Article 79. Impediment Excusing Party from Damages

• Text of Article 79
• Outline of issues
• Descriptors
• Coded case annotations
   -  Guide to case codes
• Case digest and analysis
     -  UNCITRAL's case law digest; and
     -  An analysis of CISG jurisprudence
• Annotated comparatives
   -  UNIDROIT Principles
   -  PECL comparative

TEXT OF ARTICLE 79

(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken 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.

OUTLINE OF ISSUES

Reproduced with permission of UNCITRAL

79A Central issue: exemption from liability for damages (art. 79(1))

79B Impediments excusing party

79C Non-performance attributable to third-party contractor (art. 79(2))

79D Temporary impediment (art. 79(3))

79E Notice of impediment (art. 79(3))

79F Preservation of remedies other than damages (art. 79(5))

79G Other problems

DESCRIPTORS

Exemptions or impediments ; Hardship

CASE ANNOTATIONS: UNCITRAL DIGEST CASES PLUS ADDED CASES

Germany 18 November 2008 Oberlandesgericht [Appellate Court] Brandenburg (Beer case) 79E [translation available]

United States 20 August 2008 U.S. District Court [New York] (Hilaturas Miel, S.L. v. Republic of Iraq) 79B

Netherlands 9 July 2008 Rechtbank [District Court] Maastricht (Agristo N.V. v. Macces Agri B.V.) 79B [translation available]

United States 16 April 2008 U.S. District Court [New York] (Macromex Srl. v. Globex International, Inc.) 79B13 ; 79G

Germany 5 March 2008 Oberlandesgericht [Appellate Court] München (Stolen car case) 79B [translation available]

Germany 25 January 2008 Oberlandesgericht [Appellate Court] Hamburg (Café inventory case) [translation available]
 

Germany 27 November 2007 Bundesgerichtshof [Federal Supreme Court] 79B [translation available]

American Arbitration Association 23 October 2007 [Interim Award] (Macromex Srl. v. Globex International Inc.) 79B13 ; 79G

Spain 23 October 2007 Juzgado de Primera Instancia [District Court] La Laguna

Germany 21 March 2007 Oberlandesgericht [Appellate Court] Dresden (Stolen automobile case) 79A [translation available]
 

United States 4 April 2006 Federal District Court [New Jersey] (Valero Marketing v. Green Oy) 79B
 

China 7 December 2005 CIETAC Arbitration Award [CISG/2005/05] (Heaters case) [translation available]

Russia 21 November 2005 Arbitration Award 42/2005 (Equipment case) 79B [translation available]

China 25 May 2005 CIETAC Arbitration Award [CISG 2005/09] (Iron ore case) 79B [translation available]

Finland 24 May 2005 Hovioikeus / hovrätt [Appellate Court] Turku (Radiated spice case)

Switzerland 5 April 2005 Bundesgericht [Supreme Court] [translation available]

Belgium 25 January 2005 Rechtbank van Koophandel [District Court] Tongeren (Scaforn International BV & Orion Metal BVBA v. Exma CPI SA) 79B [translation available]
 

United States 6 July 2004 U.S. District Court [Illinois] (Raw Materials Inc. v. Manfred Forberich GmbH & Co., KG) 79B ; 79B12

France 30 June 2004 Cour de Cassation [Supreme Court] 79B [translation available]

Austria 21 April 2004 Oberster Gerichtshof [Supreme Court] (Omnibus case) 79C [translation available]

Ukraine 15 April 2004 Tribunal of International Commercial Arbitration, Ukrainian Chamber of Commerce & Trade [translation available]

Russia 9 April 2004 Arbitration Award 129/2003 79C [translation available]

Switzerland 12 March 2004 Amtsgericht [County Court] Willisau 79B [translation available]

Switzerland 11 February 2004 Appelationshof [Appellate Court] Bern (Cable case) [translation available]

Germany 2 February 2004 Oberlandesgericht [Appellate Court] Zweibrücken 79B [translation available]
 

Switzerland 29 October 2003 Tribunale d’appello [Appellate Court] Lugano, Cantone del Ticino 79C [translation available]

China 17 September 2003 CIETAC Arbitration Award [CISG 2003/14] (Australia cotton case) 79B1 [translation available]

China 26 June 2003 CIETAC Arbitration Award [CISG 2003/10] (Alumina case) 79B [translation available]

Russia 16 June 2003 Arbitration Award No. 135/2002 79B [translation available]

Netherlands 29 January 2003 Rechtbank [District Court] Zwolle
 

Switzerland 3 December 2002 Handelsgericht [Commercial Court] St. Gallen [translation available]

China 21 October 2002 CIETAC Arbitration Award [CISG 2002/16] (Engraving machine case) 79A [translation available]

Germany 22 August 2002 Landgericht [District Court] Freiburg

China 9 August 2002 CIETAC Arbitration Award [CISG 2002/21] (Yellow phosphorus case) 79A [translation available]

Belgium 18 February 2002 Rechtbank van Koophandel [District Court] Ieper 79B

China 4 February 2002 CIETAC Arbitration Award [CISG 2002/17] (Steel bar case) 79B ; 79E [translation available]

Russia 4 February 2002 Arbitration Court [Appellate Court] for the Moscow Region 79B [translation available]

Austria 14 January 2002 Oberster Gerichtshof [Supreme Court] [translation available]

* Germany 9 January 2002 Bundesgerichtshof [Federal Supreme Court] 79A [translation available]
 

China 25 December 2001 CIETAC Arbitration Award [CISG 2001/04] (DVD HiFi case) 79C [translation available]

Germany 12 November 2001 Oberlandesgericht [Appellate Court] Hamm (Memory module case) [translation available]

Russia 30 July 2001 Arbitration Award No. 198/2000 79B [translation available]

Netherlands 12 July 2001 Arrondissementsrechtbank [District Court] Rotterdam [translation available]

France 12 June 2001 Cour d'appel [Appellate Court] Colmar 79B [translation available]

Russia 27 April 2001 Constitutional Court of Russian Federation (Resolution No. 7-P) [translation available]

Bulgaria 19 March 2001 Bulgaria Chamber of Commerce Arbitration award, Case 26/99 79B [translation available]
 

Germany 23 October 2000 Oberlandesgericht [Appellate Court] Dresden (Powdered milk case) 79B [translation available]

Switzerland 15 September 2000 Bundesgericht [Federal Supreme Court] [4C.105/2000] [translation available]

Switzerland 15 September 2000 Bundesgericht [Federal Supreme Court] [4P.75/2000] 79B [translation available]

* Italy 12 July 2000 Tribunale [District Court] Vigevano [translation available]

China 30 June 2000 Wuhan Economic and Technology Development Zone People's Court [District Court] (Shen Zhen fengshen Industry Development Co. v. INTER SERVICE INTERNATION France)

Russia 6 June 2000 Arbitration award 406/1998 79B [translation available]

ICC 2000 International Court of Arbitration, Case 8790 79A [English text]
 

* Italy 29 December 1999 Tribunale [District Court] Pavia [translation available]

Austria 29 June 1999 Oberster Gerichtshof [Supreme Court] [translation available]

ICC June 1999 International Court of Arbitration, Case 9187 [English text]

China 31 May 1999 CIETAC Arbitration Award [CISG/1999/27] (Indium ingot case) 79B [translation available]

* Germany 24 March 1999 Bundesgerichtshof [Federal Supreme Court] 79B1 ; 79C [translation available]

* Switzerland 10 February 1999 Handelsgericht [Commercial Court] Zürich 79C [translation available]
 

Austria 15 December 1998 Oberster Gerichtshof [Supreme Court] 79B [translation available]

China 15 December 1998 CIETAC Arbitration Award [CISG/1998/09] (Shirt case) 79B [translation available]

Italy 11 December 1998 Corte di Appello [Appellate Court] Milano 79A [translation available]

Russia 24 November 1998 Arbitration award 96/1998 79B1 [translation available]

Russia 6 October 1998 Arbitration award 269/1997 79B [translation available]

* Netherlands 2 October 1998 Arrondissementsrechtbank [District Court] 's Hertogenbosch 79B [translation available]

Russia 10 June 1998 Arbitration award 83/1997 [translation available]

* Germany 31 March 1998 Oberlandesgericht [Appellate Court] Zweibrücken (Vine was case) 79B ; 79C [translation available]

* Russia 16 February 1998 High Arbitration Court [Information Letter No. 29] 79B

* Bulgaria 12 February 1998 Bulgaria Chamber of Commerce Arbitration award, Case 11/1996 79B [translation available]

* France 19 January 1998 Tribunal de commerce [District Court] Besançon 79C [translation available]

Russia 12 January 1998 Arbitration award 152/1996 79B [translation available]
 

China 31 December 1997 CIETAC Arbitration Award [CISG/1997/37] (Lindane case) [translation available]

France 18 December 1997 Tribunal de commerce [District Court] Colmar [translation available]

China 30 November 1997 CIETAC Arbitration Award [CISG/1997/33] 79B [translation available]

China 29 September 1997 CIETAC Arbitration Award [CISG/1997/28] (Aluminium oxide case) 79B [translation available]

* Germany 4 July 1997 Oberlandesgericht [Appellate Court] Hamburg 79B1 [translation available]

China 25 June 1997 CIETAC Arbitration Award [CISG/1997/16] (Art paper case) 79B [translation available]

Russia 11 June 1997 Arbitration award 255/1994 79B [translation available]

Russia 13 May 1997 Arbitration award 3/1996 79A [translation available]

Russia 11 May 1997 Arbitration award 2/1995 79B [translation available]

Hungary 8 May 1997 Budapest Arbitration award Vb 96036

China 7 May 1997 CIETAC Arbitration Award [CISG/1997/11] (Sanguinarine case) 79B [translation available]

Germany 17 April 1997 Landgericht [District Court] Frankenthal

* Germany 28 February 1997 Oberlandesgericht [Appellate Court] Hamburg 79B [translation available]

* Russia 22 January 1997 Arbitration award 155/1996 79A [translation available]

Finland 17 January 1997 Tampere Court of First Instance [translation available]

ICC January 1997 International Court of Arbitration, Case 8786 79B [English text]

Russia 1997 High Arbitration Court [Ruling No. 4, case 4]
 

China 31 December 1996 CIETAC Arbitration Award [CISG/1996/58] (High carbon tool steel case) 79B [translation available]

* Hungary 10 December 1996 Budapest Arbitration award Vb 96074 79G [English text]

China 30 July 1996 CIETAC Arbitration Award [CISG/1996/33] (Ferro-molybdenum alloy case) 79A ; 79C [translation available]

China 2 May 1996 CIETAC Arbitration Award [CISG/1996/21] ("FeMo" alloy case) 79B [translation available]

* Bulgaria 24 April 1996 Bulgaria Chamber of Commerce Arbitration award 56/1995 79B [translation available]

* Germany 21 March 1996 Hamburg Arbitration award 79B ; 79C [translation available]

China 14 March 1996 CIETAC Arbitration Award [CISG/1996/14] (Dried sweet potatoes case) 79B [translation available]

Russia 10 February 1996 Arbitration Award No. 328/1994 79B ; 79E [translation available]

Austria 6 February 1996 Oberster Gerichtshof [Supreme Court] 79E [translation available]

China 30 January 1996 CIETAC Arbitration Award [CISG/1996/05] (Compound fertilizer case) 79C [translation available]
 

Russia 13 December 1995 Arbitration Award 364/1994 79B [translation available]

Russia 1 December 1995 Arbitration award 369/1994 [translation available]

Germany 16 November 1995 Landgericht [District Court] Köln

* Russia 17 October 1995 Arbitration award 123/1992 79B [translation available]

Germany 2 October 1995 Landgericht [District Court] Hamburg

* Germany 21 August 1995 Landgericht [District Court] Ellwangen [translation available]

Russia 15 May 1995 Arbitration award 321/1994 79B [translation available]

* Germany 12 May 1995 Amtsgericht [Lower Court] Alsfeld

* Belgium 2 May 1995 Rechtbank van Koophandel [District Court] Hasselt 79B

China 28 April 1995 CIETAC Arbitration Award [CISG/1995/08] (Rolled wire rod coil case) 79B [translation available]

Switzerland 26 April 1995 Handelsgericht [Commercial Court] Zürich [translation available]

* Russia 16 March 1995 Arbitration award 155/1994 79B1 ; 79C [translation available]

China 10 March 1995 CIETAC Arbitration Award [CISG/1995/04] (Wool case) 79C [translation available]

* ICC 1995 International Court of Arbitration, Case 8128 79C [translation available]
 

Russia 17 November 1994 Arbitration award 493/1993

Germany 15 September 1994 Landgericht [District Court] Berlin (Shoes case) [translation available]

Germany 2 August 1994 Landgericht [District Court] München

China 17 June 1994 CIETAC Arbitration Award [CISG/1994/08] (Warm rolled steel plates case) 79C [translation available]

* Germany 4 May 1994 Amtsgericht [Lower Court] Charlottenburg 79A ; 79E [translation available]
 

Israel 22 August 1993 Supreme Court (Examin v. Textile and Footware) [translation available]

China 7 August 1993 CIETAC Arbitration Award [CISG/1993/11] (Semi-automatic weapons case) 79B12 [translation available]

* Germany 14 May 1993 Landgericht [District Court] Aachen 79F [translation available]

* Italy 14 January 1993 Tribunale Civile [District Court] Monza 79B [translation available]

ICC 1993 International Court of Arbitration, Case 6653 [translation available]
 

Hungary 1992 Legfelsobb Biróság [Supreme Court] 79B1 ; 79C

* ICC 1992 International Court of Arbitration, Case 7197 79B
 

China 6 June 1991 [date claim filed] Shenzhen CIETAC Arbitration award 79B [translation available]
 

* ICC 1989 International Court of Arbitration, Case 6281 79G [English text]

CASE DIGEST AND ANALYSIS
-   UNCITRAL's case law digest; and
-   An analysis of CISG jurisprudence

DIGEST OF ARTICLE 79 CASE LAW

Overview of Article 79

1. Article 79 specifies the circumstances in which a party "is not liable" for failing to perform its obligations, as well as the remedial consequences if the exemption from liability applies. Para. (1) relieves a party of liability for "a failure to perform any of his obligations" if the following requirements are fulfilled: the party's non-performance was "due to an impediment"; the impediment was "beyond his control"; the impediment is one that the party "could not reasonably be expected to have taken into account at the time of the conclusion of the contract"; the party could not reasonably have "avoided" the impediment; and the party could not reasonably have "overcome" the impediment "or its consequences".

