Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 472-495. Reproduced with permission of the publisher, Kluwer Law International, The Hague.
§423 A. Introduction
Even in domestic law it has been difficult to provide coherent answers to the problems that arise when unexpected difficulties prevent the performance of a contract. The settings are diverse: war, embargo and other governmental prohibitions, breakdown of transport facilities (e.g., the closing of the Suez Canal), strikes, the shutdown or bankruptcy of a supplier—these are only points on a continuum of difficulties with varying degrees of scope, severity and unpredictability. The applicable legal doctrines go under assorted labels—impossibility, Act of God, frustration, force majeure, failure of presupposed conditions.
The legal issue is difficult but narrow: Is the non-performing party liable to the disappointed party for breach of contract? Even the clearest grounds for "excuse" do not permit a party to recover (or keep) the price for performance it has not rendered. The issue is whether the party that fails to perform is liable for damages.
Article 79 confronts the thorny problem of determining which party bears the burden of an unexpected barrier to performance. Fortunately, the scope of Article 79 is narrowed by specialized rules on definable types of commercial risks.
§ 423.2 (a) Loss in Transit The Convention’s rules on loss during transit (Chap. IV, Arts. 66–70, §§358-383 supra) apply even though the goods are lost as a consequence of unpredictable disasters such as hurricane, war or government seizure—a point that is relevant to emphasize the line of demarcation between the risk rules of Chapter IV and the exemption [page 472] rules of Article 79. Assume that the Chapter IV rules allocate transit risk to the seller and the goods are lost as the result of a hurricane. This disaster may produce two types of loss: (1) Physical loss of the goods and (2) Loss to the buyer because of a rise in price, or because failure to receive the goods (e.g. machinery) interrupts production. Although the seller bears the first type of loss—physical loss of the goods—Article 79 exempts the seller from liability for breach of contract. Pragmatic reasons underlie these results. Physical loss during transit is readily and customarily covered by insurance. On the other hand, the buyer’s contractual loss from non-arrival, although not so readily or customarily covered by insurance, can be coped with more readily by the buyer than by the seller through insurance or reserves; the seller and seller’s insurer will have little or no information about the commercial risks encountered by the various buyers whom the seller supplies. § 423.3 (b) Defective Goods Unknown defects in goods also present problems of allocation of loss. Under the Convention the seller is responsible for these losses. Arts. 35, 45 and 74, §§223, 276, 405, supra. Loss to the buyer is placed on the seller even when the seller is not at fault, as when a seller resells defective goods, obtained from a responsible supplier in sealed containers, which the seller has no reasonable opportunity to inspect (§§24-26, 276, supra). One pragmatic justification for this result is that the aggrieved buyer (unlike the seller) usually has no practicable recourse against the supplier. As we shall see (§427, infra), Article 79 does not reverse these rules. Unhappily, there are many types of unexpected loss that fall outside these specialized provisions.
The Convention’s rules on loss during transit (Chap. IV, Arts. 66–70, §§358-383 supra) apply even though the goods are lost as a consequence of unpredictable disasters such as hurricane, war or government seizure—a point that is relevant to emphasize the line of demarcation between the risk rules of Chapter IV and the exemption [page 472] rules of Article 79. Assume that the Chapter IV rules allocate transit risk to the seller and the goods are lost as the result of a hurricane. This disaster may produce two types of loss: (1) Physical loss of the goods and (2) Loss to the buyer because of a rise in price, or because failure to receive the goods (e.g. machinery) interrupts production. Although the seller bears the first type of loss—physical loss of the goods—Article 79 exempts the seller from liability for breach of contract.
Pragmatic reasons underlie these results. Physical loss during transit is readily and customarily covered by insurance. On the other hand, the buyer’s contractual loss from non-arrival, although not so readily or customarily covered by insurance, can be coped with more readily by the buyer than by the seller through insurance or reserves; the seller and seller’s insurer will have little or no information about the commercial risks encountered by the various buyers whom the seller supplies.
§ 423.3 (b) Defective Goods Unknown defects in goods also present problems of allocation of loss. Under the Convention the seller is responsible for these losses. Arts. 35, 45 and 74, §§223, 276, 405, supra. Loss to the buyer is placed on the seller even when the seller is not at fault, as when a seller resells defective goods, obtained from a responsible supplier in sealed containers, which the seller has no reasonable opportunity to inspect (§§24-26, 276, supra). One pragmatic justification for this result is that the aggrieved buyer (unlike the seller) usually has no practicable recourse against the supplier. As we shall see (§427, infra), Article 79 does not reverse these rules. Unhappily, there are many types of unexpected loss that fall outside these specialized provisions.
Unknown defects in goods also present problems of allocation of loss. Under the Convention the seller is responsible for these losses. Arts. 35, 45 and 74, §§223, 276, 405, supra. Loss to the buyer is placed on the seller even when the seller is not at fault, as when a seller resells defective goods, obtained from a responsible supplier in sealed containers, which the seller has no reasonable opportunity to inspect (§§24-26, 276, supra). One pragmatic justification for this result is that the aggrieved buyer (unlike the seller) usually has no practicable recourse against the supplier. As we shall see (§427, infra), Article 79 does not reverse these rules.
Unhappily, there are many types of unexpected loss that fall outside these specialized provisions.
"(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 [page 473] his control and that he 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 it or its consequences.
"(2) 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;
(a) he is exempt under the preceding paragraph; and
(b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.
"(3) The exemption provided by this article has effect for the period during which the impediment exists.
"(4) 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 impediment, he is liable for damages resulting from such non-receipt.
"(5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention."
One notices that the scope of Article 79 is broad: Exemption may be claimed by either party and may apply to "any" of its "obligations".
Analysis of Article 79 can best commence with paragraphs (1) and (5). (Paragraph (2), (3) and (4) deal with special situations that will be considered infra at §433–435.)
Paragraph (1) states three elements that must be proved by a non-performing party who seeks to establish that it is not "liable for a failure to perform": (a) The failure was "due to an impediment beyond his control"; (b) At the time of the contract the party "could not reasonably be expected to have taken the impediment into account"; and (c) Subsequent to the contract the party could not reasonably be expected "to have avoided or overcome [the obstacle] or its consequences."
The narrow scope of the statement in paragraph (1) that a party "is not liable" for a failure to perform is emphasized in paragraph (5): Nothing in Article 79 "prevents either party from exercising any right other than to claim damages...." Confining exemption to "damages" has this important consequence: When one party fails to perform its obligations the other party’s right to "avoid the contract" is not impaired. (In non-legal terms, when the seller cannot deliver the buyer need not pay; when the buyer cannot pay the seller need not deliver.) The grounds for avoidance that we have examined (Arts. 25, 47, 49, 63, 64, 72 and 73) remain applicable although the disappointed party may not recover damages. In [page 474] addition, the parties are subject to the rules in Section V, infra at §437, on "Effects of Avoidance." Thus, each party is entitled (Art. 81(2)) to "restitution" of whatever it "has supplied or paid under the contract." Article 84(2) carries this principle further: a buyer who avoids must "account to the seller" for all benefits the buyer has derived from the goods.
