartels Motomura, Haftungsprinzip, Haftungsbefreiung und Vertragsbeendigung bein Internationalen Kauf, 979 RabelsZ 649, 669; Stoll, in Kommentar zum Einheitlichen Kaufrecht 463 (Hans Dölle, ed 1976).
156. See Stoll, supra note 69, at 624.
157. See Stoll, supra note 155, at 463.
159. See Horn, supra note 5, at 11; Draetta, supra note 7, at 551.
160. See Kritzer, supra note 59, at 650-651; Draetta, supra note 7, at 554.
161. See Michael Joachim Bonell, The UNIDROIT Principles of International Commercial Contracts: Why? What? How?, 60 Tul. L. Rev. 1121, 1122 (1995).
162. See Maskow, supra note 2, at 659.
163. See Michael Joachim Bonell, Unification of Law by Non-Legislative Means: The UNIDROIT Principles for International Commercial Contracts, 40 Am. J. Intl L. 617 (1992).
164. See id. at 618.
165. See id. at 619.
166. See Franco Ferrari, Defining the Sphere of Application of the 1994 UNIDROIT Principles of International Commercial Contracts, 69 Tul. L. Rev. 1225, 1228 (1995); Bonell, supra note 163, at 625.
167. See Ferrari, supra note 166, at 1229.
168. See Bonell, supra note 163, at 630; Ferrari, supra note 166, at 1230.
169. See Ferrari, supra note 163, at 1232.
170. See Bonell, supra note 163, at 626.
171. See id. at 633.
172. See Alejandro M. Garro, The Gap-filling Role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay Between the Principles and the CISG, 69 Tul. L. Rev. 1149, 1152 (1995); Ferrari, supra note 166, at 1234.
173. See Garro, supra note 172, at 1155-1156.
175. See Maskow, supra note 2, at 665.
176. See supra Part IV.C.5.
177. See UNIDROIT Principles art. 6.2.1 cmt. 2.
178. See Maskow, supra note 2, at 663.
179. See UNIDROIT Principles art. 6.2.3 (1).
180. See id. at art. 6.2.3 cmt. 2.-3.
181. See Maskow, supra note 2, at 663.
182. See UNIDROIT Principles art. 6.2.3 cmt. 7.
183. See supra Part IV.D.2.
184. This author notes that it is, of course, also possible to include only the hardship provisions of the Principles into the contract.
185. See UNIDROIT Principles art. 6.2.2 cmt. 7.
186. See Declercq, supra note 33, at 246.
187. See supra Part V.B.
188. See Declercq, supra note 33, at 246.
189. See Kritzer, supra note 59, at 254; Declercq, supra note 33, at 254.

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