2. Article 79(2) deals with the situation where a party engages a third person "to perform the whole or a part of the contract" and the third person fails to perform.

3. Article 79(3), which appears not to have been the subject of significant attention in case law, limits the duration of an exemption to the time during which the impediment that justifies the exemption continues to exist. Article 79(4) requires a party that wishes to claim an exemption for non-performance "to give notice to the other party of the impediment and its effect on his ability to perform". The second sentence of article 79(4) specifies that failure to give such notice "within a reasonable time after the party who fails to perform knew or ought to have known of the impediment" will make the party who failed to give proper notice "liable for damages resulting from such non-receipt". Article 79(4) also appears not to have attracted significant attention in case law, although one decision did note that the party claiming exemption in that case had satisfied the notice requirement.[1]

4. Para. (5) makes it clear that article 79 has only a limited effect on the remedies available to the party that has suffered a failure of performance for which the non-performing party enjoys an exemption. Specifically, article 79(5) declares that an exemption precludes only the aggrieved party's right to claim damages, and not any other rights of either party under the Convention.

Article 79 in general

5. Several decisions have suggested that exemption under article 79 requires satisfaction of something in the nature of an "impossibility" standard.[2] One decision has compared the standard for exemption under article 79 to those for excuse under national legal doctrines of force majeure, economic impossibility, and excessive onerousness [3] - although another decision asserted that article 79 was of a different nature than the domestic Italian hardship doctrine of eccessiva onerosità sopravvenuta.[4] It has also been stated that, where the CISG governs a transaction, article 79 preempts and displaces similar national doctrines such as Wegfall der Geschäftsgrundlage in German law [5] and eccesiva onerosità sopravvenuta.[6] Another decision has emphasized that article 79 should be interpreted in a fashion that does not undermine the Convention's basic approach of imposing liability for a seller's delivery of non-conforming goods without regard to whether the failure to perform resulted from the seller's fault.[7] And a court has linked a party's right to claim exemption under article 79 to the absence of bad faith conduct by that party.[8]

6. Many decisions have suggested that the application of article 79 focuses on an assessment of the risks that a party claiming exemption assumed when it concluded the contract.[9] The decisions suggest, in other words, that the essential issue is to determine whether the party claiming an exemption assumed the risk of the event that caused the party to fail to perform. Thus in one case, a seller had failed to make a delivery because the seller's supplier could not supply the goods without an immediate infusion of substantial cash, and the seller did not have the funds because the buyer had justifiably (but unexpectedly) refused to pay for earlier deliveries. The seller's claim of exemption under article 79 was denied because the buyer, as per the contract, had pre-paid for the missing delivery and the tribunal found that this arrangement clearly allocated to the seller risks relating to the procurement of goods.[10] The risk analysis approach to exemption under article 79 is also evident in cases raising issues concerning the relationship between article 79 and risk of loss rules. Thus where the seller delivered caviar and risk of loss had passed to the buyer, but international sanctions against the seller's State prevented the buyer from taking immediate possession and control of the caviar so that it had to be destroyed, an arbitral tribunal held that the buyer was not entitled to an exemption when it failed to pay the price: the tribunal emphasized that the loss had to be sustained by the party who bore the risk at the moment the force majeure occurred.[11] And where a seller complied with its obligations under CISG article 31 by timely delivering goods to the carrier (so that, presumably, risk of loss had passed to the buyer), a court found that the seller was exempt under article 79 from damages caused when the carrier delayed delivering the goods.[12]

7. Article 79 has been invoked with some frequency in litigation, but with limited success. In two cases, a seller successfully claimed exemption for a failure to perform,[13] but in at least nine other cases a seller's claim of exemption was denied.[14] Buyers have also twice been granted an exemption under article 79 [15] but have been denied in at least six other cases.[16]

Breaches for which an exemption is available: exemption for delivery of non-conforming goods

8. It has been questioned whether a seller that has delivered non-conforming goods is eligible to claim an exemption under article 79. On appeal of a decision expressly asserting that such a seller could claim an exemption (although it denied the exemption on the particular facts of the case),[17] a court recognized that the situation raised an issue concerning the scope of article 79.[18] The court, however, reserved the issue because the particular appeal could be disposed of on other grounds. More recently, that court again noted that it had not yet resolved this issue, although its discussion seemed to suggest that article 79 might well apply when a seller delivered non-conforming goods.[19] Nevertheless, at least one case has in fact granted an article 79 exemption to a seller that delivered non-conforming goods.[20]

9. Decisions have granted exemptions for the following breaches: a seller's late delivery of goods;[21] a seller's delivery of non-conforming goods[22], a buyer's late payment of the price;[23] and a buyer's failure to take delivery after paying the price.[24] Parties have also claimed exemption for the following breaches, although the claim was denied on the particular facts of the case: a buyer's failure to pay the price;[25] a buyer's failure to open a letter of credit;[26] a seller's failure to deliver goods;[27] and a seller's delivery of non-conforming goods.[28]

Article 79(1): "impediment" requirement

10. As a prerequisite to an exemption, article 79(1) requires that a party's failure to perform be due to an "impediment" that meets certain additional requirements (e.g., that it was beyond the control of the party, that the party could not reasonably be expected to have taken it into account at the time of the conclusion of the contract, etc...). One decision has used language suggesting that an "impediment" must be "an unmanageable risk or a totally exceptional event, such as force majeure, economic impossibility or excessive onerousness".[29] Another decision asserted that conditions leading to the delivery of defective goods can constitute an impediment under article 79;[30] on appeal to a higher court, however, the exemption was denied on other grounds and the lower court's discussion of the impediment requirement was declared moot.[31] More recently, one court appeared to suggest that the non-existence of means to prevent or detect a lack of conformity in the goods may well constitute a sufficient impediment for exemption of the seller under article 79.[32] Yet another decision indicated that a prohibition on exports by the seller's country constituted an "impediment" within the meaning of article 79 for a seller who failed to deliver the full quantity of goods, although the tribunal denied the exemption because the impediment was foreseeable when the contract was concluded.[33]

11. Other available decisions apparently have not focused on the question of what constitutes an "impediment" within the meaning of article 79(1). In those decisions in which a party was deemed exempt under article 79, the tribunal presumably was satisfied that the impediment requirement had been met. The impediments to performance in those cases were: refusal by State officials to permit importation of the goods into the buyer's country (found to exempt the buyer, who had paid for the goods, from liability for damages for failure to take delivery);[34] the manufacture of defective goods by the seller's supplier (found to exempt the seller from damages for delivery of non-conforming goods where there was no evidence the seller acted in bad faith);[35] the failure of a carrier to meet a guarantee that the goods would be delivered on time (found, as an alternative ground for denying the buyer's claim to damages, to exempt the seller from damages for late delivery where the seller had completed its performance by duly arranging for carriage and turning the goods over to the carrier);[36] seller's delivery of non-conforming goods (found to exempt the buyer from liability for interest for a delay in paying the price).[37]

12. In certain other cases, tribunals that refused to find an exemption use language suggesting that there was not an impediment within the meaning of article 79(1), although it is often not clear whether the result was actually based on failure of the impediment requirement or on one of the additional elements going to the character of the required impediment (e.g., that it be beyond the control of the party claiming an exemption). Decisions dealing with the following situations fall into this category: a buyer who claimed exemption for failing to pay the price because of inadequate reserves of currency that was freely convertible into the currency of payment, where this situation did not appear in the exhaustive list of excusing circumstances catalogued in the written contract's force majeure clause;[38] a seller who claimed exemption for failing to deliver based on an emergency halt to production at the plant of the supplier who manufactured the goods;[39] a buyer who claimed exemption for refusing to pay for delivered goods because of negative market developments, problems with storing the goods, revaluation of the currency of payment, and decreased trade in the buyer's industry;[40] a seller who claimed exemption for failing to deliver because its supplier had run into extreme financial difficulty, causing it to discontinue producing the goods unless the seller provided it a "considerable amount" of financing.[41]

13. The bulk of available decisions that deny a claimed exemption do so on the basis of requirements other than the impediment requirement, and without making clear whether the tribunal judged that the impediment requirement had been satisfied. The claimed impediments in such cases include the following: theft of the buyer's payment from a foreign bank to which it had been transferred;[42] import regulations on radioactivity in food that the seller could not satisfy;[43] increased market prices for tomatoes caused by adverse weather in the seller's country;[44] significantly decreased market prices for the goods occurring after conclusion of the contract but before the buyer opened a letter of credit;[45] an international embargo against the seller's country that prevented the buyer from clearing the goods (caviar) through customs or making any other use of the goods until after their expiration date had passed and they had to be destroyed;[46] a remarkable and unforeseen rise in international market prices for the goods that upset the equilibrium of the contract but did not render the seller's performance impossible;[47] failure of the seller's supplier to deliver the goods to seller and a tripling of the market price for the goods after the conclusion of the contract;[48] failure of the seller's supplier to deliver the goods because the shipping bags supplied by the buyer (made to specifications provided by the seller) did not comply with regulatory requirements of the supplier's government;[49] failure of a third party to whom buyer had paid the price (but who was not an authorized collection agent of the seller) to transmit the payment to the seller;[50] an order by the buyer's government suspending payment of foreign debts;[51] chemical contamination of the goods (paprika) from an unknown source.[52]

Treatment of particular impediments: breach by suppliers

14. Certain claimed impediments appear with some frequency in the available decisions. One such impediment is failure to perform by a third-party supplier to whom the seller looked as the source for the goods.[53] In a number of cases sellers have invoked their supplier's default as an impediment that, they argued, should exempt the seller from liability for its own resulting failure to deliver the goods [54] or for its delivery of non-conforming goods.[55] Several decisions have suggested that the seller normally bears the risk that its supplier will breach, and that the seller will not generally receive an exemption when its failure to perform was caused by its supplier's default.[56] In a detailed discussion of the issue, a court explicitly stated that under the CISG the seller bears the "acquisition risk" - the risk that its supplier will not timely deliver the goods or will deliver non-conforming goods - unless the parties agreed to a different allocation of risk in their contract, and that a seller therefore cannot normally invoke its supplier's default as a basis for an exemption under article 79.[57] The court, which linked its analysis to the Convention's no-fault approach to liability for damages for breach of contract, therefore held that the seller in the case before it could not claim an exemption for delivering non-conforming goods furnished by a third-party supplier. It disapproved of a lower court's reasoning which had suggested that the only reason the seller did not qualify for an exemption was because a proper inspection of the goods would have revealed the defect.[58] Nevertheless, another court has granted a seller an exemption from damages for delivery of non-conforming goods on the basis that the defective merchandise was manufactured by a third party, which the court found was an exempting impediment as long as the seller had acted in good faith.[59]

Treatment of particular impediments: change in the cost of performance or the value of the goods

15. Claims that a change in the financial aspects of a contract should exempt a breaching party from liability for damages have also appeared repeatedly in the available decisions. Thus sellers have argued that an increase in the cost of performing the contract should excuse them from damages for failing to deliver the goods,[60] and buyers have asserted that a decrease in the value of the goods being sold should exempt them from damages for refusing to take delivery of and pay for the goods.[61] These arguments have not been successful, and several courts have expressly commented that a party is deemed to assume the risk of market fluctuations and other cost factors affecting the financial consequences of the contract.[62] Thus in denying a buyer's claim to an exemption after the market price for the goods dropped significantly, one court asserted the such price fluctuations are foreseeable aspects of international trade, and the losses they produce are part of the "normal risk of commercial activities".[63] Another court denied a seller an exemption after the market price for the goods tripled, commenting that "it was incumbent upon the seller to bear the risk of increasing market prices ...".[64] Another decision indicated that article 79 did not provide for an exemption for hardship as defined in the domestic Italian doctrine of eccesiva onerosità sopravvenuta, and thus under the CISG a seller could not have claimed exemption from liability for non-delivery where the market price of the goods rose "remarkably and unforeseeably" after the contract was concluded.[65] Other reasons advanced for denying exemptions because of a change in financial circumstances are that the consequences of the change could have been overcome,[66] and that the possibility of the change should have been taken into account when the contract was concluded.[67]

Requirement that the impediment be beyond the control of the party claiming exemption

16. In order to qualify for an exemption, article 79(1) requires that a party's failure to perform be due to an impediment that was "beyond his control". It has been held that this requirement was not satisfied, and thus it was proper to deny an exemption, where a buyer paid the price of the goods to a foreign bank from which the funds were stolen and never received by the seller.[68] On the other hand, some decisions have found an impediment beyond the control of a party where governmental regulations or the actions of governmental officials prevented a party's performance. Thus a buyer that had paid for the goods was held exempt from liability for damages for failing to take delivery where the goods could not be imported into the buyer's country because officials would not certify their safety.[69] Similarly, an arbitral tribunal found that a prohibition on the export of coal implemented by the seller's State constituted an impediment beyond the control of the seller, although it denied the seller an exemption on other grounds.[70] Several decisions have focused on the issue whether a failure of performance by a third party who was to supply the goods to the seller constituted an impediment beyond the seller's control.[71] In one decision, the court found that the fact defective goods had been manufactured by a third party satisfied the requirement, provided the seller had not acted in bad faith.[72] Where the seller's supplier could not continue production of the goods unless the seller advanced it "a considerable amount of cash", however, an arbitral tribunal found that the impediment to the seller's performance was not beyond its control, stating that a seller must guarantee its financial ability to perform even in the face of subsequent, unforeseeable events, and that this principle also applied to the seller's relationship with its suppliers.[73] And where the seller's supplier shipped to the buyer, on the seller's behalf, a newly-developed type of vine-wax that proved to be defective, the situation was found not to involve an impediment beyond the seller's control: a lower court held that the requirements for exemption were not satisfied because the seller would have discovered the problem had it fulfilled it obligation to test the wax before it was shipped to its buyer;[74] on appeal, a higher court affirmed the result but rejected the lower court's reasoning, stating that the seller would not qualify for an exemption regardless of whether it breached an obligation to examine the goods.[75]