§ 424 B. Exemption and the Contract
As we have seen, the Convention (Art. 6) gives overriding effect to the agreement of the parties. Contract provisions on impediments to performance have special value since impediments arise in a countless variety of circumstances and involve infinite gradations of difficulty and unpredictability. General legal rules, domestic or international, can scarcely provide clear and satisfactory answers to all these problems. Consequently, in important transactions and in a wide variety of standard contracts explicit provision is made for the consequences of serious impediments to performance. The contracts can (and do) take account of the conditions and needs presented by various types of transactions. When a commodity (such as grain) is subject to market fluctuations both parties rely heavily on the contract for protection; the grounds for exemption tend to be strict and narrow. When the contract involves construction work or a manufacturing process that requires a substantial period of time, the possibility and seriousness of impediments multiply; these facts are reflected in contracts that call for readjustment of the contract to cope with unanticipated problems.
Principles of efficiency and fairness can best be distilled from contracts prepared with the cooperation of both sellers and buyers; such cooperation may be achieved by a trade association that includes both interests or through mediation by international organizations such as the U.N. Economic Commission for Europe (ECE). The solutions provided by some of these contracts will be quoted infra at §431 since they may be useful to parties who wish a more definite solution than can be provided by general rules of law; in addition, patterns that emerge from these contracts may provide guidance in applying the general rules of the [page 475] Convention.
§425 C. The Convention and Domestic Law
Domestic rules in this area often bear a family resemblance to each other and to Article 79 of the Convention but a penetrating study by Professor Nicholas exposes the hazards of relying on "superficial harmony which merely mutes a deeper discord." The Convention (Art. 7) enjoins us to interpret its provisions "with regard for its international character and...the need to promote uniformity in its application." This goal would be served if we could (as by a draft from Lethe) 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. In the absence of such innocence, the preconceptions based on domestic law may be minimized by close attention to the differences between domestic law and the Convention. We turn first to the (U.S.A.) Uniform Commercial Code.
"Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraph (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed 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 domestic governmental regulation or order whether or not it later proves to be invalid.
(b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer."[page 476]
The Uniform Commercial Code also has rules on the effect of difficulties in specialized situations: casualty to goods identified when the contract was made ("specific" goods) (UCC 2–613), and failure of agreed means of transportation or payment when a "commercially reasonable" or "substantially equivalent" substitute is available (UCC 2–614).
Article 79 of the Convention follows the approach of important civil law systems in extending the rules on excuse to all aspects of a party’s performance. Under paragraph (1) either party may be excused from liability "for a failure to perform any of his obligations." On the other hand, UCC 2–615 provides excuse only for the seller, and then only with respect to two aspects of performance—"delay in delivery" and "non-delivery."
(a) Defective Goods
The differing scope of the provisions on exemption in the Convention and in the UCC leads to this question: May a nonnegligent seller be excused from liability when he delivers defective goods? Under the UCC, the answer is No since the situation involves neither "delay" nor "non-delivery." Under the Convention the answer is not so obvious, since exemption may apply to a party’s failure to perform any of its obligations.
ULIS. This issue was sharply contested in the preparation of ULIS. At the 1964 Hague Conference, the controversy centered on the choice between two words: "obstacle" v. "circumstances." The 1956 Draft that was brought to the Hague Conference provided that the non-performance must result from an "obstacle." A civil law group, led by the Federal Republic of Germany, feared that this test might refer only to supervening and external events, as contrasted with the more personal issue as to the seller’s due care or fault, and might bar excuse based on an extreme and [page 477] onerous change in economic circumstances. At the insistence of this group, the "obstacle" concept was eliminated. ULIS 74(1) follows:
"1. Where one of the parties has not performed one of his obligations, he shall not be liable for such non-performance if he can prove that it was due to circumstances which according to the intention of the parties at the time of the conclusion of the contract, he was not bound to take into account or to avoid or to overcome; in the absence of any expression of the intention of the parties, regard shall be had to what reasonable persons in the same situation would have intended."
The crucial change was to extend exemption to situations where non-performance "was due to circumstances..." "Circumstances" could include a drastic change in costs or other economic conditions. In addition it could be argued that a seller could be freed from liability for defects in the goods that did not result from the seller’s fault; such was the interpretation given to the drafting change in Professor Tunc’s important commentary.
UNCITRAL and Impediments. UNCITRAL faced this issue and replaced "circumstances" by "impediment"—a word that (like "obstacles") implies a barrier to performance, such as delivery of the goods or transmission of the price rather than an aspect personal to the seller’s performance. This decision that exemption applies only to impediments that prevent performance (as contrasted with circumstances that lead to defective performance) is supported by the language of paragraph (4): "The party who fails to perform must give notice to the other party of the impediment..."—a requirement that would be absurd in connection with the delivery of goods with a hidden defect. It is significant that no notice requirement was included in ULIS 74—a provision that, as we have seen, was understood to permit exemption for the non-negligent delivery of defective goods. This fundamental point—that exemption provided by Article 79 of CISC does not apply to defective performance such as the supply of non-conforming goods—was confirmed by the discussions and by decisions taken at the Diplomatic Conference. [page 478]
This result is also important to avoid undermining the Convention’s contractual approach to the parties’ obligations and its unitary approach to the remedies for breach. As we have seen, Article 35(1) provides: "The seller must deliver goods which are of the quantity, quality and description required by the contract" and Article 45 provides: "(1) If the seller fails to perform any of his obligations under the contract or this Convention" [including, of course, the seller’s obligations (Art. 35) to supply conforming goods] "the buyer may...(b) claim damages...." A parallel provision on breach by the buyer appears in Article 61(1)(b). The Convention thus is based on a unitary, contractual obligation to perform the contract and be responsible for damages—as contrasted with some legal systems that make liberal use of the idea of fault in dealing with liability for damages for breach of contract.
