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Reproduced from 25 International Review of Law and Economics (September 2005) 434-445.
Copyright 2005, with permission from Elsevier

Impediments and Hardship in International Sales:
A Commentary on Catherine Kessedjian's
"Competing Approaches to Force Majeure and Hardship

Joseph Lookofsky [*]
University of Copenhagen, Faculty of Law

  1. Introduction
  2. Impediments to performance under Article 79: Theory and case law
  3. Hardship under Unidroit and European Principles and domestic analogues
  4. Preëmption of - or competition between - rule-sets?
  5. Concluding remarks

1. Introduction

Professor Kessedjian finds it "quite ironic" that the organizers of the CISG Conference held in 2004 at La Pietra asked her to write about force majeure and hardship, because she herself chose this exact topic many years ago for a paper she wrote as a student at the University of Paris.[1]

I certainly understand her sentiments. Indeed, my invitation to serve as a Commentator for this session of the La Pietra conference compounds that irony, since I myself wrote about force majeure as a student at the University of Copenhagen. That was back in 1980, the same year the CISG was done in Vienna.[2] [page 434]

My student paper was published,[3] and I can still live with it, since I think my basic approach to CISG Article 79 (and domestic analogues) remains more or less the same.[4] But as Professor Kessedjian rightly reminds us, we have witnessed significant developments on other/related force majeure fronts. So, with Professor Kessedjian's thought-provoking paper as my starting point, I will expand upon some of the issues and sub-issues which I find most interesting within this larger commercial and comparative context.

This conference provides a much-welcome opportunity to exchange American and European views. Having spent 30 years (studying and teaching law) in Copenhagen, I cannot deny "where I am coming from," i.e. my predominantly Scandinavian and even European perspective (Denmark's infamous EU-reservations notwithstanding).[5] Then again, the fact that I -- as a much younger man -- studied economics in Pennsylvania and law in New York also colors my approach to the subject at hand.

In the following, I will supplement some items in Professor Kessedjian's Inventory [6] with CISG recent case law, emphasizing what courts and arbitrators have said about impediments to performance under Article 79.[7] I will also comment upon the more fluid hardship concept, both under the Unidroit and European Principles,[8] as well as under selected domestic laws.[9] I will then re-approach these issues from a different angle, asking whether CISG Article 79 might be understood to preëmpt rules of hardship, or (alternatively) whether hardship rules might be allowed to compete with (and thus supplement) the exemptions provision in Article 79.

2. Impediments to performance under Article 79: theory and case law

Back in 1980, when some were predicting that Civilian jurists might read "fault" into Article 79,[10] I argued that Scandinavians (and others) would view the CISG as an essentially "strict" liability system, since the CISG obligee's right to claim damages is conditioned only on the obligor's non-performance, not his or her fault.[11] To be sure, a safety valve was built into the system (so an extraordinary overload would not cause it to burst), but that fact does not alter the main CISG design. Put another way, Article 79 -- like its Scandinavian and [page 435] American analogues -- represents the exception/exemption which proves the (strict liability) rule.[12]

I think these propositions are confirmed by the decisions reported since the Convention took effect (in 1988), which consistently deny exemptions to non-performing obligors, regardless of the nature of their particular "excuse."[13] As the Federal Supreme Court of Germany (Bundesgerichtshof) put it in the Vine Wax case (1999):[14] "The possibility of an exemption under CISG Art. 79 does not change the allocation of the contractual risk."[15]

In this important respect, the Vine Wax holding accords with Professor Kessedjian's observation that "the force majeure provision of the CISG is yet another way to allocate the risks inherent in an international commercial transaction."[16] Of course, the parties who enter a CISG contract remain free to re-allocate the risk of non-performance.[17] They might, as Professor Kessedjian tells us, opt for the ICC model,[18] or -- to mention a similar example -- the Nordic standard terms (NL),[19] though in my experience such standardized Convention "derogations" are most likely to occur when the seller is the party who holds the best cards.[20]

As regards the risk-allocation which applies by default, Professor Kessedjian addresses the issue of whether a CISG seller who delivers non-conforming goods might be entitled to an exemption. Since Professor Kessedjian's focus in this connection is on the "control"-factor (i.e. on one Article 79 factor out of a possible 2, 3, or 4),[21] I assume she would concur with the view prevailing in Civilian and Scandinavian jurisdictions, that the CISG-drafters' decision to replace the term "circumstances" with "impediments" did not [page 436] eliminate the possibility that an Article 79 exemption might be granted in a non-conformity case.[22]

For similar reasons, I think my American colleagues should resist the understandable temptation to describe a CISG seller's implied obligation to deliver conforming goods as a "warranty" (as under the UCC).[23] In our present context, I would also suggest that the Vine Wax holding might give Professor Kessedjian cause to soften her assertion that "a producer whose products contain a defect ... could never claim force majeure [under Article 79] as in no circumstance could a defect in the production process ... be considered as beyond the control of the producer."[24] For though I agree that impediments related to a seller's (internal) business operations (poor quality control, etc.) can never be beyond that party's control [25] -- a fact which makes it hard to conceive of cases where a seller who delivers non-conforming goods might qualify for an exemption -- "that does not mean that the possibility of such cases is excluded." [26]