Requirement that the party claiming exemption could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract

17. To satisfy the requirements for an exemption under article 79, a party's failure to perform must be due to an impediment that the party "could not reasonably be expected to have taken ... into account at the time of the conclusion of the contract". Failure to satisfy this requirement was one reason cited by an arbitral tribunal for denying an exemption to a seller that had failed to deliver the goods because of an emergency production stoppage at the plant of a supplier that was manufacturing the goods for the seller.[76] Several decisions have denied an exemption when the impediment was in existence and should have been known to the party at the time the contract was concluded. Thus where a seller claimed an exemption because it was unable to procure milk powder that complied with import regulations of the buyer's State, the court held that the seller was aware of such regulations when it entered into the contract and thus took the risk of locating suitable goods.[77] Similarly, a seller's claim of exemption based on regulations prohibiting the export of coal [78] and a buyer's claim of exemption based on regulations suspending payment of foreign debts [79]were both denied because, in each case, the regulations were in existence (and thus should have been taken into account) at the time of the conclusion of the contract. Parties have been charged with responsibility for taking into account the possibility of changes in the market value of goods because such developments were foreseeable when the contract was formed, and claims that such changes constitute impediments that should exempt the adversely-affected party have been denied.[80]

Requirement that the party claiming exemption could not reasonably be expected to avoid or overcome the impediment

18. In order to satisfy the prerequisites for an exemption under article 79(1), a party's failure to perform must be due to an impediment that the party could not reasonably be expected to have avoided. In addition, it must not reasonably have been expected that the party would overcome the impediment or its consequences. Failure to satisfy these requirements were cited by several tribunals in denying exemptions to sellers whose non-performance was allegedly caused by the default of their suppliers. Thus it has been held that a seller whose supplier shipped defective vine wax (on the seller's behalf) directly to the buyer,[81] as well as a seller whose supplier failed to produce the goods due to an emergency shut-down of its plant,[82] should reasonably have been expected to have avoided or surmounted these impediments, and thus to have fulfilled their contractual obligations.[83] Similarly, it has been held that a seller of tomatoes was not exempt for its failure to deliver when heavy rainfalls damaged the tomato crop in the seller's country, causing an increase in market prices: because the entire tomato crop had not been destroyed, the court ruled, the seller's performance was still possible, and the reduction of tomato supplies as well as their increased cost were impediments that seller could overcome.[84]

Requirement that failure to perform be "due to" the impediment

19. In order to qualify for an exemption under article 79(1), a party's failure to perform must be "due to" an impediment meeting the requirements discussed in the preceding paragraphs. This causation requirement has been invoked as a reason to deny a party's claim to exemption, as where a buyer failed to prove that its default (failure to open a documentary credit) was caused by its government's suspension of payment of foreign debt.[85] The operation of the causation requirement may also be illustrated by an appeal in litigation involving a seller's claim to be exempt under article 79 from damages for delivering defective grape vine wax . The seller argued it was exempt because the wax was produced by a third party supplier that had shipped it directly to the buyer. A lower court denied the seller's claim because it found that the seller should have tested the wax, which was a new product, in which event it would have discovered the problem.[86] Hence, the court reasoned, the supplier's faulty production was not an impediment beyond its control. On appeal to a higher court, the seller argued that all vine wax from its supplier was defective that year, so that even if it had sold a traditional type (which it presumably would not have had to examine) the buyer would have suffered the same loss.[87] The court dismissed the argument because it rejected the lower court's reasoning: according to the court, the seller's responsibility for defective goods supplied by a third party did not depend on its failure to fulfill an obligation to examine the goods; rather, the seller's liability arose from the fact that, unless agreed otherwise, sellers bear the "risk of acquisition", and the seller would have been liable for the non-conforming goods even if it was not obliged to examine them before delivery. The court apparently found that, even if the seller had sold defective vine wax that it was not obliged to examine, the default would still not have been caused by an impediment that met the requirements of article 79.

Burden of proof

20. Several decisions assert that article 79(1) -- in particular the language indicating that a party is exempt "if he proves that the failure [to perform] was due to an impediment beyond his control ..." -- expressly allocates the burden of proving the requirements for exemption to the party claiming the exemption, thus also establishing that questions concerning the burden of proof are matters within the scope of the Convention.[88] Such decisions also maintain that article 79(1) evidences a general principle of the Convention allocating the burden of proof to the party who asserts a claim or who invokes a rule, exception or objection, and that this general principle can be used, pursuant to CISG article 7(2), to resolve burden of proof issues that are not expressly dealt with in the Convention.[89] The approach and/or language of several other decisions strongly imply that the burden of proving the elements of an exemption falls to the party claiming the exemption.[90]

Article 79(2)

21. Article 79(2) imposes special requirements if a party claims exemption because its own failure to perform was "due to the failure by a third person whom he has engaged to perform the whole or a part of the contract". Where it applies, article 79(2) demands that the requirements for exemption under article 79(1) be satisfied with respect to both the party claiming exemption and the third party before an exemption should be granted. This is so even though the third party may not be involved in the dispute between the seller and the buyer (and hence the third party is not claiming an exemption), and even though the third party's obligations may not be governed by the Sales Convention. The special requirements imposed by article 79(2) increase the obstacles confronting a party claiming exemption, so that it is important to know when it applies. A key issue, in this regard, is the meaning of the phrase "a third person whom he [i.e., the party claiming exemption] has engaged to perform the whole or a part of the contract". Several cases have addressed the question whether a supplier to whom the seller looks to procure or produce the goods is covered by the phrase, so that a seller who claims exemption because of a default by such a supplier would have to satisfy article 79(2).[91] In one decision, a regional appeals court held that a manufacturer from whom the seller ordered vine wax to be shipped directly to the buyer was not within the scope of article 79(2), and the seller's exemption claim was governed exclusively by article 79(1).[92] On appeal, the court avoided the issue, suggesting that the seller did not qualify for exemption under either article 79(1) or 79(2).[93] An arbitral tribunal has suggested that article 79(2) applies when the seller claims exemption because of a default by a "sub-contractor" or of the seller's "own staff", but not when the third party is a "manufacturer or sub-supplier".[94] On the other hand, another arbitral tribunal assumed that a fertilizer manufacturer with whom a seller contracted to supply the goods and to whom the buyer was instructed to send specified types of bags for shipping the goods was covered by article 79(2).[95] It has also been suggested that a carrier whom the seller engaged to transport the goods is the kind of third party that falls within the scope of article 79(2).[96]

Article 79(5): Consequences of exemption

22. Article 79(5) of the Convention specifies that a successful claim to exemption protects a party from liability for damages, but it does not preclude the other party from "exercising any right other than to claim damages". Claims against a party for damages have been denied in those cases in which the party qualified for an exemption under article 79.[97] A seller's claim to interest on the unpaid part of the contract price has also been denied on the basis that the buyer had an exemption for its failure to pay.[98] In one decision it appears that both the buyer's claim to damages and its right to avoid the contract were rejected because the seller's delivery of non-conforming goods "was due to an impediment beyond its control", although the court permitted the buyer to reduce the price in order to account for the lack of conformity.[99]

Derogation from Article 79: Relationship between Article 79 and force majeure clauses

23. Article 79 is not excepted from the rule in article 6 empowering the parties to "derogate from or vary the effect of" provisions of the Convention. Decisions have construed article 79 in tandem with force majeure clauses in the parties' contract. One decision found that a seller was not exempt for failing to deliver the goods under either article 79 or under a contractual force majeure clause, thus suggesting that the parties had not preempted article 79 by agreeing to the contractual provision.[100] Another decision denied a buyer's claim to exemption because the circumstances that the buyer argued constituted a force majeure were not found in an exhaustive listing of force majeure situations included in the parties' contract.[101]

FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

1. [GERMANY Amtsgericht [Lower Court] Charlottenburg 4 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940504g1.html>].

2. [GERMANY Oberlandesgericht [Appellate Court] Hamburg 4 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970704g1.html>]; [BELGIUM Rechtbank van Koophandel [Commercial Court] 2 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950502b1.html>]; CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>] (suggesting that a seller can be exempt from liability for failure to deliver only if suitable goods were no longer available in the market); CLOUT case No. 54 [ITALY Tribunale Civile [District Court] Monza 14 January 1993, available online at <http://cisgw3.law.pace.edu/cases/930114i3.html>]. But see [GERMANY Amtsgericht [Lower Court] Charlottenburg 4 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940504g1.html>], where the court implied that article 79 imposes something less than an impossibility standard when it held that the buyer was exempt from interest for a delayed payment of the price even though timely payment was clearly possible - albeit not reasonably to be expected in the circumstances, according to the court.

3. CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>].

4. CLOUT case No. 54 [ITALY Tribunale Civile [District Court] Monza 14 January 1993, available online at <http://cisgw3.law.pace.edu/cases/930114i3.html>] (see full text of the decision).

5. CLOUT case No. 47 [GERMANY Landgericht [District Court] Aachen 14 May 1993, available online at <http://cisgw3.law.pace.edu/cases/930514g1.html>] (see full text of the decision).

6. CLOUT case No. 54 [ITALY Tribunale Civile [District Court] Monza 14 January 1993, available online at <http://cisgw3.law.pace.edu/cases/930114i3.html>].

7. CLOUT case No. 271 [GERMANY Bundesgerichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>].

8. [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>].

9. See CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>] (in discussing application of article 79, tribunal asserts "[o]nly the apportionment of the risk in the contract is relevant here") (see full text of the decision); CLOUT case No. 271 [GERMANY Bundesgerichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>] ("The possibility of exemption under CISG article 79 does not change the allocation of the contractual risk"). For other cases suggesting or implying that the question of exemption under article 79 is fundamentally an inquiry into the allocation of risk under the contract, see [NETHERLANDS Rechtsbank [District Court] 's-Hertogenbosch 2 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981002n1.html>]; [BELGIUM Rechtbank van Koophandel [Commercial Court] Hasselt 2 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950502b1.html>]; [BULGARIA Arbitration Award case No. 11/1996 of 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212bu.html>] CLOUT case No. 102 [ICC International Court of Arbitration, case No. 6281 of 1989, available online at <http://cisgw3.law.pace.edu/cases/896281.html>] CLOUT case no. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>] [ICC International Court of Arbitration, case No. 8128 of 1995, available online at <http://cisgw3.law.pace.edu/cases/958128i1.html>] CLOUT case No. 410 [GERMANY Landgericht [District Court] 12 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950512g1.html>]

10. See CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>](see full text of the decision).

11. CLOUT case No. 163 [HUNGARY Budapest Arbitration Award, case No. Vb96074 of 10 December 1996, available online at <http://cisgw3.law.pace.edu/cases/961210h1.html>].

12. CLOUT case No. 331 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 10 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990210.html>]

13. [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>] seller granted exemption from damages for delivery of non-conforming goods, although the court ordered the seller to give the buyer a partial refund); CLOUT case No. 331 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 10 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990210s1.html>] (seller found exempt from damages for late delivery of goods).

14. CLOUT case No. 140 [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950316r1.html>]; [NETHERLANDS Rechtbank [District Court] 's-Hertogenbosch 2 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981002n1.html>]; [GERMANY Bundesgerichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324.html>], affirming (on somewhat different reasoning) CLOUT case No. 272 [GERMANY Oberlandesgericht [Appellate Court] Zweibrücken 31 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980331g1.html>]; [BULGARIA Arbitration Award, case No. 56/1995 of 14 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960414bu.html>]; CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>]; [ICC International Court of Arbitration, case no. 8128 of 1995, available online at <http://cisgw3.law.pace.edu/cases/958128i1.html>]; CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>], [GERMANY Landgericht [District Court] Ellwangen 21 August 1995, available online at <http://cisgw3.law.pace.edu/cases/950821g2.html>]. See also CLOUT case No. 102 [ICC International Court of Arbitration, case No. 6281 of 1989, available online at <http://cisgw3.law.pace.edu/cases/896281i1.html>] (tribunal applies Yugoslav national doctrines, but also indicates that exemption would have been denied under article 79).

15. [RUSSIA Arbitration Award case No. 155/1996 of 22 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970122r1.html>] (buyer that had paid price for goods granted exemption for damages caused by its failure to take delivery); [GERMANY Amtsgericht [Lower Court) Charlottenburg 4 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940504g1.html>] (buyer granted exemption from liability for interest and damages due to late payment).

16. CLOUT case No. 142 [RUSSIA Arbitration Award case No. 123/1992 of 17 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951017r1.html>]; [RUSSIA High Arbitration Court, Information Letter No. 29 of 16 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980216r1.html>]; [BELGIUM Rechtbank van Koophandel [Commercial Court] Hasselt 2 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950502b1.html>]; [BULGARIA Arbitration Award, case No. 11/1996 of 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212bu.html>]; CLOUT case No. 410 [GERMANY Landgericht [District Court] Alsfeld 12 May 1995 , available online at <http://cisgw3.law.pace.edu/cases/950512g1.html>]; CLOUT case No. 104 [ICC International Court of Arbitration, case No. 7197 of 1993, available online at <http://cisgw3.law.pace.edu/cases/937197i1.html>].