This decision has important practical consequences for buyers who suffer serious damage from defective goods. Deciding whether the defect resulted from "fault" may call for inquiry into the manufacturing processes of the seller or of a remote supplier. Even when a heavy burden of proof is placed on the seller (or the supplier), a final resolution of the issue is expensive and uncertain. The burdens multiply when the product was manufactured by a remote supplier. As we shall see, exemption under Article 79 (as under most domestic rules) must ordinarily be based on events (e.g. war, embargo, flood, fire) that are widely known. Exemption based on the care taken in a producer’s manufacturing processes is anomalous as well as impractical. In addition, the most plausible claim of non-negligence can be made by a seller who resells complex machinery or goods in sealed containers, in circumstances where inspection and testing is impractical. The buyer (unlike the seller) usually has no contractual relationship with the manufacturer who, in any case, may be remote from the buyer. Under these circumstances the only practicable way to transfer liability to the manufacturer is for the buyer to recover from its seller who can more readily secure redress from its supplier.[page 479]
§ 428 D. The Standard for Exemption for Non-Performance
Under Art. 79(1), a party who seeks exemption from liability for non-performance must establish (inter alia) that the failure to perform "was due to an impediment beyond his control." How high and impenetrable must an "impediment" be to justify non-delivery or non-acceptance? We shall address this question at §432, infra. As background for this issue we now consider (1) The hazards of following diverse domestic law and (2) The possible relevance of contract patterns in international trade.
Attention has been drawn, supra at §425, to the danger that local tribunals may unconsciously read the patterns of their domestic law into the general language of the Convention—an approach that would be inconsistent with the Convention’s basic goal of international unification (Art. 7(1)). And deliberate recourse to the exemption rules of a single domestic system would flagrantly violate the Convention. As we have seen, Article 7(2) permits recourse to "the law applicable by virtue of the rules of private international law" only as a last resort—i.e., when questions are "not expressly settled" by the Convention and cannot be "settled in conformity with the general principles on which it is based" (§102, supra). The fact that a provision of the Convention presents problems of application does not authorize recourse to some one system of domestic law since this would undermine the Convention’s objective "to promote uniformity in its application" (Art. 7(1)). However, no such difficulty arises from a comparative law approach that seeks guidance from the prevailing patterns and trends of modern domestic law.
To be sure, a comparative law approach will be subject to practical limitations However, comparative studies, stimulated in part by the Convention, are proceeding apace. Moreover, in time, an international body of case law will develop under this and other articles of the Convention.
In seeking guidance from a consensus or "common core" of domestic law, certain standards of relevance will be appropriate. The Convention is [page 480] designated for international trade; the most relevant rules of domestic law are those that reflect the practices and problems of international trade or, at least, grow out of domestic transactions that are comparable to those of international trade. And, akin to this, is the special value of legal trends that reflect a careful reworking and modernization of traditional and archaic legal concepts.
Professor Tallon (B-B Commentary 595), responding to the above suggestion in the first edition, was concerned lest tribunals, after comparing the different domestic approaches to exemption, would conclude that their own system was the most modern and appropriate for international trade. The warning needs to be taken seriously and should lead to withdrawal of the above suggestion if one could believe that tribunals would not, in any case, consider and be influenced by the legal system with which they are familiar; perhaps attention to the approaches of other legal systems could serve as a mild antidote for inevitable national bias. Admittedly, it would be wrong to give weight to domestic legal rules on points where the words of the Convention (in their full legislative context) speak with sufficient clarity to dislodge the natural predilection for familiar domestic law. However, this writer at §432.1, infra, confesses to despair over the power of words to communicate answers to the questions of degree that are intrinsic to our current problem. In this situation we need all the help we can get!
The next section suggests yet another unconventional approach. Is it equally dangerous?
§ 430 E. Modern Contract Practices as a Guide
Reference has been made to the widespread use of contract provisions in this area and to the special value of standard terms prepared, for specific types of international transactions, through the collaboration of sellers and buyers. A few examples of contract clauses on exemption will provide a basis for considering the value of contract patterns in applying the Convention.
Over the course of the past decades, the United Nations Economic Commission for Europe (ECE) has supervised and finalized the work of representatives of sellers and buyers and of governmental representatives [page 481] in preparing general conditions of sale (standard contracts) for a wide variety of transactions. All of these contracts contain provisions on exemption from liability when performance has been prevented by a supervening impediment.
One of the important ECE General Conditions covers the Supply of Plant and Machinery for Export (No. 188); this version was prepared for transactions among countries with market economies. The contract terms on exemption (or "reliefs") are as follows:
"10.1. The following shall be considered as cases of relief if they intervene after the formation of the Contract and impede its performance: industrial disputes and any other circumstances (e.g., fire mobilization, requisition, embargo, currency restrictions, insurrection, shortage of transport, general shortage of materials and restrictions in the use of power) when such other circumstances are beyond the control of the parties.
"10.2. The party wishing to claim relief by reason of any of the said circumstances shall notify the other party in writing without delay on the intervention and on the cessation thereof.
"10.3 The effects of the said circumstances, so far as they affect the timely performance of their obligations by the parties, are defined in Clauses 7 and 8. Save as provided in paragraphs 7.5., 7.7., and 8.7., if, by reason of any of the said circumstances, the performance of the Contract within a reasonable time becomes impossible, either party shall be entitled to terminate the Contract by notice in writing to the other party without requiring the consent of any Court...."
The above contract includes (§10.1) a list of specific occurrences that might impede performance, and gives special effect to "industrial disputes."
Helpful examples of exemption clauses also are provided in the Kritzer Guide at 520–522 (clauses from 7 national settings) and 566 (model export contract, Art. 6—Excusable Delays) and in the Kritzer Manual Ch. 8.