I am, by the way, not suggesting that Professor Kessedjian or our American colleagues are bound by the Vine Wax holding. But I would suggest that a French or American court, if asked to grant an exemption for that kind of impediment, would be bound to have "regard" for the Vine Wax judgment,[27] i.e. obligated (at least) to take that piece of CISG case law into account.[28] Then, if the French or American court found the reasoning (ratio) of the German precedent to be persuasive, that court might well decide to follow it, and indeed, we already have some CISG precedents which provide nice illustrations of that particular point.[29] [page 437]

A different force majeure sub-set involves relief-claims related to changing market conditions, e.g. by sellers faced with radically increased costs, and this issue has also surfaced in cases decided under Article 79.[30] Although increased cost might "impede" performance from the seller's point of view, a party's inability to make a profit on a particular sales transaction does not trigger a liability exemption, inter alia, because price increases -- even dramatic ones -- are generally foreseeable.[31] Put another (perhaps less slippery)[32] way, sellers who sell long-term are in the (often profitable) "business" of assuming such risks, and buyers who buy to "insure" against them expect and should get value for their money.[33] At some point, we might reach the CISG obligors' "sacrifice threshold,"[34] but if an exemption for "economic force majeure" is ever granted, it will probably be viewed as yet another (very narrow) exception which proves the strict liability rule.[35]

As regards the relationship between economic force majeure and hardship, Professor Kessedjian argues that Article 79 alone does not provide the solution for a hardship occurrence,[36] but that the mechanism provided in Article 7(2) might be applied to help solve that problem.[37] Since I have previously argued that Article 79 would not likely provide a solution to a (buyer's) hardship occurrence,[38] it is understandable that Professor [page 438] Kessedjian cites me as an authority in "accord" with her position on this issue.[39] But since we have no clear-cut definition of "economic force majeure" under Article 79, let alone the more fluid concept of hardship under the Unidroit and European Principles (and related national rules),[40] I doubt that all arbiters would draw the "line" (if any) between economic force majeure and hardship in the same place.[41] So, just as I suppose that some arbiters might read Article 79 (alone) as "covering" a hardship occurrence, while others might look to Article 7(2), still others might find it necessary to look to hardship law outside the Sales Convention, especially since (for that latter group of arbiters) Article 79 hardly would be read as "preëmpting" the application of a "competing" hardship rule which might otherwise apply.[42]

3. Hardship under Unidroit & European Principles and domestic analogues

Professor Kessedjian provides us with an excellent overview of the hardship provisions in the Unidroit and European Principles,[43] and I would supplement that presentation on only a few specific points. The first of these relates to the Unidroit Principles which -- at this point in time -- have far greater commercial relevance than the European Principles.[44]

As noted by Professor Kessedjian, a new and extended version of the Unidroit Principles (first published in 1994) was published in 2004.[45] She also notes that the Unidroit (force majeure and) hardship provisions remain unchanged in the new edition.[46] In this latter respect, Professor Kessedjian is referring to the "black letter" Unidroit rules -- including the (still) very elastic Definition of Hardship in Article 6.2.2 -- but I would emphasize the fact that the comments and factual illustrations provided by Unidroit are "intended to explain the reasons for the black letter [hardship] rule and the ways in which it might operate in [page 439] practice."[47] Indeed, in order to pin down the true meaning of a rule like the one in Article 6.2.2, "one needs to read the black letter text, the comments and the illustrations together." [48]

Suppose, for example, that in 1994 we had asked whether a given cost increase (or value decrease) "fundamentally alters the equilibrium" of a given contract, and that we re-asked the same concrete question in 2004.[49] The answer, it might surprise us to learn, has been "blowin' in the wind." According to the Official Comments to the 1994 edition of the Principles, an "alteration amounting to 50% or more of the cost or the value of the performance is likely to amount to a fundamental alteration."[50] However, according to the corresponding 2004 edition: "Whether an alteration is 'fundamental' in a given case will of course [!] depend on the circumstances."[51]

I would (of course) not criticize Unidroit's right to "substantially revise" its original hardship definition.[52] On the contrary, I think Unidroit did well to "restate" its original Restatement on this point, not least since what constitutes a "fundamental" alteration depends -- and probably always has depended -- on the "circumstances" of the case.[53]

At this juncture, some might wonder whether we have anything in Scandinavia which "resembles" the Unidroit hardship rule. Would (e.g.) a judge in Denmark or Sweden, applying Danish or Swedish law, be able to grant the kind of relief set forth in Article 6.2.3? Do the Unidroit hardship provisions -- which serve, inter alia, to "restate" the Dutch and the Italian and positions [54] -- also restate currently applicable Scandinavian law?