17. CLOUT case No. 272 [GERMANY Oberlandesgericht [Appellate Court] Zweibrücken 31 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980331g1.html>].

18. CLOUT case No. 271 [GERMANY Bundesgerichshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>].

19. [GERMANY Bundesgerichtshof [Federal Supreme Court] 9 January 2002, available online at <http://cisgw3.law.pace.edu/cases/020109g1.html>].

20. [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>].

21. CLOUT case No. 331 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 10 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990210s1.html>].

22. [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/98-119f1.html>].

23. [GERMANY Amtsgericht [Lower Court] Chalottenburg 4 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940504g1.html>].

24. [RUSSIA Arbitration Award case No. 155/1996 of 22 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970122r1.html>].

25. CLOUT case No. 142 [RUSSIA Arbitration Award case No. 123/1992 of 17 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951017r1.html>]; [RUSSIA High Arbitration Court, Information Letter 29 of 16 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980216r1.html>]; CLOUT case No. 163 [HUNGARY Budapest Arbitration Award case No. Vb 96074 of 10 December 1996, available online at <http://cisgw3.law.pace.edu/cases/961210h1.html>]; [BULGARIA Arbitration Award case No. 11/1996 of 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212bu.html>]; CLOUT case No. 410 [GERMANY Landgericht [District Court] Alsfeld 12 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950512g1.html>].

26. CLOUT case No. 104 [ICC International Court of Arbitration, case No. 7197 of 1993, available online at <http://cisgw3.law.pace.edu/cases/937197i1.html>]; [BELGIUM Rechtbank van Koophandel [Commercial Court] Hasselt 2 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950502b1.html>].

27. CLOUT case No. 140 [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950316r1.html>]; [NETHERLANDS Rechtsbank [District Court] 's-Hertogenbosch 2 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981002n1.html>]; [GERMANY Oberlandesgericht [Appellate Court] Hamburg 4 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970404g1.html >]; CLOUT case No. 102 [ICC International Court of Arbitration, case No. 6281 of 1989, available online at <http://cisgw3.law.pace.edu/cases/896281i1.html>] ; [BULGARIA Arbitration Award case No. 56/1995 of 24 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960424bu.html>]; CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>] ; [ICC International Court of Arbitration, case No. 8128 of 1995, available online at <http://cisgw3.law.pace.edu/cases/958128i1.html>]; CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996 , available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>].

28. CLOUT case No. 271 [GERMANY Bundestgerichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>]; [GERMANY Landgericht [District Court] Ellwangen 21 August 1995, available online at <http://cisgw3.law.pace.edu/cases/950821g2.html>] . See also [NETHERLANDS Rechtbank [District Court] 's-Hertogenbosch 2 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981002n1.html>] (denying exemption for seller that failed to deliver because it could not acquire conforming goods)

29. CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960821g1.html>].

30. CLOUT case No. 272 [GERMANY Oberlandesgericht [Appellate Court] Zweibrücken 31 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980331g1.html>]. The court nevertheless denied the seller claim of exemption on the facts of the particular case.

31. CLOUT case No. 271 [GERMANY Bundesgerichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>]. For further discussion of the question whether a seller can claim exemption under article 79 for delivery of non-conforming goods, see supra para. 8.

32. [GERMANY Bundesgerichtshof [Federal Supreme Court] 9 January 2002, available online at <http://cisgw3.law.pace.edu/cases/020109g1.html>].

33. [BULGARIA Arbitration Award case No. 56/1995 of 24 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960424bu.html>]. The seller also claimed exemption for failing to deliver the goods (coal) because of a strike by its country's coal miners, but the court denied the claim because the seller was already in default when the strike occurred.

34. [RUSSIA Arbitration Award case No. 155/1996 of 22 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970122r1.html>].

35. [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>].

36. CLOUT case No. 331 [SWITZERLAND Handelsgericht [Commercial Court] 10 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990210s1.html>] (see full text of the decision).

37. [GERMANY Amtsgericht [Lower Court] Charlottenburg 4 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940504g1.html>].

38. CLOUT case No. 142 [RUSSIA Arbitration Award case No. 123/1992 of 17 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951017r1.html>].

39. CLOUT case No. 140 [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950316r1.html>].

40. [BULGARIA Arbitration Award case No. 11/1996 of 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212bu.html>].

41. CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>].

42. [RUSSIA High Arbitration Court: Information Letter No. 29 of 16 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980216r1.html>.

43. [NETHERLANDS Rechtsbank [District Court] 's-Hertogenbosch 2 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981002n1.html>].

44. [GERMANY Oberlandesgericht [Appellate Court] Hamburg 4 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970704g1.html>].

45. [BELGIUM Rechtbank van Koophandel [Commercial Court] 2 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950502b1.html>].

46. CLOUT case No. 163 [HUNGARY Budapest Arbitration Award case No. Vb 96074 of 10 December 1996, available online at <http://cisgw3.law.pace.edu/cases/961210h1.html>].

47. CLOUT case No. 54 [ITALY Tribunale Civile [District Court] Monza 14 January 1993, available online at <http://cisgw3.law.pace.edu/cases/930114i3.html>].

48. CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>].

49. [ICC International Court of Arbitration, case No. 8128 of 1995, available online at <http://cisgw3.law.pace.edu/cases/958128i1.html>].

50. CLOUT case No. 410 [GERMANY Landgericht [District Court] Alsfeld 12 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950512g1.html>].

51. CLOUT case No. 104 [ICC International Court of Arbitration, case No. 7197 of 1992, available online at <http://cisgw3.law.pace.edu/cases/927197i1.html>].

52. [GERMANY Landgericht [District Court] Ellwangen 21 August 1995, available online at <http://cisgw3.law.pace.edu/cases/950821g2.html>]. An arbitral panel noted on the basis of domestic Yugoslavian law that a 13.16% rise in the cost of steel - which the tribunal found as a predictable development - would not exempt the seller from liability for failing to deliver the steel (the panel suggested that the domestic Yugoslavian law was consistent with art. 79); see CLOUT case No. 192 [ICC International Court of Arbitration, case No. 6281 of 1989, available online at <http://cisgw3.law.pace.edu/cases/896281i1.html>] (see full text of the decision).

53. This situation also raises issues concerning; the applicability of article 79(2) - a topic that is discussed infra, para. 21.

54. CLOUT case No. 140 [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950316r1.html>]; [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>]; [ICC International Court of Arbitration, case No. 8128 of 1995, available online at <http://cisgw3.law.pace.edu/cases/958128i1.html>]; CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>].

55. CLOUT case No. 271 [GERMANY Bundesgerichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>]; [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>].

56. CLOUT case No. 140 [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995, available online at <http://cisgw3.law.pace.edu/cases/960316r1.html>; CLOUT case No. [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>]; [ICC International Court of Arbitration, case No. 8128 of 1995, available online at <http://cisgw3.law.pace.edu/cases/958128i1.html>]; CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>]. In another case, the seller claimed that chemical contamination of the goods did not result from its processing, but the court declared that the source of the contamination was irrelevant for purposes of article 79; see [GERMANY Landgericht [District Court] Ellwangen 21 August 1995, available online at <http://cisgw3.law.pace.edu/cases/950821g2.html>].

57. CLOUT case No. 271 [GERMANY Bundesterichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990524g1.html> (see full text of the decision).

58.The lower court opinion is CLOUT case No. 272 [GERMANY Oberlandesgericht [Appellate Court] Zweibrücken 31 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980321g1.html>. Another case also suggested that a seller's opportunity to discover a lack of conformity by pre-delivery inspection was relevant in determining the seller's entitlement to exemption under article 79; see [GERMANY Landgericht [District Court] Ellwangen 21 August 1995, available online at <http://cisgw3.law.pace.edu/cases/950821g2.html>].

59. [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>. For discussion of the requirement that an impediment be beyond a party's control as applied to situations in which a seller's failure of performance is due to a default by its supplier, see para. 16 infra.

60. [GERMANY Oberlandesgericht [Appellate Court] Hamburg 4 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970704g1.html>]; CLOUT case No. 102 [ICC International Court of Arbitration, case No. 6281 of 1989, available online at <http://cisgw3.law.pace.edu/cases/896281i1.html>]; CLOUT case No. 277 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>. See also CLOUT case No. 54 [ITALY Tribunale Civile [District Court] Monza 14 January 1993, available online at <http://cisgw3.law.pace.edu/cases/930114i3.html>] (court's opinion concerning whether article 79 would exempt a seller from liability for non-delivery where the market price of the goods rose "remarkably and unforeseeably" after the contract was concluded).

61. [BELGIUM Rechtbank van Koophandel [Commercial Court] Hasselt 2 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950502b1.html>]; [BULGARIA Arbitration Award case No. 11/1996 of 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212bu.html>].

62. See [BULGARIA Arbitration Award case No. 11/1996 of 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212bu.html>]; CLOUT case No. 102 [ICC International Court of Arbitration, case No. 6281 of 1989, available online at <http://cisgw3.law.pace.edu/cases/896261i1.html> ; CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>; CLOUT case No.166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>].

63. [BELGIUM Rechtbank van Koophandel [Commercial Court] Hasselt 2 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950502b1.html>].

64. CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>].

65. CLOUT case No. 54 [ITALY Tribunale Civile [District Court] Monza 14 January 1993, available online at <http://cisgw3.law.pace.edu/cases/930114i3.html>] (see full text of the decision).

66. [GERMANY Oberlandesgericht [Appellate Court] Hamburg 4 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970704g1.html>].

67. [BULGARIA Arbitration Award case No. 11/1996 of 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212bu.html>]; CLOUT case No. 102 [ICC International Court of Arbitration, case No. 6281 of 1989, available online at <http://cisgw3.law.pace.edu/cases/896281.html>].

68. [RUSSIA High Arbitration Court: Information Letter No. 29 of 16 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980216r1.html>].

69. [RUSSIA Arbitration Award case No. 155/1996 of 22 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970122r1.html>].

70. [BULGARIA Arbitration Award case No. 56/1995 of 24 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960424bu.html>] (denying an exemption because the impediment was foreseeable at the time of the conclusion of the contract).

71. For further discussion of the application of article 79 to situations in which the seller's failure of performance was caused by a supplier's default, see supra para. 14 and infra paras. 17, 18, and 21.

72. [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>].

73. CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>].

74. CLOUT case No. 272 [GERMANY Oberlandesgericht [Appellate Court] Zweibrücken 31 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980331g1.html>].

75. CLOUT case No. 271 [GERMANY Bundesgerichtshof [Federal Supreme Court] 24 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980324g1.html>]. A tribunal that finds a party exempt under article 79 presumably is satisfied that the requirement that an impediment be beyond the control of a party has been met, whether or not the tribunal expressly discusses the element. Without discussing the requirement, the following decisions held that the prerequisites for exemption under article 79 had been met: CLOUT case No. 331 [SWITZERLAND Handelstericht [Commercial Court] 10 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990210s1.html>] (seller found exempt from damages for late delivery of goods); [GERMANY Amtsgericht [Lower Court] Charlottenburg 4 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940504g1.html>] (buyer granted exemption from liability for interest and damages due to late payment).

76. CLOUT case No. 140 [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950316r1.html>]. For further discussion of the application of article 79 to situations in which the seller's failure of performance was caused by a supplier's default, see supra paras. 14 and 16, and infra paras. 18 and 21.

77. [NETHERLANDS Rechtbank [District Court] 's-Hertogenbosch 2 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981002n1.html>].

78. [BULGARIA Arbitration Award case No.56/1995 of 24 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960424bu.html>].

79. CLOUT case No. 104 [ICC International Court of Arbitration, case No. 7197 of 1992, available online at <http://cisgw3.law.pace.edu/cases/927197i1.html>] (see full text of the decision).

80. [BELGIUM Rechtbank van Koophandel [Commercial Court] Hasselt 2 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950502b1.html>] (a significant drop in the world market price of frozen raspberries was "foreseeable in international trade" and the resulting losses were "included in the normal risk of commercial activities"; thus buyer's claim of exemption was denied: [BULGARIA Arbitration Award case No. 11/1996 of 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212bu.html>] (negative developments in the market for the goods "were to be considered part of the buyer's commercial risk" and "were to be reasonably expected by the buyer upon conclusion of the contract); CLOUT case No. 102 [ICC International Court of Arbitration, case No. 6281 of 1989, available online at <http://cisgw3.law.pace.edu/cases/896281i1.html>] (when the contract was concluded a 13.16% rise in steel prices in approximately three months was predictable because market prices were known to fluctuate and had begun to rise at the time the contract was formed; although decided on the basis of domestic law, the court indicated that the seller would therefore have been denied an exemption under article 79 (see full text of the decision).

A tribunal that finds a party exempt under article 79 presumably believes the requirement that the party could not reasonably have taken the impediment into account when entering into the contract has been met, whether or not the tribunal expressly discusses that element. Although they did not discuss the requirement, the following decisions held that the prerequisites for exemption under article 79 had been met: CLOUT case No. 331 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 10 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990210s1.html>] (seller found exempt from damages for late delivery of goods); [GERMANY Amtsgericht [Lower Court] Charlottenburg 4 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940504g1.html>] (buyer granted exemption from liability for interest and damages due to late payment); [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>] (seller granted exemption from damages for delivery of non-conforming goods, although the court ordered the seller to give the buyer a partial refund); [RUSSIA Arbitration Award case No. 155/1996 of 22 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970122r1.html>] (buyer that had paid price for goods granted exemption for damages caused by its failure to take delivery).