§432 (a) Use of Contract Patterns in Applying Convention The specific provisions of the above General Conditions of Sales and other standard contract terms do not bind the parties unless they have agreed to them. But contracts drafted jointly by sellers and buyers may be useful (along with modern patterns of contract law) to help solve problems of [page 482] interpreting and applying the general standards of the Convention. A pattern of contracting that is "widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned" may constitute a usage that the parties have "impliedly made applicable to their contract." (See Art. 9, supra at §113.) In addition, contract patterns may be useful to inform a tribunal with respect to the practicability and suitability of competing interpretations of the Convention. Professor Nicholas notes that a crucial element in Article 79(1) is whether the party claiming exemption could "reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract" and that patterns of contracting in similar transactions can bear on the "reasonable expectations" of the parties. Parker Colloq, 5–9. It has not been feasible here to reproduce and analyze a sufficient number of contract terms to provide a basis for suggesting patterns of contract practices for various types of international sales. The above examples, however, may provide suggestive leads for further inquiry by those who face problems in this area. §432.1 F. "Impediment"—How Tough a Barrier? As we have seen (§427, supra), paragraph 1 of Article 79 embodies a decision that exemption from liability for a "failure to perform" should be confined to situations in which an "impediment" prevents performance—production or delivery of goods, transfer of funds to pay the price. Paragraph 1 also emphasizes that grounds for excusing failure to perform are strict. Thus, the party seeking exemption must prove that its failure to perform (1) "was due to an impediment beyond his control" and that the party (2) "could not reasonably be expected to have taken the impediment into account" when the contract was made or (3) "to have avoided or overcome [the impediment] or its consequences". The nub of our problem is this: It is not practicable to enumerate the circumstances that will excuse a failure to perform. Instead, words must [page 483] try to express a dividing point on a continuum between "difficult" and "impossible". Even domestic rules cast in terms of "impossibility" conceal questions of degree. Military blockade and government prohibition provide excuse on the grounds of "impossibility" although it may be possible to run a blockade or evade a law. However, the varying concrete results under diverse formulations of domestic law provide a point of reference. Tallon (B-B Commentary 592) on the basis of careful study, suggests that the Convention stands somewhere between the most strict and the most liberal of the domestic systems. See also Nicholas, Parker Colloq. (5–4 to 5–6: comparison of domestic approaches; 5–9: emphasis on Article 79(1)’s reference to what the party could "reasonably be expected" to take into account in the light of usages and contract practices in the trade concerned). In spite of strenuous efforts of legislators and scholars we face the likelihood that Article 79 may be the Convention’s least successful part of the half-century of work towards international uniformity This prospect calls for careful, detailed contract drafting to provide solutions to fit the commercial situation at hand. (Examples of standard contract provisions were set forth at §431.) Those who are not able to solve the problem by contract must await the process of mutual criticism and adjustment by tribunals and scholars in the various jurisdictions. See the current decisions in the following section.
The specific provisions of the above General Conditions of Sales and other standard contract terms do not bind the parties unless they have agreed to them. But contracts drafted jointly by sellers and buyers may be useful (along with modern patterns of contract law) to help solve problems of [page 482] interpreting and applying the general standards of the Convention. A pattern of contracting that is "widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned" may constitute a usage that the parties have "impliedly made applicable to their contract." (See Art. 9, supra at §113.) In addition, contract patterns may be useful to inform a tribunal with respect to the practicability and suitability of competing interpretations of the Convention. Professor Nicholas notes that a crucial element in Article 79(1) is whether the party claiming exemption could "reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract" and that patterns of contracting in similar transactions can bear on the "reasonable expectations" of the parties. Parker Colloq, 5–9.
It has not been feasible here to reproduce and analyze a sufficient number of contract terms to provide a basis for suggesting patterns of contract practices for various types of international sales. The above examples, however, may provide suggestive leads for further inquiry by those who face problems in this area.
§432.1 F. "Impediment"—How Tough a Barrier?
As we have seen (§427, supra), paragraph 1 of Article 79 embodies a decision that exemption from liability for a "failure to perform" should be confined to situations in which an "impediment" prevents performance—production or delivery of goods, transfer of funds to pay the price. Paragraph 1 also emphasizes that grounds for excusing failure to perform are strict. Thus, the party seeking exemption must prove that its failure to perform (1) "was due to an impediment beyond his control" and that the party (2) "could not reasonably be expected to have taken the impediment into account" when the contract was made or (3) "to have avoided or overcome [the impediment] or its consequences".
The nub of our problem is this: It is not practicable to enumerate the circumstances that will excuse a failure to perform. Instead, words must [page 483] try to express a dividing point on a continuum between "difficult" and "impossible". Even domestic rules cast in terms of "impossibility" conceal questions of degree. Military blockade and government prohibition provide excuse on the grounds of "impossibility" although it may be possible to run a blockade or evade a law. However, the varying concrete results under diverse formulations of domestic law provide a point of reference. Tallon (B-B Commentary 592) on the basis of careful study, suggests that the Convention stands somewhere between the most strict and the most liberal of the domestic systems. See also Nicholas, Parker Colloq. (5–4 to 5–6: comparison of domestic approaches; 5–9: emphasis on Article 79(1)’s reference to what the party could "reasonably be expected" to take into account in the light of usages and contract practices in the trade concerned).
In spite of strenuous efforts of legislators and scholars we face the likelihood that Article 79 may be the Convention’s least successful part of the half-century of work towards international uniformity This prospect calls for careful, detailed contract drafting to provide solutions to fit the commercial situation at hand. (Examples of standard contract provisions were set forth at §431.) Those who are not able to solve the problem by contract must await the process of mutual criticism and adjustment by tribunals and scholars in the various jurisdictions. See the current decisions in the following section.
The Convention, as we have seen, narrowed the grounds for exemption in ULIS 74 by replacing exemption based on "circumstances" with a provision that failure to perform must be "due to an obstacle" (§423.3, supra). In addition to denying exemption for the delivery of defective goods, this change responded to concerns that the reference to "circumstances" could be a basis for excuse merely because performance became more difficult or unprofitable. However, the language of Article 79(1) seems to leave room for exemptions based on economic dislocations that provide an "impediment" to performance comparable to non-economic barriers that excuse failure of performance.
Assume that the supply of a material needed for performance of a contract unexpectedly becomes so reduced in quantity and inflated in price [page 484] that only a minority of producers that need this material can continue in production. This situation clearly constitutes an "impediment" barring performance by most producers whose contracts overlap the onset of the shortage; requiring production by only one (or a minority) unfairly prejudices some in favor of their competitors. Comparable unfairness can result if extreme and unexpected currency dislocations make it impossible for sellers to continue to produce or for buyers to purchase at the monetary values stated in those contracts that overlap the dislocation.
Extreme price and (especially) currency dislocations may be sufficiently widespread to lead to laws or administrative regulations that require contract readjustment. The Convention (Art. 4(a)) does not interfere with such domestic rules on validity.
In sum, the application of Article 79 to unanticipated economic difficulties should be consistent with the general principles applicable to this provision: (1) Exemption is confined to barriers to performance (e.g., delivery or payment); (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.
Decisions: (1) ARB. ICC (Paris), 7197/1992 (1992). S (Austria) and B (Bulgaria) agreed that B’s payment, for goods to be provided by S, would be based on a documentary credit to be opened by B before a specified date. B failed to open the credit within the specified period or an additional period granted by S. S sued for performance and damages. B claimed exemption (Art.79) on the ground that the Bulgarian government had ordered suspension of foreign debts. The tribunal rejected B’s claim for exemption; the suspension of credits had occurred before the making of the contract. Moreover, B could have foreseen the difficulties resulting from the government’s action. UNILEX D.1992-2.