Although we do not recognize a rule of "hardship" as such,[55] we do have the more generally formulated rule in 36 of the (Uniform Scandinavian) Contracts Act.[56] The black letter of this (very) General Clause expressly authorizes a court to deny enforcement [page 440] of -- or amend -- any unreasonable contract or term, and that includes a term which becomes unreasonable after the contract is made.[57]

Since this provision clearly covers much more than just procedural unconscionability, it allows courts to confront the false idol of (complete) contractual freedom "head on."[58] It should, however, also be emphasized that Scandinavian courts -- paying due heed to their legislators' risk-allocation message (travaux préparatoires) -- have exercised this overt kind of "contract censorship" very sparingly in contracts between merchants and (as far as I know) only once between merchants in a "hardship" situation.[59] For these reasons, I have suggested previously that the Unidroit version of the hardship rule -- at least as defined and illustrated in the 1994 version of the Principles -- might be seen to pose a greater threat to commercial contract freedom than the rule in our more abstractly worded General Clause.[60]

For those readers who are non-Europeans, I might add that Scandinavian jurists see no need for a "hardship" rule like the one in the European ("Lando") Principles.[61] Indeed -- since Professor Kessedjian has that opened that door [62] -- the same goes for that entire (PECL) rule set, since even Professor Lando "must realise that today many, if not most, lawyers in Europe do not wish a europeanisation of contract law."[63] I say this notwithstanding the "writing on the wall," i.e. the slow-but-steady steps being taken by the European Commission which, in my view, signal the ultimate Death of Contract -- as we know it in Scandinavia -- and its replacement by a harmonized (and surely homogenized) European Civil Code.[64]

Before I get carried away by the politics of harmonization, I should say a brief word about "hardship" within the context of American (state) contact law. Although I have had little time to update my own original research in this area, [65] the work done by others indicates that American courts remain extremely reluctant to extend the concept of "impracticability" to "economic force majeure,"[66] just as the case law continues to confirm the absence of a (separate) [page 441] concept or doctrine of hardship, i.e. corresponding to those on the European scene.[67] So, if the parties do not re-allocate the default risk-allocation at the time of contracting, that is just their tough luck, or as Professor Kessedjian puts it: tant pis pour elles![68]

4. Preëmption of -- or competition between -- rule-sets?

Not all European jurists are familiar with the term preëmption, [69] but most will surely understand the underlying concept [70] -- not least in places like Denmark and France, where we are still reeling from the recent "product liability" rulings of the European Court.[71]

The main preëmption idea is, in any case, a simple one: if one piece of legislation or rule-set (X) is interpreted as completely "occupying" a given field, then there is obviously no "space" left for other rules of law (Y). In that case, we say that X preëmpts ("trumps") Y.

Within the context of international sales law, preëmption problems can arise in connection with issues with which the CISG is (at least arguably) concerned,[72] but where the particular matter is nonetheless not (clearly) governed and/or settled by a black letter Convention rule.[73] American courts have already addressed a number of CISG-related preëmption problems,[74] and I think Professor Kessedjian's paper gives us cause to consider the relationship between Article 79 and a given rule of non-CISG hardship which an arbiter might (also) find applicable in a "borderline" case. Suppose, for example, that an arbiter were faced with the following (hypothetical) situation:[75]

A (in State X) makes a contract to sell goods to B (in State Y) at a price stated (in the currency of State Z). One month later, but before the parties are scheduled to exchange delivery and payment, a political crisis leads to a sudden and massive [page 442] (80%) devaluation of the Z-currency, making the deal a "steal" for B, but a nightmare for A.

Let us suppose that X is a CISG Contracting State and that the contract is subject to "the law of X." That clause makes the CISG applicable,[76] but does the case fall solely within Article 79? If, for example, X is the Netherlands (where hardship is recognized) or Denmark (which has its General Clause), should Article 79 preëmpt the application of domestic law?[77] Or should the international and domestic rules be allowed to "compete," so the party disadvantaged by this unexpected "occurrence" has a viable excuse if she proves that either the CISG exemption or the relevant domestic (hardship/unreasonableness) requirements are met?[78]

Now, I realize that several Convention commentators have asked and answered questions like these and that some -- perhaps even the majority -- of these scholars have "ruled" in favor of preëmption (without using that word).[79] But, until we see some persuasive CISG precedent on point,[80] I think that competition between rule-sets remains an option. Just as the Unidroit Principles are sufficiently "roomy" to accommodate separate force majeure and hardship conceptions,[81] the same might well be said of Dutch and Danish law,[82] especially since the CISG is generally not concerned with "validity" rules,[83] and since the force majeure and hardship definitions are both "essentially dependent on notions of justice and values."[84] I would therefore suppose that at least some arbiters might opt for rule-concurrence (as opposed to preëmption) in hardship situations where the applicable law [page 443] provides clear authority for the censorship of unreasonable contract terms.[85] Alternatively, the same arbiters might put the same authority to more "covert" use, e.g. by deciding the case on the basis of a more "expansive" (economic force majeure) reading of Article 79.[86]

I should perhaps reiterate that I do not know whether a given judge or arbitrator would grant relief to the would-be exemptee in such a situation, since I have yet to see that issue decided in a (real) CISG case.[87] My instincts tell me, however, that some arbiters, applying (e.g.) Dutch or Danish law, might be tempted to approach a truly "hard" hardship problem in terms of risk-sharing.[88] If I am right about that, then an obligor who, ex ante, fancies herself better served by a "hardball" -- e.g. Law & Economics -- solution might want to opt out of such risk-sharing (on the basis of reasonableness tests).[89] Of course, if that same obligor is the one who later finds herself located between a rock and a hard place, well: tant pis pour elle![90]