81. CLOUT case No. 271 [GERMANY Bundesgerichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>], affirming (on somewhat different reasoning) CLOUT case No. 272 [GERMANY Oberlandesgericht [Appellate Court] Zweibrücken 31 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980331g1.html>]. In CLOUT case No. 271, the court generalized that a supplier's breach is normally something that, for purposes of article 79, the seller must avoid or overcome.

82. CLOUT case No. 140 [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950316r1.html>].

83. For further discussion of the application of article 79 to situations in which the seller's failure of performance was caused by a supplier's default, see supra paras. 14, 16 and 17, and infra para. 21.

84. [GERMANY Oberlandesgericht [Appellate Court] Hamburg 4 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970704g1.html>].

A tribunal that finds a party exempt under article 79 presumably believes the requirements that the party could not reasonably be expected to have avoided the impediment or to have overcome it or its consequences have been met, whether or not the tribunal expressly discusses these elements. Although they did not discuss these requirements, the following decisions held that the prerequisites for exemption under article 79 had been met: CLOUT case No. 331 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 10 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990210s1.html>] (seller found exempt from damages for late delivery of goods); [GERMANY Amtsgericht [Lower Court] Charlottenburg 4 May 1994, available online at <http://cisgw3.law.pace.edu/cases/950504g1.html>] (buyer granted exemption from liability for interest and damages due to late payment); [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>] (seller granted exemption from damages for delivery of non-conforming goods, although the court ordered the seller to give the buyer a partial refund); [RUSSIA Arbitration Award case No. 155/1996 of 22 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970122r1.html>] (buyer that had paid price for goods granted exemption for damages caused by its failure to take delivery).

85. CLOUT case No. 104 [ICC International Court of Arbitration, case No. 7197 of 1992, available online at <http://cisgw3.law.pace.edu/cases/927197i1.html> (see full text of the decision). See also [BULGARIA Arbitration Award case No. 56/1995 of 24 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960424bu.html>] (seller's argument that a miners' strike should exempt it from damages for failure to deliver coal rejected because at the time of the strike seller was already in default).

86. CLOUT case No. 272 [GERMANY Oberlandesgericht [Appellate Court] Zweibrücken 31 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980331g1.html>].

87. CLOUT case No. 271 [GERMANY Bundesgerichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>].

88. CLOUT case No. 378 [ITALY Tribunale [District Court] Vigevano 12 July 2000, available online at <http://cisgw3.law.pace.edu/cases/000712i3.html>]; [GERMANY Bundesterichtshof [Federal Supreme Court] 9 January 2002, available online at <http://cisgw3.law.pace.edu/cases/020109g1.html>]. The latter case, however, distinguishes the question of the effect on the burden of proof of an extra-judicial admission of liability, viewing this matter as beyond the scope of the Convention.

89. CLOUT case No. 378 [ITALY Tribunale [District Court] Vigevano 12 July 2000, available online at <http://cisgw3.law.pace.edu/cases/000712i3.html>; [GERMANY Bundesgerichtshof [Federal Supreme Court] 9 January 2002, available online at <http://cisgw3.law.pace.edu/cases/020109g1.html>]; CLOUT case No. 380 [ITALY Tribunale [District Court] Pavia 29 December 1999, available online at <http://cisgw3.law.pace.edu/cases/991229i3.html>] (see full text of the decision).

90. CLOUT case No. [RUSSIA Arbitration Award case No. 155/1994 of 16 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950316r1.html>] (denying the seller's claim to exemption because seller was unable to prove the required facts); CLOUT case No. 104 [ICC International Court of Arbitration, case No. 7197 of 1992, available online at <http://cisgw3.law.pace.edu/cases/927197i1.html> (denying the buyer's exemption claim because buyer did not prove that its failure to perform was caused by the impediment); CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>] (tribunal uses language suggesting that the seller, who was claiming an exemption, had to submit the facts to substantiate the claim).

91. The application of the requirements of article 79(1) to situations in which a seller claims exemption because its supplier defaulted on its own obligations to the seller is discussed supra paras. 14, 16, 17 and 18.

92. CLOUT case No. 272 [GERMANY Oberlandesgericht [Appellate Court] Zweibrücken 31 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980331g1.html>].

93. CLOUT case No. 271 [GERMANY Bundesgerichtshof [Federal Supreme Court] 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g1.html>].

94. CLOUT case No. 166 [GERMANY Hamburg Arbitration Award of 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>] (see full text of the decision).

95. [ICC International Court of Arbitration, case No. 8128 of 1995, available online at <http://cisgw3.law.pace.edu/cases/958128i1.html>].

96. CLOUT case No. 331 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 10 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990210s2.html>].

97. CLOUT case No. 331 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 10 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990210s1.html>] (see full text of the decision); [RUSSIA Arbitration Award case No. 155/1996 of 22 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970122r1.html>].

98. [GERMANY Amtsgericht [Lower Court] Charlottenburg 4 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940504g1.html>].

99. [FRANCE Tribunal de Commerce [District Court] Besançon 19 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980119f1.html>].

100. CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>].

101. CLOUT case No. 142 [RUSSIA Arbitration Award case No. 123/1992 of 17 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951017r1.html>]; [RUSSIA High Arbitration Court: Information Letter No. 29 of 16 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980216r1.html>].

Reprinted by special permission of Northwestern University School of Law. 34 Northwestern Journal of International Law and Business (Winter 2004) 299-440.[*]

[...]

3. Impediment (Excuse) to Performance: Article 79

A buyer may still be barred from recovering foreseeable damages if the defendant seller can prove that non-performance was due to an impediment. Under Article 79, a party will not be held liable for failure to perform his contractual obligations if he proves that "the failure was due to an impediment beyond his control" and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.[783] A party may also be excused from performance, under limited circumstances, if the failure to perform is due to the failure of a third person.[784] As is the case with avoidance, a party who fails to perform because of an impediment must provide notice to the other party within a "reasonable time" after the party who fails to perform knew or ought to have known of the impediment.[785] If the other party does not receive such notice, then the party who fails to perform will be liable for damages that could have been avoided if proper notice had been given. [786]

To be excused, the circumstances constituting the impediment must be [page 424] beyond the party's control.[787] The burden of proof is on the non-performing party to prove the circumstances entitling it to an excuse from liability.[788] For example, a seller who fully performed his obligations under the contract, then placed the goods in the hands of a carrier, was not held liable for the carrier's failure to deliver on time.[789]

As a general rule, however, national courts are not inclined to excuse a party for an impediment to performance.[790] A party cannot rely on the exemption merely on the ground that performance has become unforeseeably more difficult or unprofitable.[791] For example, in International Chamber of Commerce Case 6281 of 1989,[792] an arbitration panel held that a seller could not be relieved of the obligation to deliver the goods at the contract price due to a change in the market price. It reasoned that the increase in the market price was neither sudden nor unforeseeable. [793] In another case involving the sale of defective powdered milk, the German Supreme Court held that the seller could only be freed from its obligation to pay damages by proving that the infestation of the delivered milk could not have been detected and that the probable source of infestation was outside of its sphere of influence.[794]

Other circumstances where parties were not granted an excuse under Article 79 include the buyer's inability to obtain foreign currency,[795] "hardship" caused by an almost 30% increase in the cost of goods,[796] [page 425] inability to deliver the goods because of an emergency production stoppage,[797] and financial difficulties of the seller's main supplier.[798] In cases of shortage, a seller can only claim impediment if goods of an equal or similar quality are no longer available on the market. In the case of price fluctuations, the seller is allocated the risk of increasing market prices at the time of the substitute transaction. As is evidenced by these representative cases, a high standard is set for a party to successfully claim excuse due to impediment. [page 426]

[...]

FOOTNOTES

* For a subsequent text on this subject by these authors, see Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene, Virginia Maurer & Marisa Pagnattaro, "International Sales Law: A Critical Analysis of CISG Jurisprudence", Cambridge University Press (2005) 241 p.

[...]

783. CISG, supra note 4, at art. 79(1).

784. Id. at art. 79(2). To be excused from performance due to the failure by a third party, both the party to the contract and the third party must be able to meet the requirements of Article 79(1).

785. Id. at art. 79(4).

786. Id.

787. Id. at art. 77; Constitutional Court of the Russian Federation No. 7-P, Apr. 27, 2001 (Russ.), available at <http://cisgw3.law.pace.edu/cases/010427r1.html> [English translation by Yelena Kalika].

788. Trib. di Vigevano, July 12, 2000, n. 405, supra note 39.

789. HG Zürich, HG 97 0238.1, Feb. 10, 1999 (Switz.), available at <http://cisgw3.law.pace.edu/cases/990210s1.html> [English translation by Ruth M. Janal].

790. See, e.g., BGH VIII ZR 121/98, Mar. 24, 1999, supra note 95. The German Supreme Court considered a seller's liability for the delivery of non-conforming goods when the seller was only acting as an intermediary. In that case, the non-conformity was caused during the time the goods were in the control of either his supplier or his supplier's supplier.

791. See generally Dionysios Flambouras, Remarks on the Manner in Which the PECL may be Used to Interpret or Supplement Article 79 CISG (May 2002), available at <http://cisgw3.law.pace.edu/cisg/text/anno-art-79.html> (the drafting history of the CISG reveals that Article 79 is a stricter version of its predecessor which was criticized for excusing non-performance too readily, such as where performance merely became more difficult). See generally FCF S.A. v. Adriafil Commerciale S.r.l., BGE, supra note 646 (determinative facts do not reveal the existence of circumstances that may constitute an unforeseeable or unavoidable impediment or an obstacle that the party could not have reasonably overcome).

792. ICC International Court of Arbitration no. 6281, Aug. 26, 1989, available at <http://cisgw3.law.pace.edu/cases/896281i1.html>.

793. Id.

794. BHG VIII ZR 304/00, Jan. 9, 2002, supra note 289.

795. ICA Arbitral Tribunal 123/1992, Oct. 17, 1995 (Russ.), CLOUT Case No. 142, available at <http://cisgw3.law.pace.edu/cases/951017r1.html> [English translation by Yelena Kalika, translation edited by Mykhaylo Danylko].

796. Nuova Fucinati S.p.A. v. Fondmetal International A.B., Tribunale Civile [District Court] di Monza, 4267/88, Jan. 14, 1993 (It.), available at <http://cisgw3.law.pace.edu/cases/930114i3.html> [English translation by Alessandra Michelini].

797. ICA Arbitral Tribunal 155/1994, Mar. 16, 1995, (Russ.), CLOUT Case No. 140, available at [<http://cisgw3.law.pace.edu/cases/950316r1.html>] [English translation by Yelena Kalika].

798. Schiedsgericht der Handelskammer, Hamburg 1996, 3229, Mar. 21, 1996, supra note 618. See also, OLG Hamburg 1 U 167/95, Feb. 28, 1997, supra note 704 (sellers excuse was denied when it did not receive goods from its supplier). The seller would only be able to claim impediment if goods of an equal or similar quality are no longer available on the market; furthermore, it is also incumbent on a seller to bear the risk of increasing market prices at the time of the substitute transaction. Id. The court also held that although the market price had risen to triple the agreed-upon priced, this did not amount to a "sacrificial sale price," as the transaction (sale of iron-molybdenum from China) was said to be highly speculative. Id.

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Go to complete text of Analysis of Fifteen Years of CISG Jurisprudence

ANNOTATED COMPARATIVES
 -  UNIDROIT Principles
 -  PECL comparative

1. Introduction
2. Exemption of liability for damages when the party claiming impossibility is a third-party supplier of the seller: Why this was omitted from Article 7.1.7 of the UNIDROIT Principles?
3. Remedies still available to the aggrieved party when the other party's non-performance is excused
4. Is there any room for an exemption of liability on account of hardship under CISG Article 79?

I. Introduction

II.  Exemption of liability for damages when the party claiming impossibility is a
      third-party supplier of the seller: Why this was omitted from Article 7.1.7 of
      the UNIDROIT Principles?

1. When the failure to deliver conforming goods results from the failure to perform on part of "a third person whom (the seller) has engaged to perform the whole or part of the contract," it seems sensible not to exempt the seller from liability because, except in extreme cases,[1] the seller is the party who is in the best position to avoid or minimize non-compliance by someone whom he himself "has engaged to perform all or part of the contract" [emphasis added]. Those whom the seller "has engaged" include parties providing the seller with raw materials or semi-manufactured parts; namely, those that may fall under the generic rubric of "ancillary suppliers" of the seller. They are deemed to be within the seller's sphere of influence, and the seller is held responsible for the conformity caused by those employed by him to perform the contract. In other words, the seller cannot be exempted of liability vis-à-vis the buyer, even if those ancillary suppliers are in a position to invoke successfully the defense of force majeure.

2. Some delegations, however, pushed for the inclusion of a second paragraph to Article 79 in order to tighten the prerequisites of the excuse in case the seller engages a sub-contractor or a third party who is not deemed to be within his sphere of influence.[2] Thus, CISG Article 79(2) seeks to tighten the conditions under which a seller may claim the defense of impossibility or force majeure whenever the defect in performance is attributed to an "independent" third person within the meaning of Article 79(2), that is, a third person genuinely outside the seller's organizational structure and sphere of control who, though not employed by the seller, is nevertheless "engaged" by the seller.

3. Thus, whereas CISG Article 79(2) is meant to apply whenever the seller claims an exemption of liability for damages due to defects in performance resulting from a failure to perform by a "third person" (i.e., those who are independently engaged to perform the whole or part of the contract), Article 79(1) addresses a situation where the seller claims an exemption of liability due to the misconduct of a general supplier or some other "third person" employed by the seller.

4. The assumed function of CISG Article 79(2) is that the seller's liability stretches to answer for the conduct of such "independent" third person unless the impediment was insuperable for the seller and, additionally, the independent third person would himself qualify for exemption under Article 79(1). Thus, Article 79(2) is meant to increase the seller's liability, because the prerequisites for exemption must be met cumulative by both the seller and the third person. From the buyer's perspective this means, for all practical purposes, that the seller is in principle responsible for defective performance incurred by independent third persons as if it were the seller's own conduct. It appears then that the failure to perform by a third person, supposing such third person is within the meaning of CISG Art. 79(2), will seldom lead to the exemption of he party to the main contract.