(2) GER. ARB: Handelskammer 21 March 1996. B contracted with S (Hong Kong) for delivery by S of goods to be produced in P.R.China. S failed to deliver the goods, and claimed exemption under Art.79 based on difficulties of S’s supplier in China. B was awarded damages; the [page 485] difficulties of S’s supplier (Art.79(2)) did not exempt S. CLOUT 166, UNILEX D.1992-2. [NOTE: The Chinese approach to force majeure and related questions is examined in Tanner, 16 ULC (Pitt.) 155 at 165–168 (1996)].
(3) RUSS. FED., ARB: Int. Com., Ch.of Comm. 123/1992, 17 October 1995. S (German) and B (Russian) contracted for S to deliver equipment to B. S delivered the equipment but B did not pay, claiming exemption based on the failure of B’s bank to give instructions for payment. Held: B was not exempt since B had failed to take necessary measures to assure payment. CLOUT 142, UNILEX D. 1995–28.1.
Comments: Nicholas, B., Impractibility and Impossibility, Parker Colloq., 1984, Ch. 5, 1–23; Silva Ruiz, P., CISG: Exemption, Cranston, R. & Goode, R. eds., Commercial and Consumer Law (Oxford, 1993) 54–59; Declerq, P.J.M., 15 JLC 213–255 (1995); Hudson A.H., McKendrick, ed., Force Majeure, London (Lloyds) 1991, 175–195; Diamond A., id. l65–174; Schlechtriem, Com. (1998) 601–626 (Stoll).
§ 433 G. Performance Delegated to Third Party
Paragraph (2) addresses cases where a party delegates performance to a third party who fails to perform.
Example 79A. Seller contracted to sell Buyer a machine to be built in accordance with specifications supplied by Buyer. Seller contracted with Electron to manufacture the machine. Electron had a good reputation for efficiency and responsibility but, in this case, mismanaged production so that it was unable to deliver the machine. At the time of Electron’s default, Seller could not obtain the machine from another supplier and was unable to deliver the machine to Buyer.
Under the general rule in paragraph (1), Seller might be able to contend that Electron’s failure constituted an "impediment beyond [Seller’s] control," and that Seller would therefore be exempt from liability to Buyer. Paragraph (2) restricts exemption in situations like this in which a party (e.g. Seller) has engaged a third person (Electron) "to perform the whole or a part of the contract". The crucial question is posed by paragraph (2)(b): Would the third person (Electron) be exempt from liability to Seller under the rules of paragraph (1)? Here the answer is No. Consequently, Seller cannot be exempt from liability to Buyer. The net effect is that if Seller’s default forces it to pay damages to Buyer, Seller must [page 486]look to Electron for reimbursement. (Under modern procedural systems, if Buyer sues Seller, Seller would bring in Electron as a third-party defendant.)
On the other hand, assume that Seller’s contract with Electron called for Electron to produce the machine at a specified manufacturing plant, and that, before the date for delivery to Buyer, Electron’s plant was destroyed by flood or some other impediment that met the standards of Paragraph (1). Since Electron would be exempt from liability to Seller the barrier to exemption in Paragraph (2)(a) would not apply; Seller could be exempt from liability to Buyer under paragraph (1).
Problems comparable to those posed by Example 79A could also arise if the seller is obliged to deliver the goods to the buyer (as under a quotation ex ship Buyer’s port) and thus is responsible for transit damage to the goods. If the goods are damaged in transit because of ordinary circumstances (water seepage, improper stowage, or the like), the seller would not only be responsible for the physical damage but also could be liable to the buyer for damages such as production interruption (Art. 74, §§403-408, supra). On the other hand, if the goods were lost or seriously damaged as a result of a hurricane, embargo or similar impediment, the seller would bear the loss from physical damage (subject to insurance) but could be exempt from liability for damages to the buyer that resulted from (e.g.) interruption of production.
In Example 79A, supra, Seller engaged Electron to manufacture a machine to specifications supplied by Buyer. This case clearly fell within paragraph 2 of Article 79, which applies when a party (P) engages a third person (T) "to perform the whole or a part" of P’s contract of sale. The scope of paragraph 2 becomes clearer in the light of its legislative history.
The provision on exemption in ULIS (Art. 74) had no such provision. However, the UNCITRAL Working Group’s 1975 draft (para. 2) was substantially the same as CISG 79(2) except for language that described the third person as a "subcontractor". The report of UNCITRAL’s 1977 [page 487] review in the Committee of the Whole of this language includes the following: "The Committee decided to delete the word "subcontractor". The term was said to be unknown in some legal systems and in others to refer primarily to relationships in the context of construction contracts. In place of this term the Committee decided to substitute "a person whom [e.g.] [the seller] has engaged to perform the whole or a part of the contract"." The report continued, "It was noted that it would be clear that a seller would not be exempt from liability...because of the failure of one of his suppliers to perform since a supplier of the seller could not be considered to be a person the seller had engaged to perform any portion of the seller’s contract". At the Diplomatic Conference proposals to include exemption based on defaults by a supplier were not accepted and the UNCITRAL draft was adopted. O.R. 378–381, 408–412, Docy. Hist. 599–602, 629–633. For a summary of the conflicting views see Schlechtriem, 1986 Commentary 103–104.
This legislative history indicates that narrow scope should be given to the phrase "a third person whom [a party] has engaged to perform the whole or part of the contract." In Tallon’s words there must be an "organic link" between the main contract and the subcontract. Paragraph (2) would apply, as in Example 79A, §433 supra, if P turns over to a third party (T) the performance of P’s duty to manufacture goods to buyer’s (B’s) specifications. The paragraph would also seem to apply if P delegates to T P’s duty to procure goods and deliver them to a buyer (B). In both cases P will be exempt from damages for failure to perform the contract only if T was prevented by an impediment that constitutes an excuse under Article 79(1). In short, if under the standard set in Article 79(1) T [page 488] is liable in damages to P, P should not be excused from liability to B. (Since T contracted only with P and P contracted only with B it would often be difficult or impossible for B to obtain redress directly from T.)
The exclusion of general suppliers from the specialized rule of paragraph (2) does not mean that defaults by a supplier (T) will never lead to exemption for P. Assume that a government embargo prevents suppliers from obtaining or selling materials that P requires to perform P’s contract with B; the embargo could constitute an "impediment" under Article 79(1) exempting P from liability to B. However, such occurrences are rare; less rare are the situations that fall within Article 79(2) in which P engages a third party (T) "to perform the whole or a part" of P’s contract with B. Finally, as we have seen (supra at §427) Article 79 does not exempt a seller from liability to the buyer for defects in goods; the seller is responsible although the defective goods came from a general supplier or a party to whom the seller has delegated its duty to deliver the goods.