5. Concluding remarks

I suppose my remarks on force majeure and hardship tend to confirm an observation put forth by a distinguished colleague at the beginning of this La Pietra Conference: "it is not sufficient to rely [solely] on the rules of the CISG when importing or exporting internationally."[91]

In this connection, I have highlighted non-CISG rules of hardship and reasonableness, which depending on the circumstances might prove outcome-determinative in a given CISG case. In this connection, I perceive not only differing "approaches" to force majeure and hardship, but also more fundamental differences in values, some of which distinguish the American (Law & Economics) approach to contract from (sometimes more "socialized") European views.[92] At the margin -- and that, of course, is where force majeure and hardship [page 444] cases are decided -- freedom [of] contract is a question of degree,[93] and that means differences in theory and values can have an impact, at least in the hard cases which arbiters must decide.[94]

I, for one, do not see all this as cause for despair, and I certainly do not think we could agree on a simple solution to clean up "the mess." Instead, I propose we continue to work together on the existing common ground. Its undeniable limits (and loose ends)[95] notwithstanding, I continue to think highly of the Vienna Convention, and I gladly re-hail it as "arguably the greatest legislative achievement aimed at harmonizing private commercial law."[96] I do not know if Professor Kessedjian would share that sentiment, but it would not surprise me if she did.

As a Scandinavian jurist, I am impressed by the process which first (in 1980) led to the CISG and then (in 1994) to the "softer" and more general lex mercatoria Restatement in the Unidroit Principles.[97] This much done, I think we might give the international contract legislators a well-deserved rest. For the time being, I would suggest that we -- the jurists of different legal systems -- continue to discuss our differences, and that we continue to rely on "decisional harmonization" as a necessary supplement to the legislators' open-ended work.[98] [page 445]


FOOTNOTES

* Professor of Private and Commercial Law, University of Copenhagen. B.A. Economics, Lehigh University (1967). J.D. New York University School of Law (1971). Cand. jur. University of Copenhagen (1981). Dr. jur. University of Copenhagen (1989). An essentially similar version of this paper was originally presented at the Commercial Law Theory and the CISG conference sponsored by the New York University School of Law and held at La Pietra, 14-16 October 2004.

E-mail address: joseph.lookofsky@jur.ku.dk.

1. See the Introduction to Professor Kessedjian's paper: Competing Approaches to Force Majeure and Hardship (presented at the NYU/La Pietra Conference, October 2004: see id.).

2. This is, of course, a reference to the 1980 (Vienna) Convention on Contracts for the International Sale of Goods. Available in English at <http://www.uncitral.org/en-index.htm>.

3. First as CISG: The Basis of Liability, JUSTITIA (Copenhagen, 1981), then as Fault and No-Fault in Danish, American and International Sales Law, 27 SCANDINAVIAN STUDIES IN LAW 109 (1983). Also available at <http://www.cisgw3.law.pace.edu/cisg/biblio/lookofsky4.html>.

4. Compare generally id. with JOSEPH LOOKOFSKY, UNDERSTANDING THE CISG IN THE USA (2nd ed. 2004) 6.19 and 6.32.

5. See generally Joseph Lookofsky, The State of the Union in Contract and Tort, 41 AM. J. COMP. L. 89 (1993).

6. See generally Kessedjian, supra note 1 (A-1 -- The CISG).

7. Compare Kessedjian, supra note 1, text with note 3.

8. Compare id., A-2-1 (The [Unidroit] Hardship Rule) and A-3-1 (The [European Principles] Hardship Provision).

9. Compare id., A-5 (A few glances at national law).

10. See generally (re. Art. 65 of the 1978 Draft which became CISG Art. 79) Nicholas, Force Majeure and Frustration, 27 AM. J. COMP. L. (1979) 231. Also available at <http://cisgw3.law.pace.edu/cisg/biblio/nicholas.html>.

11. Re. the relationship between CISG Article 45(1)(b) and 61(1)(b) see generally Lookofsky, supra note 3. Accord: Lookofsky, Understanding (supra n. 4). 6.14.

12. See Lookofsky, Fault & No-Fault (supra n. 3), text with notes 117- 118 and 121, citing Aluminum Co. of America v. Essex Group, 499 F. Supp. 53 (1980).

13. See generally Lookofsky, Understanding (supra n. 4) 6.19 and 6.32. In Raw Materials Inc. v. Manfred Forberich GmbH & Co., KG, decided 6 July 2004, a District Court in Illinois left open the possibility that severe weather in Russia might constitute an "unforeseeable" impediment to a German middleman's performance, but since the court's interpretation of CISG Article 79 relies almost exclusively on domestic American (UCC) case law, this opinion can hardly be described as a persuasive CISG precedent. See generally Lookofsky, id., 2.9. Re. "foreseeablity" and force majeure in the UCC and CISG contexts, see text infra with n. 32. For the text of the Memorandum Opinion in Raw Materials see <http://cisgw3.law.pace.edu/cases/040706ul.html>.