5. Although it seems more difficult for the defaulting party to be exempted of liability for the acts of an "independent" third person under Article 79(2), than to be exonerated for the delivery of non-conforming goods procured from or manufactured by a supplier whom the seller has engaged to deliver conforming goods, the fact of the matter is that it is not easy to distinguish between both types of "third persons". More important, under either the first or second paragraph of CISG Article 79 the third person's failure to perform will seldom lead to the exemption of the party to the main contract.

6. In those cases where a supplier chosen by the seller had failed to deliver the promised goods, courts and arbitral tribunals held that the seller was not exempted, even in cases where the failure to deliver was unforeseeable by the seller. Decisions vary, however, as to the method followed by the courts to subsume the seller's exemption of liability under Article 79. Some courts place the analysis of whether the seller qualifies for such an exemption under paragraph (1) of Article 79;[3] other tribunals prefer to examine the seller's exoneration under paragraph (2) of Article 79;[4] and still others opt for deciding the issue on the basis of Article 79 in the abstract.[5] Indeed, the analysis undertaken by the Federal Supreme Court of Germany on March 24, 1999, suggests that those differences are not so great: "From the buyer's point of view, it makes no difference whether the seller produces the goods himself - with the consequence that the non-performance is generally in his actual control so that, as a rule, a dispensation pursuant to CISG Art. 79(1) is generally excluded - or whether the seller obtains the goods from suppliers ...".[6]

7. Therefore, even if a party's excuse due to the failure of an independent "third person" is likely to be more difficult to be established under the "double force majeure" solution provided in CISG Art. 79(2) than if the situation were solely appraised under CISG Art. 79(1), the latter provision should suffice to take care of all possible scenarios of force majeure -- not only when the defaulting party was to perform himself or with the aid of employees or his staff, but also whenever his performance is conditioned upon performance by a third party. Even if that third party's failure to perform may be excused vis à vis the defaulting party, the latter is still bound to avoid or overcome such impediment vis-à-vis the non-defaulting party to the contract, so that dispensation under Article 79(1) is excluded. This is so because the internal relationship between the third party and the defaulting party is irrelevant to the other contracting party.

8. It does not make much of a difference, in other words, whether the excuse is sought to be found under the first or second paragraph of Article 79, and even assuming that a distinction between the different types of third parties were warranted, the difficulty in distinguishing between an excuse grounded on the failure to perform by different types of third parties (e.g., employees, agents, suppliers, sub-contractors, etc) is not worth the candle. In essence, the "impediment" to which CISG Article 79(1) refers suffices to cover the situation where the lack of or defective performance is owed to the act or omission of a third party.

9. It was a wise decision on part of the drafters of the UNIDROIT Principles Article 7.1.7 not to carry over CISG Article 79(2) into the Principles. In principle, if the seller entrusts the manufacture or delivery of conforming goods to another person, or if the buyer entrusts the payment to a bank or an intermediary, both seller and buyer remain responsible with the other party.[7] CISG Article 79(1) suffices to take care of the exceptional circumstances in seller or buyer may be exempted of liability on account of the third person's defaulting performance.

III. Remedies still available to the aggrieved party when the other party's non-
       performance is excused

2. Article 7.1.7(4) of the UNIDROIT Principles does not carry over the restriction found in CISG Article 79(5) to the effect that the party who was to receive performance may be entitled to exercise all his rights under the contract except to claim damages. Instead, the counterpart of the UNIDROIT Principles phrases the potentially available remedies in less restrictive terms, stating that the aggrieved party who was to receive performance from the defaulting party that succeeded in establishing an excuse may nevertheless claim "a right to terminate the contract or to withhold performance or request interest on money due". Indeed, remedies other than damages are not limited to those listed in this provision of the UNIDROIT Principles, because the right to reduce the price (CISG Art. 50) and to compel specific performance (CISG Arts. 46 and 62) may remain as available as the right to avoid or terminate (CISG Arts. 49 and 64) and the right to collect interest on money due (CISG Art. 78).[8]

3. Indeed, there are good reasons to include price reduction as a possible available remedy in a situation of a qualified exemption for the seller's failure to delivery conforming goods. This is one of those instances where price reduction may well serve its purpose, which is not to compensate the aggrieved buyer in damages, but to "preserve[e] the bargain between the parties and [...] rebalance[e] the performance required by both sides ...".[9]

4. The exempting impediment clearly should not preclude the disappointed party from putting an end to the contract, provided that the excused failure to perform amounts to a fundamental breach (CISG Art. 25).If the non-performance were to be total and permanent, termination may be an automatic consequence of the impediment, in which case it may not be necessary to require the aggrieved party (which is the only party entitled to avoid the contract) to serve a termination notice by a unilateral declaration.[10] Once avoidance has been declared, however, the effects of avoidance insofar as "restitution" is concerned apply to both parties (CISG Arts. 81-84).

5. CISG Article 79(5) exempts the defaulting party of liability for damages in a negative form, without referring expressly to the question whether the aggrieved party may be nevertheless entitled to interest on the money that is owed to him.[11] The nature of the obligation to pay interest, as expressed in the CISG, leads to the conclusion that an Article 79 exemption does not preclude the aggrieved party from claiming and recovering interest. First, the purpose of the obligation to pay interest under CISG Article 78, in addition to the obligation to pay monetary compensation for damages, is to compensate the obligee for the financial cost experienced for not receiving payment at the time it is due. Second, CISG Article 78 seems to distinguish between the obligation to pay damages and the obligation to pay interest when it fixes the commencement of the obligation to pay interest as of the moment there is delay in payment, even if the obligee has not suffered any damage from such delay and the debtor is not liable. It is on the basis of this conceptual understanding that UNIDROIT Principles Article 7.1.7(4) provides, though expressly, that the aggrieved party is entitled to interest. UNIDROIT Principles Article 7.4.9(1) consistently states that "the aggrieved party is entitled to interest ...whether or not the non-payment is excused."[12]

6. CISG Article 79(5) seems to warrant the right of the aggrieved party to claim specific performance even if, as a result of an impediment, performance is likely to have become impossible (e.g., the goods are destroyed or the transfer of funds has been prohibited). Of course there can be no specific performance if the failure to perform turns on the fact that the total goods have perished or the payment has been rendered impossible or illegal. Yet, where a temporary impediment results in a partial non-performance or a delayed performance, then in such a case the exemption effect is only for the period during which the impediment exists (CISG Art. 79(3); UNIDROIT Principles Article 7.1.7(2)). In such a case, the right to performance continues to exist and may actually encourage the parties to invest in efforts to overcome the impediments. When the temporary impediment disappears and has no effect any longer, the exemption from specific performance is no longer justified.

7. Both CISG Article 79(5) and UNIDROIT Principles Article 7.1.7(4) leave open the possibility for the aggrieved party to demand specific performance, a claim that is not necessarily affected by the impediment excusing the non-performance. To this extent, both texts do not rigidly exclude the possibility of specific performance.[13] Whether the temporary impediment will merely result in delayed performance or is likely to deprive the performance of most of its value is another question concerning the impact of the temporary impediment in the overall performance, this question is certainly not governed by this provision on force majeure and its consequences.

IV.  Is there any room for an exemption of liability on account of hardship under
       CISG Article 79?

1. Another issue of significance in the comparison between both instruments is the absence in CISG Article 79 of any reference to a situation, short of physical or legal impossibility, in which performance by one party becomes extremely and totally unpredictably harsh. UNIDROIT Principles Article 6.2.2 expressly provides for a situation of hardship, in addition to the force majeure or impossibility scenario contemplated in Article 7.1.7, so that the defaulting party may choose claiming one or the other excuse.[14] Did the CISG fail to include a provision on hardship because the "impediment" referred to in its Article 79 may conceivably grant relief to a party who finds himself or herself in a dire situation of excessive and unpredictable hardship to perform? Or should the failure to include such a provision be interpreted as a rejection of the doctrine of hardship under the CISG?

2. Scholarly opinion is divided on this question. Some commentators state that the wording of Article 79 appears sufficiently flexible to include an extreme situation of unexpected hardship within the meaning of "impediment".[15] Others opine that there is no place in the CISG for any relief on account of economic hardship.[16] As to judicial decisions on this subject, there are too few and inconclusive to this date to warrant a stable trend either excluding or including hardship within the purview of CISG Article 79. Moreover, none of the reported decisions have extended the exemption of CISG Article 79 to cases of economic hardship. However, it must be admitted that no real "hard" cases of hardship have been presented so far.

3. The first issue to tackle is whether it is conceivable to find a situation of hardship calling for a legal response of some kind, be it under a stretched interpretation of CISG Article 79 or the CISG underlying general principles via Article 7(2) or under some national law that may eventually be rendered applicable. Once we have found a proper hypothetical covering hardship, the next question is to ascertain whether it is at all possible to deal with a genuine hardship situation via CISG Article 79 or whether we should resign ourselves to the application of some national law admitting relief in a situation of hardship (provided, of course that the applicable rule of private international law would lead to the application of a domestic legal system contemplating relief for hardship, which is not altogether certain).

4. There are not many real cases dealing with genuine situations of hardship in which courts have found it fair to provide relief and well-grounded reasons explaining why the change in circumstances was actually unpredictable and why one type of relief was more appropriate than others. This notwithstanding, most commentators would not go as far as to deny the possibility that in very rare cases, probably during truly exceptional historical periods (e.g., pre-war Germany during the 1920's) and really unstable economies or countries (e.g., hyperinflation in Argentina during the 1970's), judicial relief from a genuine hardship situation may be fairly justified. Admittedly, there are those who think that "a contract always a contract;" and would not admit an inch of an exception to the pacta sunt servanda. For those who share this point of view, it makes no sense to explore any further whether CISG Article 79 could be relied upon to tackle a genuine situation of hardship. This opinion goes on to examine the availability of a response on the assumption that pacta sunt servanda is a principle rather than a rule, though a principle that ought to be respect almost at all costs. It is at least conceivable that a defaulting party may be justified in obtaining some type of relief despite the fact that the "impediment" falls short of a strict case of physical or legal impossibility to perform.

5. Resorting to the type of scenarios designed in the comments accompanying UNIDROIT Principles Article 6.2.2, one may envision a situation where a buyer "A", domiciled in State X, concludes a contract of sale with a seller "B", domiciled in State Y. Payment is agreed to be made in State Z within three months, upon delivery of the goods, in the currency of State Z. Let us imagine that within a month of the conclusion of the contract a totally unpredictable political and economic crisis, which the parties could not have reasonably taken into account, leads to a massive devaluation of 80% of Z's currency, as a result of which the sale turns out extremely burdensome for the buyer "A" and a gross windfall for the seller "B". Admittedly, it is not easy to ascertain whether the change in circumstances could not have been reasonably foreseen. It is not an easier task to distinguish between the risk of loss that every contracting party should be deemed to have assumed and the extraordinary disastrous economic disadvantages amounting to a "limit of sacrifice" (because there is indeed such a limit), beyond which the obligor should not be expected to perform the contract as written. But if there is such a "truly hard hardship problem," i.e., a deal unexpectedly and turned a "nightmare" for one party and a "steal" for the other, well, this is it.[17]

6. Assuming that the CISG applies to this contract, and also assuming that the foregoing hypothetical falls squarely within a factually justified case of hardship, the most relevant question to explore at this point is whether a case of economic hardship as this one should be settled by the CISG, either by reading the word "impediment" in Article 79 to include economic hardship or by concluding that there is a gap within the CISG to be filled by some underlying general principle via the "governed-but-not-settled" gap-filling technique promoted in CISG Art. 7(2). If the CISG applies, then it naturally preempts other potentially applicable domestic rules dealing with hardship. But if the hardship question cannot be thus settled, then there is no alternative other than resorting to domestic legal rules, hoping that the applicable law would provide for some risk-share allocation of remedies. The alternative of resolving the hardship problem within the four corners of the CISG is more palatable, because leaving the question to the conflict of law rules of the forum leads to a great diversity of potentially applicable legal doctrines (impracticability, frustration, Wegfall der Geschäftsgrundlage, eccesiva onerosità sopravvenuta, imprévision, etc.). Thus, the interpreter who takes seriously the CISG's stated purpose of unifying the law of sales will probably exhaust all technically available means to respond to the hardship problem within the "four corners" of the Convention.

7. First, it is necessary to confirm, convincingly, that the hardship situation is not expressly or impliedly excluded from the scope of the CISG. Second, it is important to examine the legislative and drafting history of what is now CISG Article 79, to the extent that they may be considered legitimate and valuable aid in its interpretation.

8. To the extent that termination or adjustment of a contract on grounds of hardship may be regarded in some legal systems as a validity-related issue, it may be argued that the hardship issue is excluded by CISG Article 4.[18] The argument deserves careful consideration, because in some Scandinavian legal systems the issue of hardship appears to be approached as an issue of validity,[19] and also because there is something to be said in favor of giving the defaulting party the benefit of choosing among competing domestic doctrines of hardship. But this approach does not sound convincing or persuasive. Unlike a situation of unconscionability (usury, lésion or gross disparity of the performances at the time the contract is concluded), which clearly falls under the rubric of validity, the hardship problem is associated in most legal systems with force majeure or impossibility of performance, that is, a situation of exoneration or mitigation of liability due to events subsequent to the conclusion of the contract, more than as a case of nullity or avoidance due to infirmities or flaws affecting the contract from its inception.[20] Moreover, every benefit potentially obtained from allowing national doctrines of hardship to compete for its application is more than offset by the high price in terms of uniformity that is to be paid under this approach.