Decisions: (1) ARB. ICC (Paris), 8128/1995 (1995). B (Swiss) contracted with S (Austrian) for delivery to B of chemical fertilizer. S failed to deliver, claiming exemption under under Art. 79(2): S’s supplier had failed to deliver to S. S’s defense was rejected; the narrow grounds of exemption for "failure of a third person" of Art. 79(2) were not satisfied. UNILEX D.1995–34.
(2) RUSS. FED.: ARB, Int. Comm. Arb., Ch. of Comm., 155/1994, 16 March 1995. S (Russian) contracted to supply B (German) with chemical products within a specified period. S failed to deliver, B purchased the material at a higher price and sued S for damages. S claimed exemption under Art. 79(2): The plant manufacturing the material for S had an emergency production stoppage. S’s defense was rejected: S should have been able to take "the impediment into account" or to have overcome its consequences. CLOUT 140, UNILEX D.1995–10.0.1. Cf: RUSS. FED., ARB., Int. Comm. Arb., Ch. of Comm., 200/1994, 25 April 1995. B (Russ.) claimed exemption from accepting and paying for goods because of changes in country’s economic conditions; this defense was not accepted. CLOUT 141, UNILEX D.1995–13.1.
(3) ARB. Hamburg Handelskammer, 21 March 1996. B (German) ordered goods from S (Hong Kong) that were produced in P.R.China. S was unable to deliver, and claimed exemption because S’s Chinese supplier was undergoing personal and financial difficulties. S’s defense was rejected: Financial problems of a seller’s supplier, even when connected [page 489] with public authority in the supplier’s country, were deemed generally within the seller’s responsibility. CLOUT 166, UNILEX D. 1996-3.4.
§435 H. Temporary and Partial Impediments
Paragraph (3) of Article 79 addresses the following situation:
Example 79B. Seller contracted to deliver goods to Buyer on June 1. Before the time for delivery a government embargo (or some comparable impediment) prevented Seller from complying with the contract. On June 30 the embargo (or other impediment) was removed and it was then possible for Seller to deliver the goods to Buyer.
Paragraph (3) leads to the following consequences: (a) Seller is relieved of liability for delay in performing during June; (b) Seller is obliged to deliver to Buyer when the impediment is removed.
The more interesting question is this: Must Buyer accept Seller’s delivery on July 1? Answering this question calls for close attention to paragraph (5): "Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention." In short, Buyer’s right to avoid the contract is not affected by Article 79. If the month’s delay in delivery constituted a "fundamental breach" (Art. 25), Buyer may avoid the contract (Art. 49). If Buyer duly notified Seller of avoidance Seller would have no right to deliver but would not be liable for damages; Buyer would have no obligation to accept the goods. Of course, as we have seen, not every delay (or other non-conformity) in performance justifies avoidance of the contract (Arts. 25, 49, 64). If the Convention provided that any delay or other deviation justified avoidance, there might be strong reasons for relaxing such a strict rule when a slight delay is caused by an impediment. But in the context of the Convention’s limited right of avoidance, there is no justification for a rule that a party awaiting performance is both (a) deprived of compensation for delay and (b) required to accept the late performance.
The 1978 Draft provided in paragraph (3) that the exemption "has effect only for the period during which the impediment exists." At the diplomatic conference it was proposed to add to paragraph (3) a provision that "the party who fails to perform" (i.e., Seller, in Example 79B) is "permanently exempted" if during the period of temporary exemption [page 490] the circumstances have "so radically changed that it would be manifestly unreasonable to hold him liable." This proposal was rejected but, as an alternative, the word "only" in paragraph (3) was deleted; this change was designed to avoid any impression that paragraph (3) laid down a rigid rule requiring contract relations to resume on the original basis no matter how long the interruption or how great the changes in circumstances.
Example 79C. A contract called for Seller to manufacture for Buyer 1000 units of an alloy that required specified amounts of scarce metal X. Thereafter, government regulations unexpectedly restricted and rationed the use of X; under these regulations Seller could obtain only enough X to manufacture 600 units of the alloy. Seller immediately notified Buyer that Seller would be unable to deliver 400 units. These questions arise: (1) Does Article 79 exempt Seller from damages for failure to deliver the 400 units? (2) What options are open to Buyer?
(a) Exemption for Seller
As Tallon notes, Article 79(3) deals with an impediment for a limited time but makes no provision as to an impediment affecting part of the contract. B-B Commentary 588, §2.9. Nevertheless, Seller is entitled to exemption as to the 400 units. Unlike some legal systems, Article 79 does not speak of nullity of "the contract" but instead provides 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), §316 supra, reflects a policy that is consistent with this result: "(1) If the seller delivers only a part of the goods...articles 46–50 [provisions on remedies for breach] apply in respect of the part that is missing...". There is no reason to suppose that this policy was rejected for Article 79.
(b) Options Available to Buyer
Analyzing Buyer’s options gives us an opportunity further to explore the applicability of various remedial provisions of the Convention; some of these apply directly and others (like Article 51(1), supra) may be helpful as analogies.[page 491]
Since Article 79 exempted Seller from only part of its obligations, under Article 46(1) (§§279-286 cf. Art. 28, §194, supra) Buyer may "require performance by the seller" with respect to the 600 units or, if Seller fails to deliver, may avoid the contract pursuant to Article 64(1)(a) or (b) and may also recover damages for Buyer’s wrongful failure to deliver the 600 units. See Arts. 74, 75 or 76, §§353-354, 409-415, 402-406, supra).
Although Buyer may insist on delivery of the 600 units, under some circumstances Buyer may have the option to avoid the contract and refuse to accept any of the units. The Seller, of course, is not liable for damages for failure to deliver the 400 units but exemption from damages does not impair Buyer’s right to avoid the contract (Art. 79(5)). Under Article 49(1)(a) Buyer may declare the contract avoided if the seller’s failure to perform "any of his obligations....amounts to a fundamental breach" as defined in Article 25. If (surprisingly) Seller should refuse to deliver the 600 units Seller has produced, Seller’s repudiation (Art. 72) would unquestionably justify avoidance.
What circumstances would permit Buyer to refuse the 600 units because of the failure to receive the remaining 400? Suppose that Buyer could use or resell the alloy only in 1000-unit quantities. In these circumstances Seller’s delivery of "only a part of the goods" (Art. 51(1), quoted supra, could cause such serious detriment (Art. 25) that Buyer, under Article 51(2) (§317, supra) could declare "the contract avoided in its entirety". Giving legal effect to the linkage between the 600 and the 400 units is also reinforced by Article 73(3) on deliveries by installments (§402, supra): failure with respect to a part authorizes avoidance "in respect of deliveries already made or of future deliveries if, by reason of their interdependence" these other deliveries could not be used for their intended purpose.