14. See the decision of 24 March 1999, English translation available at <http://cisgw3.law.pace.edu/cases/990324gl.html>.

15. Id.

16. Kessedjian, supra note 1, text at note 15.

17. Regarding CISG Article 6, see, e.g. Lookofsky, Understanding (supra n. 4), 2.7.

18. See Kessedjian, supra note 1, A-4 (The ICC force majeure and hardship clauses).

19. The latest version of the Nordic General Conditions (Nordiske Leveringsbetingelser) is "NL 01". See the English-language version available at <http://www.mann-tek.se/nl01eb.pdf>.

20. "Standard" sales terms like these -- which in large measure diminish both the (default) obligations of sellers and the (default) rights of buyers -- can hardly be described as the product of a balanced negotiation between representatives of equal bargaining power. For this reason, they should not been regarded as "agreed documents," nor should arbiters regard them (or their more onerous provisions) as more readily "incorporated" than other (non-standard) terms. See generally Lookofsky, Understanding (supra n. 4), Ch. 7.

21. Since this remains a controversial point in some quarters, I continue to list the "impediment"-issue as a separate factor, thus putting a "fourth" item on my list of conditions/requirements for a liability exemption under Article 79: see Lookofsky. id., 6.19. This contrasts with the scholarly majority, who (by combining the "impediment" and "control" factors) reduce the list of conditions to three. Professor Kessedjian, who boiling the list down even further (supra note 1, A-1), ends up with "two cumulative conditions."

22. But see JOHN HONNOLD, UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE 1980 UNITED NATIONS CONVENTION (3rd ed. Deventer 1999) at p. 478.

23. See Lookofsky, Understanding (supra n. 4), 4.4. But compare (re. the CISG seller's "guarantee liability") Ulrich Huber in Peter Schlechtriem, COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS (CISG) (Oxford 1998), KOMMENTAR ZUM EINHEITLICHEN UN-KAUFRECHT -- CISG (3d ed. Munich 2000).

24. Kessedjian, supra n. 1, A-1 (The CISG), text following n. 15 (emphasis added here).

25. See Understanding (supra n. 4), 6.19 with note 235.

26. Peter Schlechtreim, Uniform Sales Law in the Decisions of the Bundesgerichtshof, in English at <http:// cisg.law.pace.edu/cisg/biblio/schlechtriem3.html>, text with n. 24 (citing the example of foodstuffs suspected of contamination, thus effectively preventing their resale by foodstuff dealer (B); if later sued by B. S might qualify for an exemption, provided he could prove the goods delivered to B were, in fact, not contaminated). For a different, perhaps equally unlikely example, see Lookofsky, Fault & No-Fault (supra n. 3), with n. 209.

27. See CISG Article 7(1).

28. See generally Joseph Lookofsky, Digesting CISG Case Law: How Much Regard Should We Have?, 8 Vindobona J. of Int. Comm. L. & Arb. (2004). Also at <http://cisgw3.law.pace.edu> (full text of scholarly writings). But see Richard Posner, No Thanks, We Already Have Our Own Laws, LEGAL AFFAIRS (July/Aug 2004). Also at <http://www.legalaffairs.org/issues/July-August-2004/feature-posner_ julaug04.html#top>. Although Judge Posner (id.) makes an "exception" (to his non-citation-of-foreign-precedent rule) for cases involving international treaties, even that exception seems contradicted by his Zapata-opinion (at <http://cisgw3.law.pace.edu/cases/021119ul.html>): though the holding (as to the scope of the CISG Convention) seems sensible, the opinion ignores CISG foreign precedent and thus the obligation under Article 7(1) to show "regard" for the need to promote the treaty's uniform application. See Lookofsky at id. See also Harry Flechtner & Joseph Lookofsky, Viva Zapata, 7 VINDOBONA J. INT. & COMM. L. & ARB. (2003) 93. Also at <http://cisgw3.law.pace.edu/cisg/biblio/flechtner5.html>. Thanks to Al Kritzer "at" <http://cisgw3.law.pace.edu/> for linking me to Posner's "No Thanks."

29. See, e.g. Medical Marketing v. Internazionale Medico Scientifica, available at <http://cisgw3.law.pace.edu/cases/990517u1.html> (US District Court noted that arbitrators had considered German case and concluded situation fit within Article 35 exception recognized by German Supreme Court; for this reason, among others, arbitrators had not exceeded their authority). See also Franco Ferrari, International Sales Law and the Inevitability of Forum Shopping: A Comment on Tribunale Di Rimini, 26 November 2002, 23 J. L. & COMM. 169. Also at <http://cisgw3.law.pace.edu/cisg/biblio/ferrari8.html>.

30. See Lookofsky, Understanding (supra n. 4), 6.19 at 128.

31. Accord Rechtbank van Koophandel, Hasselt (Belgium), 2 May 1995, UNILEX (significant drop in market price of goods/strawberries after conclusion of contract did not constitute "force majeure" exempting buyer under Art. 79; price fluctuations foreseeable events in international trade, do not render performance impossible but result in loss within normal risk of commercial activities). See also Tribunal of Int'l Commercial Arbitration at Russian Federation Chamber of Commerce, 17 October 1995, CLOUT Case 142.