9. It is still necessary to trace the legislative and drafting history of the pertinent CISG provisions to ascertain whether they are indicative of a firm intention to exclude hardship from the scope of Article 79. The legislative history clearly indicates that Article 79 was drafted in response to the criticism of Article 74 of the 1964 Uniform Law on International Sales, to the effect that "a party could be too readily excused from performing his contract." But the criticism that ULIS Article 74 was insufficiently clear and subjective led to the substitution of the word "impediment" for "circumstances," so that the conditions for exemption identified are more narrowly and objectively under the CISG. But this legislative history is inconclusive to warrant the conclusion that CISG Article 79 cannot exempt a party to perform, in whole or in part, when the impediment is represented by a totally unexpected event that makes performance exceedingly difficult.

10. The exclusion (rectius: rejection) of hardship from the CISG would emerge, according to other authors, from its drafting history.[21] Indeed, at the time the draft article that later became CISG Article 79, the Working Group of UNCITRAL considered a proposed provision allowing a party to claim avoidance or adjustment of a contract whenever facing unexpected "excessive damages". After setting out the arguments in support of this proposal the Committee concluded by stating that it was not adopted, not reappearing in subsequent discussions.[22]

11. Others have relied upon another fragment from the drafting history of the Convention, the rejection of a Norwegian proposal linked to CISG Art. 79(3), to infer a rejection of the possibility of extending the application of Article 79 to a situation of genuine hardship. When the issue of temporary impediment came up for discussion, the delegation from Norway suggested the inclusion of an additional provision to the effect that the temporary exemption from performing may turn into a permanent one if, after the impediment ceases to exist, the circumstances had so changed that performance would become manifestly unreasonable. The proposal gained significant support from other delegations, but it as finally turned down after the French delegate raised his concerns that introducing such a provision may be regarded as an acceptance of doctrines such as imprévision, frustration of purpose, and the like.[23] Although the recollection of the discussions among the participant delegates, or what should be made out of those discussions, is far from uniform, there is no dispute that the issue of economic hardship was not specifically discussed in connection with those proposals.

12. Speculation about what the intention of the drafting group might have been with regard to the scope of application of CISG Article 79 is unlikely to be too accurate, especially when we are left to our inferences from fragments in the "travaux préparatoires". Indeed, the dismissal of a proposal which did not even address whether hardship should be given any space within the Convention is no proper foundation upon which to build an argument on the "intention of the legislator". If anything, the drafting history of the Convention evidences that the discussions were not sufficiently conclusive on this question.

13. So, if Article 79(1) neither expressly or implicitly excludes the possibility of economic hardship as an impediment that may exempt a party's failure to perform, and if it is accepted that a situation of genuinely unexpected and radically changed circumstances, in truly exceptional cases, deserves some legal response, then we are inclined to favor a broad interpretation of CISG Article 79 that would preempt the application of a domestic rule on hardship, assuming that the applicable domestic law provides for one. Thus, the next and final step is to ascertain the contours of at least some guidelines as to what is to be understood by a genuine situation of "hardship" and, immediately thereafter, speculate as to what may be the most appropriate remedy or relief after hardship has been found to exist.

14. I do not think it is possible or even convenient to attempt a definition of hardship, beyond accepting that the impediment may entail a situation of "economic impossibility" (wirtschaftliche Unmöglichkeit) that, while short of an absolute bar to perform, imposes what in some legal systems is conceptualized as a "limit of sacrifice" (äusseerste Opfergrenze) beyond which the obligor cannot be reasonably expected to perform. It seems clear that in most cases market fluctuations are not to be considered an "impediment" under CISG Article 79, because such fluctuations are a normal risk of commercial transactions in general. Whether wild and totally unexpected market fluctuations in goods or currency could ever become an "impediment" is another matter. Indeed, the theoretical possibility of such radical and unexpected changes admits the application of Article 79 in those rare instances as the one exemplified above.

15. As to the possible remedies following a finding of hardship, the analysis of this problem should start by acknowledging that this is another "governed-but-not-settled" gap that needs to be filled within the Convention. There are no "general principles underlying the Convention" from where to extract the obligation of the parties to renegotiate the terms of the contract, as it would be most likely the case if the parties had incorporated a hardship clause. Neither can one find such a widely accepted general principle pointing to the possibility, in case negotiations fail, to "adjust," or "revise" the terms of the contract so as to restore the balance of the performances.

16. For those who are not willing to resort to the principle of good faith buried in CISG Article 7(1) in order to find a balance of the performances,[24] CISG Article 79(5) may be relied upon to open up the possibility for a court or arbitral tribunal to determine what is owed to each other, thus "adapting" the terms of the contract to the changed circumstances. Other than the payment of damages, a court or arbitral tribunal may order, if justified under the CISG, the termination of the contract as of a certain date. Of course, it is impossible to require specific performance as called by the contract, but a flexible method for the purposes of adjusting the terms of the contract may be obtained by resorting to price reduction under CISG Article 50.[25]

[See also commentary by the author on this subject in John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 236-246.]

FOOTNOTES

* Professor of Law, Parker School of Foreign and Comparative Law, Columbia Law School, New York.

1. For instance, if the supplier of the goods is the only available source to supply the goods, or when supplies are unavailable to unforeseeable and extraordinary events that are not related to the typical procurement risks assumed by a seller.

2. According to UNCITRAL's official records, tightening the conditions under which a seller could claim exemption who sought to avoid a contract includes, among other consequences, "that a party should be exempted from liability because he had chosen an unreliable supplier...". Commentary on the Draft Convention on Contracts for the International Sale of Goods prepared by UNCITRAL's Secretariat, Official Records, United Nations, New York, 1981 [hereinafter "Commentary on the 1978 Draft Convention"] § 23 at 379 par. 23 (motion by Denmark) and § 35 at 380 (comment by Norwegian delegate).

3. Germany 28 February 1997 Oberlandesgericht [Appellate Court] Hamburg, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/970228g1.html>; Germany 21 March 1996 Schiedsgericht der Handelskammer [Arbitral Tribunal] Hamburg [partial award], case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/960321g1.html>.

4. ICC Arbitration Case No. 8128 of 1995, International Chamber of Commerce, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/958128i1.html>.

5. Russia 16 March 1995 Arbitration proceeding 155/1994, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/950316r1.html>.

6. Germany 24 March 1999 Bundesgerichtshof [Supreme Court], translation available at <http://cisgw3.law.pace.edu/cases/990324g1.html> with comment by Peter Schechtriem, 15/16 Juristen Zeitung (13 Aug. 1999) 794-97.

7. Compare European Principles of Contract Law ("PECL") Article 8:107 ("A party which entrusts performance of the contract to another person remains responsible for performance"). See also Comments and Notes on PECL Art. 8:107, Comment C, available at <http://cisg.law.pace.edu/cisg/text/peclcomp79.html>.

8. Compare with PECL Art. 8:101, allowing for the aggrieved party's possibility of exercising any other remedy with the exception of damages and performance (Where a party's non-performance is excused under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages).

9. See generally, Erika Sondahl, "Understanding the Remedy of Price Reduction - A Means to Fostering a More Uniform Application of the United Nations Convention on Contracts for the International Sale of Goods", 7 Vindobona Journal of International Commercial Law and Arbitration (2003) 255-276, at fn. 38, also available at <http://cisgw3.law.pace.edu/cisg/biblio/sondahl.html>.

10. Compare with PECL Art. 9:303(4) (If a party is excused under Article 8:108 through an impediment which is total or permanent, the contract is terminated automatically and without notice at the time the impediment arises).

11. See, e.g., Dennis Tallon in Commentary on the International Sales Law: The 1980 Vienna Sales Convention (ed. by M. Bianca and M.J. Bonnell, Milan, 1987) at 589, also available at <http://cisgw3.law.pace.edu/cisg/biblio/tallon-bb79.html>, in favor of exempting the excused defaulting party from the payment of interest on the ground that the payment of interests should be considered as part of an award of damages).

12. Compare with PECL Arts. 8:101(2) and 9:508 (Delay in payment of Money) (Interest is owed whether or not non-payment is excused under Article 8:108).

13. Compare with PECL Art. 8:108(1) , providing that the aggrieved party may resort to any of the remedies set by PECL Chapter 9, except claiming performance and damages.

14. See Comment 6 to UNIDROIT Principles Article 6.2.2.

15. See, e.g., Dennis Tallon in Commentary on the International Sales Law Article 79 at § 3.2 (1987) ("[T]he judge will have a natural tendency to refer to similar concepts in his own law. Thus, the judge of a socialist country will have a restrictive approach to force majeure ... On the contrary a common lawyer will feel inclined to refer to the more flexible notions of frustration and impracticability. In the Roman-German system, the judge will reason in terms of force majeure ..."). See also M. J. Bonell, Force majeure e hardship nel diritto uniforme della vendita internazionale, in Diritto del commercio internazionale 590 (1990) (observing that by requiring that the obligor "could not reasonably be expected ... to have avoided or overcome [the impediment] or its consequences" suggests that, at least in principle, the possibility should be entertained that performance has become so onerous that it would be unreasonable to enforce it).

16. See, e.g., Barry Nicholas, who observed that exemption of liability on account of unexpected and excessive economic hardship was "out of place" in a sales law. Progress Report of the Working Group on the International Sale of Goods on the Work of its Fifth Session (A/CN.9/87, Annex III, reprinted in UNCITRAL Yearbook V: 1974 (1975) at 66).

17. See Joseph Lookofsky, Walking the Article 7(2) Tightrope Between CISG and Domestic Law, unpublished manuscript submitted to the symposium on "25 Years United Nations Convention on Contracts for the International Sale of Goods (CISG)", Vienna, March 15-16, 2005 (on file with the author).

18. See J. Lookofsky, Understanding the CISG in the USA (2d ed., 2004) § 2.6 and Joseph Lookofsky, "The Limits of Commercial Contract Freedom Under the UNIDROIT 'Restatement' and Danish Law", 46 Am.J.Comp.Law 485, 496 (1998), also available at <http://cisgw3.law.pace.edu/cisg/biglio/lookofsky6.html>, referring to the hardship provisions in the General Clause of the Danish Contracts Act, authorizing a court to refuse enforcement or to adjust "any unreasonable contract or term, and that includes a term which becomes unreasonable after the contract is made". Professor Lookofsky also refers to Dutch Civil Code Article 6.258(1) as an illustration of a provision that appears to question the "validity" of a contract ("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.").

19. See, e.g., Tom Southerington, Impossibility of Performance and Other Excuses in International Trade, Publication of the Faculty of Law of the University of Turku, Private law publication series B:55, also available at <http://cisgw3.law.pace.edu/cisg/biblio/southerington.html>. Southerington refers to Section 36(1) of the Finnish Contracts Act, which the author considers as a rule of validity akin to unconscionability.

20. This seems to be the case of Italian law, whose Article 1467 of the Codice Civile and the scholarly doctrine surrounding it has been taken as a model in several Latin American legal systems. A much criticized 1993 decision by the Tribunale Civile di Monza entered (unnecessarily for the purposes of the case before the court) to examine the legal nature of hardship under Italian law and its relationship with the CISG. The Italian court stated that "... hardship is not a matter expressly excluded in Article 4 of the CISG ... Dissolution of the contract for supervening excessive onerousness affects neither the validity of the contract nor ownership over the goods ..."). Italy 14 January 1993 Tribunale Civile [District Court] Monza, Nuova Fucinati v. Fondmetall International, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/930114i3.html>.

21. See, e.g., Barry Nicholas, who observed that exemption of liability on account of unexpected and excessive economic hardship was "out of place" in a sales law. Progress Report of the Working Group on the International Sale of Goods on the Work of its Fifth Session (A/CN.9/87, Annex III, reprinted in UNCITRAL Yearbook V: 1974 (1975) at 66).

22. Report of Committee of the Whole I Relating to the Draft Convention on the International Sale of Goods (A/32/17, annex I, paras. 458-60), reprinted in UNCITRAL Yearbook VIII: 1977 (1978), 57). See also John Honnold, Documentary History of the Uniform Law for International Sales 350 (1989).

23. See A/Conf.97/C.1/SR.27 at 10. The Norwegian proposal led to the deletion of the word "only" in Article 79(3), so that even if the initial and temporary impediment vanishes, the resulting change of circumstances, which may well be of an economic nature, may turn into another impediment leading to that party's exemption of liability.

24. A suggestion by Peter Schlechtriem to this effect may be found in Transcript of a Workshop on the Sales Convention, in 18 Journal of Law and Commerce 191-258 (1999), also available at <http://cisgw3.law.pace.edu/cisg/biblio/workshop-79.html>.

25. See Schlechtriem, "Art. 79", in Kommentar zum Einheitlichen UN-Kaufrecht- CISG (4th ed., Munich 2004).

1. Introduction to the concept of "exemption" in Art. 79 CISG

Different legal concepts exist in all legal systems dealing with the problem of changed circumstances and excusing a party from performance of its obligations when a contract has become unexpectedly onerous or impossible to perform. Some systems only accept a narrow range of excuses; others are more generous (e.g., the concepts of imprévision or hardship, force majeure or Wegfall der Geschäftsgrundlage).[1]

The rules dealing with situations of changed or supervening contractual circumstances are oriented on the two basic concepts of hardship and force majeure - they constitute exceptions to the cardinal canon of pacta sunt servanda and ameliorate its strictness.

Hardship refers to the performance of the disadvantaged party having become much more burdensome, but not impossible, while force majeure refers to the performance of one party's obligations that has become impossible, even on a temporary basis.[2]

2. Is hardship covered under Art. 79 CISG?

The CISG deals with the issue of changed circumstances on an international level by avoiding any reference to existing domestic concepts.