In sum, the Convention provides ample resources for solving problems posed when only part of performance is prevented by an Article 79 impediment.[page 492]
§435.3 I. Remedies other than Damages
Paragraph (5) states: "Nothing in this article prevents either party from exercising any remedy other than to claim damages under this Convention". This provision is important: a party who may not recover damages for failure of performance may still avoid the contract (Art. 79(5), §§423.4, 435.5, supra) and has the rights granted in Section V, infra at §437 on "Effects of Avoidance".
Consider these cases: (1) A seller delivers goods to buyer but exchange restrictions prevent the buyer from paying. (2) A buyer pays in advance for goods but export controls prevent the seller from delivering goods. In each case the party who is prevented from performing may be exempt from liability for damages. However, the party who has performed without receiving the agreed return is entitled to redress. This is provided by the right of avoidance which carries with it (Art. 81(2)) the right to "restitution" of whatever the party "has supplied or paid under the contract" (§444, infra).
The discussion of paragraph (3) of Article 79 (temporary impediments, §435.5, supra) shows the importance of avoidance to resolve the question whether performance may be resumed after a "temporary" impediment. Indeed, interruptions of performance that turn out to be permanent at their onset may appear to be temporary. How long must the other party wait before making alternative arrangements by resale or repurchase? The right of avoidance preserved by Article 79(5) provides a means of resolving this problem. Indeed, without the right of avoidance "temporary" impediments would be unmanageable.
The statement in paragraph (5) that nothing in Article 79 affects "any right other than to claim damages" could be read to say that a party who [page 493] is entitled to exemption from damages could nevertheless be "required to perform" (Arts. 28, 46, 62, (Art. 28) §§191-199, 279-285, 345-349, supra). This conclusion would be inconsistent with the basic provision that a party "is not liable" when performance is barred by an impediment. In many cases an action to "require" performance would call for an impossibility and in other cases the sanctions to compel performance (e.g. money penalties such as astreinte) could be at least as onerous as damages. There is no indication that the legislators intended such an absurd result. It seems probable that queries about the overbreadth of paragraph (5) were dismissed on the ground that an absurd construction did not justify the complications of producing a revised text. The legislative background is relegated to a footnote. In short, the broad language of paragraph (5) was retained because of the possibility that remedies other than damages might be needed in special circumstances, such as the ending [page 494] of a temporary impediment or failure to pay the price for goods received when the agreed mode of payment was blocked temporarily (e.g.) by exchange controls. In any event, specific performance in situations excused by Article 79 would be inconsistent with domestic law in many jurisdictions. (This view is not confined to the common law. See note 26, supra.) Consequently, under Article 28 (§§194-199, supra) these jurisdictions would be free to follow their own rules on specific performance.[page 495]
FOOTNOTES: Chapter on Article 79
1. On commercial losses and insurance see: R. Keeton & A. Widiss, Insurance Law (1988); R. Holtom, Underwriting, Principles and Practices (3d ed. 1987).
2. The scope of damages is limited by the "foreseeability" rule of Article 74, §406, supra, and often is restricted by contract.
3. Art. 79 is substantially the same as Art. 65 of the 1978 Draft except that, in paragraph (3), the word "only" that had followed "effect" was deleted. See §435, infra. Cf. ULIS 74, discussed infra at §427.
4. UNCITRAL, Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works, Ch XXI (U.N. 1988).
5. The pioneering work of the ECE is described in Benjamin. The ECE General Conditions of Sale and Standard Forms of Contract,  J. Bus. L. 113; II Unidroit Yearbook: 1956 251, 258–67. On the adaptations of the E.C.E. General Conditions to impediments in different contractual settings, see Force Majeure (I.A.L.S.) 249–250 (P. I. Benjamin), 305–306 (L. Kopelmanas).
6. Nicholas, Force Majeure and Frustration, in 27 Am. J. Comp. L. 231 (1979) (AJCL UNCITRAL Symposium). Other comparative studies: Zweigert & Kötz II (1987) 179–183; Treitel Remedies (1988) 24–42; Nicholas, French Law of Contract (1982) 193–204; Hellner, the Influence of the German Doctrine of Impossibility on Swedish Sales Law in Rheinstein Festschrift, 705: Force Majeure (I.A.L.S.).
7. UCC 2–614 requires the disappointed party to accept the substituted performance, and thus is more akin to rules that bar rejection (or "avoidance") for insubstantial breach. See Arts. 49 and 64, supra at §301 and §353.
For criticism of English rules on frustration, and a recommendation for reform based on the UCC, see Ont. Law Ref. Com., 11 Sales 365–385.
8. See Nicholas AJCL UNCITRAL Symposium, 237 et seq. The development of the exemption provision (Art. 74) at the 1964 Hague Conference is discussed in Riese, 29 RablesZ. 79–81 (1965). See also W. Lee, 8 Dickinson J. Int. L. 375 (1990).
9. I Records 1964 Conf. 357 at 384; Dölle Kommentar Art. 74(1) p. 456 at 101 (Stoll): Exemption even for defect in goods existing when the contract is made; regretted deviation from Rabel’s broad view of contractual liability and unclear scope of provision.
10. The basic change narrowing the area of exemption provided by ULIS 74 was taken in UNCITRAL: The Working Group: (1974) V YB 39–40, 58, Docy. Hist. 185–186 204; (1975) VI YB 60–61, Docy. Hist. 251–252; The Commission: VIII YB 56–57, Docy. Hist. 349–350; Diplomatic Conference: O.R. 80, 55–56, 378–386, 408–412, 430, 134–136, 227, Docy. Hist. 401, 445–446, 599–607, 629–633, 651, 705–708, 762 (adoption by Plenary 42–0). An authoritative analysis of the decision to deny exemption with respect to defects in goods by Professor Nicholas, chairman of the Drafting Party on exemption, appears in Parker Colloq. Ch. 5 at §5.02[21, pp. 5–10—5–14. Accord: Tallon, B-B Commentary at 580, Honnold’s explanation at the Vienna Conference, O.R. 410–411, Docy. Hist. 631–632. But cf. Schlechtriem 1986 Commentary 101 n. 416a.
11. See Art. 45, supra at §276: Treitel Remedies (Int. Enc.) §§78–79: Treitel Remedies (1988) Ch. II.
12. Examples of a developing international outlook for international cases are cited under Art. 7, supra at §92. And, as was there noted, measures are under way to disseminate the case law and scholarly writing that develop under the Convention. This material would have relatively little value if (in violation of Art. 7(2)) tribunals were to resolve ambiguities in the Convention by referring to their own domestic law or to some other legal system indicated by the rules of private international law.