32. Compare (within the UCC context) CLAYTON GILLETTE & STEVEN WALT SALES LAW. DOMESTIC AND INTERNATIONAL (Rev. ed. New York 2002) at 251 (foreseeability too slippery to serve as valid indicator of circumstances which warrant excuse); compare also (as re. foreseeability within the CISG Article 79 context) id. at 257.

33. See id., p. 248 (parties better to allocate risks of changes circumstances at time of negotiation than courts after risk has materialized).

34. See Hans Stoll in Schlechtriem, Commentary/Kommentar (supra n. 23), Art. 79, Rd.Nr. 8, 39-40, 57. Regarding the sacrifice threshold (offergroense) in Scandinavian theory, see Lookofsky, Fault & No-Fault (supra n. 3), notes 160 and 180 and accompanying text.

35. Accord as re. "impracticability" by reason of increased costs in American domestic law, White & Summers, Uniform Commercial Code, 3-9. For a comparison of American and Scandinavian domestic law, see Joseph Lookofsky, Consequential Damages in Comparative Context (Copenhagen 1989), Part 3.2.3.

36. See Kessedjian, supra n. 1, A-1 (The CISG) with note 18.

37. Id.

38. In connection with a buyer's possible exemption, I have stated that "a party generally assumes the risk of his own inability to perform his duty ... For similar reasons, even a significant drop in market prices after the conclusion of the contract is not likely to provide the buyer with grounds for a liability exemption" (Lookofsky, Understanding (supra n. 4), text with notes 335-336, emphasis added here). Re. my views on exempting a seller by reason of "economic force majeure" see id. at p. 128. My views on the (complex) relationship between force majeure and hardship -- noted briefly id. at p. 26 with note 102 ("Article 79 was hardly designed to cover hardship, courts and arbitrators should apply applicable domestic law ...") -- are "updated" and discussed more fully in parts 2 and 3 of the present article.

39. That is, even though I have not sought a solution to the problem on the basis of Article 7(2): see id. and Kessedjian, supra n. 1, A-1 with note 18 ("Accord, Lookofsky, p. 140").

40. See also infra, part 2 (Hardship).

41. Accord Sarah Howard Jenkins, Exemption for Nonperformance: UCC, CISG, UNIDROIT Principles -- A Comparative Assessment, 72 TULANE L. REV. (1998) 2015-2030, also available at <http://cisgw3.law.pace.edu/cisg/biblio/jenkins.html> (arguing that the UCC, CISG & UNIDROIT provisions concerned represent a continuum in the degree of exemption and application). Accord Tom Southerington, Impossibility of Performance and Other Excuses in International Trade, University of Turku, Faculty of Law, Private law publication series B:55, available at <http://www.cisg.law.pace.edu/cisg/biblio/southerington.html>, text following n. 57 (economic difficulties have sometimes inconsistently and interchangeably been referred to as economic impossibility, economic force majeure or hardship).

42. As to the "preëmption/competition" issue see the discussion in part 3 of this paper.

43. See Kessedjian, supra note 1, A-2-1 (The Hardship Rule) and A-3-1 (The Hardship provision).

44. Although the Unidroit Principles themselves have a "limited" range of (commercial) application, they have been applied by courts and arbitrators in a variety international commercial contexts. See generally Michael Joachim Bonell, UNIDROIT Principles 2004 -- The New Edition of the Principles of International Commercial Contracts adopted by the International Institute for the Unification of Private Law, 9 UNIFORM LAW REVIEW (2004-1) 5. By contrast, the European Principles have seldom, if ever, been applied in that way. What the future might bring is, of course, quite another story: see infra, notes 61- 64 and accompanying text.

45. See Kessedjian, supra note 1, Inventory with note 7.

46. Id.

47. MICHAEL JOACHIM BONELL, AN INTERNATIONAL RESTATEMENT OF CONTRACT LAW (2d. ed. 1997) at 44, emphasis added here.

48. Id. with n. 17, quoting M.P. Furmston. Emphasis added here.

49. See the first paragraph of Article 6.2.2.

50. See the original/1994 version of the Unidroit Principles, still available (as of October 2004) at <http://www.unilex.info>. Official Comment 2 (Fundamental alteration of equilibrium of the contract), emphasis added here.

51. See the 2004 version of the UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS (Rome 2004), Official Comment 2 (Fundamental alteration of equilibrium of the contract), emphasis added here.

52. See the Introduction to 2004 version of the Principles, id., p. vii.

53. Beyond this, the fact that some parties, in some cases, voluntarily draft hardship clauses or re-negotiate their international contracts and grant each other hardship concessions does not necessarily provide support for a generally applicable (gap-filling) hardship rule, since the custom among those merchants who seek to preserve their contractual relationships ought not be generalized into a rule applicable even in situations where one contracting party has lost the other party's trust. See Joseph Lookofsky, The Limits of Commercial Contract Freedom Under the UNIDROIT 'Restatement' and Danish Law, 46 AM. J. COMP. LAW 485, 499 (1998) also available at <http://cisgw3.law.pace.edu/cisg/biblio/lookofsky6.html>.

54. Article 6.258(1) of the New Dutch Civil Code provides: Upon the demand of one of the parties, the court may modify the effects of a contract or it may set it aside, in whole or in part, on the basis of unforeseen circumstances of such a nature that the other party, according to standards of reasonableness and fairness, may not expect the contract to be maintained in unmodified form. The modification or setting aside may be given retroactive effect.

55. Regarding the relationship between force majeure and related "hardship" conceptions within the Danish (domestic) law of Obligations, see MADS BRYDE ANDERSON & JOSEPH LOOKOFSKY, LAEREBOG I OBLIGATIONSRET (Copenhagen, 2000) pp. 164-165, 193-197, 205-207, and 418-419.

56. See generally Lookofsky, Limits (supra n. 53), p. 496 ff.

57. See id.

58. That is, overtly, as an alternative to more "covert" techniques. As to these see id. at p. 501.

59. In a decision published shortly after the CISG Conference held at La Pietra in 2004, the Danish Western High Court of Appeal (Vestre Landsret) applied 36 of the Contracts Act as authority to revise (upwards) the price originally agreed in a long-term contract between merchants. See UGESKRIFT FOR RETSVAESEN (Copenhagen 2004) p. 1968. The original (1975) Danish version of the General Clause, which authorized courts to deny enforcement of unreasonable terms, was expanded in 1994 so as to authorize the amendment of such terms, but this was done on the assumption (by the legislature) that the courts would exercise special restraint within commercial contexts, i.e. where economic and risk-allocating considerations play a key contractual role. See FOLKETINGSTIDENDE 1994/95, tillaeg A, sp. 352.

60. See Lookofsky, Limits, supra n. 53 at id.

61. Re. Article 6:111 see Kessedjian, supra n. 1, A-3-1 (The Hardship provision). See also <http://www.jus.uio.no/lm/eu.contract.principles.part1.1995/>.

62. See Kessedjian, supra n. 1, A-3 (The European Principles).

63. Ole Lando, The Soft Law and the lex mercatoria, Julebog 1999 (Copenhagen) 129, 132.

64. That prospect, though alarming for some, seems increasingly inevitable: see, e.g. <http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/c_063/c_ 06320030315en00010044.pdf>. Compare (re. the situation 5 years ago) Joseph Lookofsky in 39 SCANDINAVIAN STUDIES IN LAW 111 (2000).

65. See Lookofsky, supra n. 3.

66. See generally Gillette & Walt, supra n. 32, 248-255. See also CHARLES KNAPP, NATHAN CHRYSTAL & HARRY PRINCE, PROBLEMS IN CONTRACT LAW (5th ed. 2003) at 664, citing Mineral Park Land. Co. v. Howard, 172 Calif. 289, 156 P. 458 (1916), i.e. the same/seminal "rule-proving exception" which I cited more than 20 years ago: see Lookofsky, Fault & No Fault, id. with note 117.

67. Accord Jenkins, supra n. 41.

68. Kessedjian, supra n. 1, A-5.

69. The term is also spelled as pre-emption or preemption.

70. See generally HERBERT BERNSTEIN AND JOSEPH LOOKOFSKY, UNDERSTANDING THE CISG IN EUROPE (2d ed. 2003) 2-6 and 4-6.

71. See the Judgments of the Court (Fifth Chamber) of 25 April 2002 in Cases C-52/00, C-154/00, and C-183/00. Before these shock-waves hit France. Greece, and Spain, most EU jurists assumed that Article 13 of the Product Liability Directive (85/374/EEC) allowed the maintenance of national rules which allowed consumers injured by defective products to sue (not just "producers," but) "middlemen" in the distribution chain. The effect of the 2002 judgments, however, is that (at least) some such national rules have been preëmpted by the Directive, and Danish legislation passed to implement the Directive (faithfully, we thought) is now in serious jeopardy. See ECJ Case C-402/03 (pending) where a Danish Court of Appeal has asked for a preliminary ruling as to how the judgments again France, Greece, and Spain affect a Danish consumer's action again a middleman.

72. See CISG Articles 4 and generally Lookofsky, Understanding (supra n. 4), 2.6.

73. See CISG Articles 7(2) and generally Lookofsky, id., 2.11.

74. See generally Joseph Lookofsky, In Dubio Pro Conventione? Some Thoughts about Opt-Outs, Computer Software and Preëmption Under the CISG, 13 DUKE J. INT. & COMP. L. 258, also available at <http://www.law.duke.edu/journals/djcil/>. See also Joseph Lookofsky, CISG Case Commentary on Preëmption in Geneva Pharmaceuticals and Stawski, available at <http://cisgw3.law.pace.edu/cisg/biblio/lookofsky8.html>.