13. General Conditions For the Supply of (ECE) Plant and Machinery No. 188 (1953) (U.N Pub. ME 188 bix 58) is reprinted in Sources at 90–97. General Condition (ECE) No. 188A: Supply and Erection of Plant and Machinery for Import and Export (1957)(U.N. Pub. 1957, II.E Mim3) is reprinted in Sources at 98–108. An approach similar to that of ECE No. 188 is followed in General Conditions for the Supply of Machinery and other Mechanical and Electrical Appliances within and between Denmark, Finland, Norway and Sweden §32.(This set of general conditions is reprinted in Sources at 212, 215, 216.)
14. See Berman, Excuse for Nonperformance in the Light of Contract Practices in International Trade, 63 Colum. I. Rev. 1413 (1963) and the proceedings of the I.A.L.S. (1960) Helsinki colloquium, Force Majeure (I.A.L.S.) 24–29 (Affolter), 37–41 (Berman), 68–81 (Dölle); 145–155 (Schmitthoff). The above approach is supported by the view, which this writer shares, that where the terms of the contract give no guidance, the court should consider what the parties would have provided if they had addressed the question. See Smit, 58 Colum. L. Rev. 287, 313 (1958), cf. Restatement. Second of Contracts. Intro. to Ch. 11.
15. See V YB 38, Docy. Hist. 185 (para. 108).
16. Schlechtriem makes this significant observation: "It is imperative....to treat radically changed circumstances as "impediments" under Article 79 in exceptional cases in order to avoid the danger that courts will find a gap in the Convention and invoke domestic laws with their widely divergent solutions". 1986 Commentary 102 n. 422a. Domestic rules may not modify CISG provisions dealing with the same problem merely by calling them rules of "validity". See §§234, 240, supra. CISG 4(a) should apply only to rules of "validity" in the sense that agreement is barred no matter how clearly it is stated. See §234, supra.
17. Relief of a seller from liability for consequential damages when a ship was interned was illustrated in the setting of Art. 50, supra at §310. cf. Restatement, Second of Contracts §261, comment e.
18. Paragraph (2) of the text approved in 1975 by the Working group (VI YB 60 61, Docy. Hist. 251–252) provided: "2. Where the non-performance of the seller is due to nonperformance by a subcontractor, the seller shall be exempt from liability only if he is exempt under the provisions of the preceding paragraph and if the subcontractor would be so exempt if the provisions of that paragraph were applied to him."
This language, based on a draft developed at the 1974 session. V YB 39–40, Docy. Hist. 185–186, responded to views that ULIS 74 provided an area of exemption that was too broad. See id. at para. 108.
19. VIII YB 56, Docy. Hist. 349 (paras. 448–449). The language resulting from UNCITRAL’s 1977 review became Article 65(2) of the 1978 UNCITRAL draft and in substance was approved as Article 79(2) of the Convention. The Secretariat Commentary on Article 65(2) of the 1978 Draft stated: "The third person must be someone who has engaged to perform the whole or part of the contract. It does not include suppliers of the goods or of raw materials to the seller". O.R. 56, Docy. Hist. 446 (para. 12).
20. B-B Commentary 585. Tallon also suggests that T "should know that his action is a means of performing the main contract" and "must relate only" to the performance of the main contract. But cf. Nicholas, Parker Colloq. 5–22 to 23; Schlechtriem, 1986 Commentary 104.
21. Tallon, B-B Commentary 584–585.
22. For a similar handling of delay see (U.S.A.) UCC 2–615(1)(a) quoted supra at §425.
23. See Com. I Art. 65, para. (3)(i) Norway, O.R. 134, Docy. Hist. 706; SK. 27 paras. 52–53, O.R. 381, Docy. Hist. 602. It may be hoped that this added flexibility will be useful in some of the situations posed by Nicholas in AJCL UNCITRAL Symposium 231 at 242–244.
24. The second basis for avoidance based on a Nachfrist notice (Arts. 47(1) and 49 (1)(b), §305 supra should not be available for non-delivery of the 400 units subject to exemption. This remedy depends on a notice under Article 47(1) fixing an additional period "of reasonable length for performance"; it would be inconsistent with the language and spirit of this provision for the buyer to fix a deadline for performance when the performance demanded is exempt under Article 79.
25. Tallon, B-B Commentary at 589–590, §2.10.2, must have been referring to an unusual situation in which delayed performance was impossible and restitutionary problems were absent in referring to avoidance as "useless". Indeed, the view that in some Article 79 situations the contract would "disappear" (an echo of ULIS ipso fact avoidance discarded in CISG (Art. 26, §187.1, supra) is not helpful to parties who need to know what to do following an impediment.
26. Accord; Tallon, B-B Commentary 590, §2.10.2; Schlechtriem, 1986 Commentary 103: A general belief at the Diplomatic Conference that a judgment for specific performance would neither be sought nor obtained. In any event a German court would deny relief under Article 28. In French procedure the penalty payments to coerce performance (astreint) go to the plaintiff—a result that in substance resembles damages which are barred by Art. 79(5). See Zweigert & Kötz II (1987) 165.
27. ULIS 74(3) stated that exemption "shall not exclude the avoidance of the contract" or the right of the other party "to reduce the price". This latter alternative reflects the understanding that under ULIS 74(1) lack of fault could exempt the seller from damages for defects in the goods, but did not entitle the seller to recover the full price.
The UNCITRAL Working Party draft provided that an exempt party "shall not be liable in damages" but included no provision like ULIS 74(3) or CISG 79(5). V YB 39–40, Docy. Hist. 185–86; VI YB 60–61, Docy. Hist. 251–52. The language that became CISG 79(5) was prepared during UNCITRAL’s 1977 review (in a Committee of the Whole) of the Working Group Draft. There was "general agreement that" [under this provision the party expecting performance] "should have the right to avoid the contract if the failure to perform amounted to a fundamental breach" and that "he should have the right to reduce the price in appropriate circumstances". (This right would be appropriate if the seller, after an excused delay, delivered defective goods.) In response to an objection that paragraph (5) might authorize specific performance and that "the law should not purport to give the expecting party a right which he could not exercise" it was noted that "a temporary impediment would cease and at such time a right to specific performance should not be precluded" VIII YB 56–57, Docy. Hist. 349–350 at para. 455a.
A similar discussion occurred at the Diplomatic Conference. O.R. 383–385, Docy. Hist. 604–606. Proposals to exclude specific performance (O.R. 134–135, Docy. Hist. 706–707) were rejected in response to concerns that the proposed language might bar remedies to require payment for goods received (USSR, para. 23) or to require performance after the termination of a temporary impediment (Sweden, para. 25). Analysis of these comments show that they do not support coerced performance of the acts for which exemption is provided by Article 79(1).