75. Based on the similar Illustration in the (2004) Unidroit version of Article 6.2.2 (Definition of Hardship).

76. Unless, as seems unlikely, that there is convincing evidence of a contrary intent.

77. Re. the relevant Dutch and Danish statutes see supra, notes 54-60 with accompanying text.

78. See id.

79. See generally Hans Stoll in Schlechtriem, Commentary/Kommentar (supra n. 23). Art. 79, Rd.Nr. 39-40 and the numerous, sometimes conflicting, sources cited there. In my own, most recent writings on the subject, I have leaned towards concurrence and competition (as opposed to preëmption): see Lookofsky, supra n.4 (Understanding), p. 26 with note 102 ("since Article 79 was hardly designed to cover hardship, courts and arbitrators should apply applicable domestic law ..."). In my first (student) paper on the subject, I was more cautious: see Lookofsky, supra n. 3 (Fault & No-Fault), p. 124 with n. 125 ("Whether (e.g.) an 'equitable adjustment' pursuant to sec. 36 of the Danish Contracts Act (aftaleloven) would be consistent with the Convention would seem to be one of the Convention's 'loose ends' ...") and the cross-reference at id. to p. 134, note 197 (quoting Honnold's contrary view): compare BJORN SANDVIK (SALJARENS KONTROLLANSVAR, Åbo 2004) who read that timid statement to mean that I "categorically rejected" an equitable adjustment under 36 of the Contracts Act in relation to CISG (see id. p. 97, n. 138: "Lookofsky anför kategorisk at jamkning .. enligt Avtl. 36 är uteslutet i förhållande til CISG").

80. As regards specific preëmption issues which have been decided in CISG cases, see generally sources cited supra n. 74.

81. See (re. hardship and force majeure) Comment 6 of the (2004) Unidroit version of Article 6.2.2 (Definition of Hardship), making it clear that in situations which can, at the same time, be considered as cases of hardship and force majeure (Unidroit Article 7.1.7), it is for the party affected to decide which remedy to pursue.

82. Compare supra notes 54-60 with accompanying text.

83. "[E]xcept as otherwise expressly provided in this Convention." See CISG Article 4 and Lookofsky, Understanding (supra n. 4), 2.6. The General Clause in the Danish Contracts Act is clearly a rule of validity, and the same might well be said of the Dutch rule on hardship (which is similarly based on a reasonableness-test): see supra notes 54-60 with accompanying text.

84. Southerington, supra n. 41, text following n. 57 (emphasis added here).

85. Reasonableness is, in both these jurisdictions, the key consideration: see supra, notes 54-60 and accompanying text.

86. That is, just as the very "presence" of 36 of the Scandinavian Contracts Act is assumed to embolden arbiters, when deciding contract disputes merchants, to opt for more covert "solutions" (e.g. finding that a given standard term was not "incorporated" or given such a term a "narrow interpretation." As to this well-recognized phenomenon see Lookofsky, Limits (supra n. 53) at 501.

87. Compare the exemptions denied in the cases cited supra n. 31 and accompanying text.

88. Jenkens, supra n. 41, II(2), discussing, inter alia, Charles Fried's approach. See also Lookofsky, Consequential Damages (supra n. 35), pp. 248-254.

89. Note that an obligor involved in a continuing contractual relationship would not likely opt for (or be best served by) a "hardball" solution. See Lookofsky, Limits (supra n. 53). As regards contracting out, there might be an additional complication if (e.g.) 36 of the Contracts Act (supra n. 56) is regarded as an "internationally mandatory" rule. Re. Art. 7(2) of the EU (Rome) Convention on the Law Applicable to Contractual Obligations see JOSEPH LOOKOFSKY & KETILBJERN HERTZ, TRANSNATIONAL LITIGATION AND COMMERCIAL ARBITRATION (2nd ed. 2003), 448-456.

90. Compare supra, n. 68 and the accompanying text.

91. See the text (with n. 16) of the paper for this (2004 La Pietra) Conference submitted by Professor Franco Ferrari: What sources of law for contracts for the international sale of goods? Why one has to look beyond the CISG.

92. See, e.g. Lookofsky, Consequential Damages (supra n. 35), pp. 190- 195.

93. Id. at 38 and at 248.

94. Compare Erik Posner. Economic Analysis of Contract Law after Three Decades: Success or Failure, John M. Olin Law & Economics Working Paper NO. 146 (2d Series), available at <http://www.law.uchicago.edu/Lawecon/index.html> at 35 (very hard to find any American cases where the judges self-consciously rely on an economic argument in order to justify a result).

95. See Joseph Lookofsky, Loose Ends and Contorts in International Sales: Problems in the Harmonization of Private Law Rules, 39 AM. J. COMP. L. 403 (1991), also available at <http://cisgw3.law.pace.edu/cisg/biblio/lookofsky6.html>.

96. See Ferrari, supra n. 91, citing Lookofsky, id.

97. This sequence of events reminds me of how the Scandinavian legislators -- who enacted open-ended sales statutes in the early 1900s to regulate the most common contract-type -- remain (to this day) content to let judge-made law and doctrine regulate most other contract types. See generally See generally Joseph Lookofsky, The Scandinavian Experience, THE 1980 UNIFORM SALES LAW: OLD ISSUES REVISITED IN THE LIGHT OF NEW EXPERIENCE (2003) 93-127.

98. Re. decisional harmonization (afgorelsesharmonisering) in Danish doctrine see Henrik Zahle, RETTENS KILDER (Copenhagen, 1999), p. 54 with note 59.


Pace Law School Institute of International Commercial Law - Last updated November 13, 2006
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