The most difficult question concerning the application of Article 79 CISG is whether situations of hardship (i.e., where the performance by one of the parties has become much more onerous and difficult - but not impossible - usually in financial terms) are covered in the embedded exemption.[3]

The solution to this issue cannot come by direct reference to domestic legal systems[4] that differ greatly from each other in regard to rules of hardship or imprévision,[5] as this would produce divergent results in the interpretation and application of the Convention. This would contravene the uniformity mandate of article 7(1) CISG.

Also no reference to domestic laws can be attempted under the gap-filling operation of Article 7(2), as the legislative history of Article 79 excludes the possibility of the existence of a relevant gap.[6]

As the term impediment is not defined, an interesting question is whether the hardship provisions in Articles 6:111 (Change of Circumstances) and 8:108 (Excuse due to an impediment) of the Principles of European Contract Law can be invoked to expand the meaning of impediment found in the CISG to include cases of economic or commercial hardship.[7]

3. The legislative history of Article 79 CISG

Article 79 CISG uses the term "impediment" to describe the types of event beyond the contracting party's control that will be acceptable as an excuse for nonperformance of its obligations under the contract.

The drafting history of the Convention is a legitimate and valuable aid in the interpretation of the Convention's provisions. It reveals that Article 79 CISG is indeed a stricter version of its predecessor, Article 74 ULIS, which had been criticized for excusing non-performance too readily, such as where performance merely became more difficult.[8]

The legislative history of Article 79 also indicates that a party cannot rely on the exemption merely on the ground that performance has become unforeseeably more difficult or unprofitable.[9]

The UNCITRAL debates show that the CISG drafters were opposed to allowing commercial or economic hardship as an excuse for non-performance and that this was the reason for adopting the requirement of an impediment as a precondition for relief in place of the more liberal ULIS test of a change of circumstances.[10]

It is clear in the travaux préparatoires that the purpose of Article 79 CISG is to set definite limits on the promisor's liability for breach of contract and that the word "impediment" represents a unitary conception of exemption from liability in contracts governed by the Convention, as opposed to other theories of imprévision or hardship that are based on "changed circumstances".[11]

4. The legal effect of the exemption in CISG and issues of specific performance

The legal effect of the exemption in the Convention is stated in Art. 79(5) CISG.[12]

Although the wording of Article 79(5) would allow a claim for performance in situations where obligations are physically impossible to fulfill, it is thought that the general belief expressed at the Vienna Conference that judgment for a physically impossible performance would neither be sought nor obtained should lead to a reasonable limitation of Article 79(5) CISG.[13]

The term "impediment" was used in the drafting of the Convention to denote an external force that objectively interferes with performance of the contract and renders performance impossible.[14]

The creditor of the obligation in question may still require specific performance of the obligation under Article 79(5) CISG. This solution, however, may not appear satisfactory in the situations where performance has been rendered impossible, i.e., the subject matter of the performance no longer exists (the goods have perished) or the performance would be excessively onerous or expensive (e.g., necessity for expensive salvage operation or subsequent illegality[15]).

One suggested approach to the problem in such extreme situations is to admit a "limit of sacrifice" beyond which the promisor of the obligation could not reasonably be expected to perform his obligation.[16]

In a leading case on article 79 CISG, the German Supreme Court identified the existing debate among scholars as to whether: "CISG Art. 79 encompasses all conceivable cases and forms of non-performance of contractual obligations creating a liability and is not limited to certain types of contractual violations and, therefore, includes the delivery of goods not in conformity with the contract because of their defectiveness"; or "whether a seller who has delivered defective goods cannot rely on Art. 79 CISG at all."[17]

It is arguable that an interpretation based on the plain meaning of the language in Article 79 CISG would suggest that a seller's obligation to deliver goods in conformity with the contract under Art. 35 may also be conceivably excused due to an impediment under Art. 79(1).

5. Article 8:108 PECL (Excuse Due to an Impediment)

There is an apparent similarity in the wording of the corresponding PECL provisions to Article 79 CISG.[18] However, the differences in the scope of the two regimes becomes clear when we consult the PECL commentary. The Comments to the PECL help explain its provisions. The scope of application of Article 8:108 is defined by Comment A to the PECL, which states that "unlike the equivalent article of CISG […] Article 8:108 has to apply only in cases where an impediment prevents performance."

Comment C expressly states that the circumstances of the impediment are like those "traditionally required for force majeure."[19]

6. Article 6:111 PECL - Change of Circumstances

Although the question whether financial difficulties constitute a ground for exemption was a controversial point of discussion in UNCITRAL during the drafting of the CISG, "in the end, the general view was probably that both physical and economic impossibility could exempt an obligor. […] As a rule, however […] increased procurement and production costs do not constitute exempting impediments."[20]

According to Professor Schlechtriem, "under very narrow conditions - impediment also includes 'unaffordability'" (id.). Schlechtriem explains that "[i]t is imperative, in [his] opinion 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 and their widely divergent solutions."[21]

In contrast to the single paragraph found in the Convention (see Art. 79(1) CISG),[22] the Principles deal with the issue of change of circumstances in a quite thorough way, providing not only a basic statement of principle (see Article 6:111(1) PECL) and the operational parameters of the concept (see Article 6:111 (2) PECL), but also the mechanism for the adaptation or termination of the contract by the court (see Article 6:111(3) PECL).

It is also clear that the effect of the PECL provisions follow a different scheme, because they entitle the party whose performance has become "excessively onerous because of a change of circumstances" to request re-negotiation of the contract, with the support of the court and even its intervention if the parties fail to reach agreement. The adaptation of the contract by the judge, however, is not expressly allowed by the CISG, and must therefore be regarded as impossible in that context.[23]

7. Conclusions

Both the CISG and the PECL contain provisions for exemption for the nonperformance of contractual obligations. Article 79 CISG only governs impossibility of performance and the majority of academic opinion supports that a disturbance which does not fully exclude performance, but makes it considerably more difficult / onerous (e.g., change of circumstances, hardship, economic impossibility, commercial impracticability, etc.) cannot be considered as an impediment (doctrine of clausula rebus sic standibus).[24] In contrast to the Convention, which in Article 79 CISG only includes impediments which must be equated with actual impossibility, the PECL provide for special rules concerning hardship (Article 6:111 PECL). Although there is some generic similarity in language and the substantive requirements between the Convention and the PECL, both the scope and the rationale, as well as the application of the respective provisions vary substantially.[25]

FOOTNOTES

* LLB (Athens), LLM (Bristol), M.Stud. (Oxon), Doctoral Candidate (Athens). Advocate of the Athens Bar; Solicitor in England & Wales.

A match-up of CISG Article 79 and PECL Articles 8:108 [Excuse due to an impediment] and 6:111 [Change of circumstances (Hardship)] is available at <http://cisgw3.law.pace.edu/cisg/text/peclcomp25.html>. The match-up is accompanied by:

1. See Albert H. Kritzer, International Contract Manual - Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods - Detailed Analysis 623 (1994). For an excellent discussion of the two competing attitudes on whether courts should intervene to provide relief or require an adjustment in the obligation of performance of a contract when an unforeseen frustrating event occurs, see Sarah Howard Jenkins, "Exemption for Nonperformance: UCC, CISG, UNIDROIT Principles - A Comparative Assessment", 72 Tulane Law Review (1998) 2015-2030; also available at <http://www.cisg.law.pace.edu/cisg/biblio/jenkins.html>.

For an interesting comparison see also Dionysios Flambouras, "The Doctrine of Impossibility of Performance and Clausula Rebus Sic Standibus in the 1980 Convention on Contracts for the International Sale of Goods and the Principles of European Contract Law - A Comparative Analysis" 13 Pace International Law Review 261-293 (Fall 2001).

2. For a discussion of these two concepts and a comparative analysis of their function in the CISG and the UNIDROIT Principles, see J. Rimke, "Force majeure and hardship: Application in international trade practice with specific regard to the CISG and the UNIDROIT Principles of International Commercial Contracts", Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer (1999-2000) 197-243; also available at <http://www.cisg.law.pace.edu/cisg/biblio/rimke.html>.

3. In other words, the difficulty arises in the cases where it is hard to distinguish between "absolute impossibility" and "economic impossibility" ("rendering performance extremely onerous", see Tallon in C.M. Bianca & M.J. Bonell (eds), Commentary on the International Sales Law - The 1980 Vienna Convention (1987) § 2.6.4 p. 581-582.

4. "The Convention's autonomy, illustrated by the lack of reference to accepted wording and concepts of domestic laws (force majeure, frustration, impracticability, Wegfall der Geschäftsgrundlage), renders the interpretation of Article 79 extremely difficult because one cannot resort to these laws as a guide." See Fritz Enderlin & Dietrich Maskow, United Nations Convention on Contracts for the International Sale of Goods, at 320 (1992).

5. See Stoll, in Commentary on the UN Convention on the International Sale of Goods, at 618 (Peter Schlechtriem ed.,1998).

6. The legislative history of the Convention reveals that the problem of hardship was considered during the drafting process of Article 79, but a provision specifically dealing with it has been deliberately omitted from the CISG; i.e., no gap praeter legem exists. See Rimke, op. cit., at 220; see also John O. Honnold, Documentary History of the Uniform Law For International Sales (1989), at 349-350.

7. Cf. J. Ziegel, "Comparative Editorial Remarks on article 79 CISG and its UNIDROIT Principles counterparts", available at <http://www.cisg.law.pace.edu/cisg/principles/uni79.html>, where the author discusses the same question in terms of article 79 CISG and the comparable provisions in the UNIDROIT Principles of International Commercial Contracts.

8. For instance, the term "circumstances" in Article 74 ULIS was replaced by the term "impediment" in Article 79 CISG, thus narrowing the exemption and providing an objective criterion. See John Honnold, Uniform Law for the International Sales under the 1980 United Nations Convention 534; 534-537 (2d ed.1991). See also, generally, Rimke, op. cit., at 222.

Cf. Stoll, at 603, where it is noted that the deletion of the word "only" from the draft Article 79(3) - previously limiting the exemption "only" for the period during which the impediment existed - indicates that when the impediment ceases to exist, an exemption for the non-performing party on account of a change in circumstances cannot be ruled out entirely.

9. See also Rimke, op.cit., at 223. However, note that under a literal interpretation of the text, a very serious change in circumstances could arguably qualify as an "impediment" for the purposes of Article 79 CISG. See John Honnold, Uniform Law for the International Sales under the 1980 United Nations Convention (2d ed.1991), at 543; Enderlein & Maskow, United Nations Convention on Contracts for the International Sale of Goods (1992), at 325.

"The borderline between impracticability and a reasonably insurmountable impediment is […] uncertain". See Denis Tallon, in Commentary on the International Sales Law - The 1980 Vienna Sales Convention, C.M. Bianca & M.J. Bonnell eds. (1987), 576, where the author concludes that the standard demanded in Article 79 CISG is more flexible than that of traditional force majeure, but stricter than frustration or hardship.

10. See J. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention (2d ed. 1991), § 432.1 432.2.

11. See J. Honnold, Documentary History of the Uniform Law for International Sales 185, 252 (1989).

12. "Paragraph (5) restrains the effects of the exemption to one remedy alone and reserves to the party who did not receive the agreed performance all of its remedies except damages. These remedies include the right to reduce price (Article 50), the right to compel performance (Articles 46 and 62), the right to avoid the contract (Articles 49 and 64) and the right to collect interest as separate from damages (Article 78)"; see Rimke, op. cit., at 217. See also text contained in footnote 22, infra, that refers to the Secretariat Commentary to the Draft Convention 1978.

13. See Albert H. Kritzer, International Contract Manual - Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods - Detailed Analysis 642 (1994). Cf. Article 28 CISG (limiting orders of specific performance) and Article 8.109 PECL (Clause limiting or excluding remedies for non-performance).

14. See J. Honnold, ibid., at § 427. The impediment must actually prevent performance, see id. § 432.1. Cf. Some other commentators have noted that Article 79 embodies the CISG's provisions for frustration of purpose and impossibility, see, e.g., Henry D. Gabriel, "A Primer on the United Nations Convention on the International Sale of Goods: From the Perspective of the Uniform Commercial Code", 7 Ind. Int'l & Comp. L. Rev. 279, 280 (1997).

See also, e.g., Nuova Fucinati v. Fondmetall International, Italy 14 January 1993, [District Court Monza], CLOUT case no. 54, also available at <http://cisgw3.law.pace.edu/cases/930114i3.html>. In that case, an Italian court held that although the Convention did not apply to the contract, even if Art. 79 CISG had applied, nonetheless the court would have rejected the seller's request for dissolution on the basis of supervening excessive onerousness (caused by a market price increase by 30%) by reading "impediment" to mean "impossible", as per the domestic law (Article 1463 of the Italian Civil Code). In the court's opinion, the seller could not rely on hardship as a ground for avoidance, since the Convention did not contemplate such a remedy in Article 79 or elsewhere in the CISG.

It seems that the Italian court would have dealt with the matter as one that was governed but not expressly settled by the Convention and it would have resolved the issue by turning to the conflict of law rules of the forum, under Art. 7(2) CISG.

It is arguable that this approach to the interpretation of impediment does not promote uniformity. Similarly, divergent results would be produced by the possible introduction of "hardship" as a general principle of the Convention under Art. 7(2); a possibility that would be contrary to the intention of the drafters and the legislative history of the Convention.

15. Honnold, Uniform Law for International Sales (1999) p. 493-495 § 435.5. Note that, even though not precluded by Article 79(5) CISG, there can be domestic law restrictions on one's ability to require specific performance under such circumstances by virtue of the statement in Article 28 CISG that "a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention." See related reference to Article 28 in paragraph 9 of note 22 infra.

16. See Stoll in Schlechtriem ed., Commentary § 55, 57 p. 622.

This approach is advocated mainly by German commentators, who refer to cases of imprévision or great difficulty to perform as "economic impossibility" (wirtschaftliche Unmöglichkeit) -and suggest that a "limit of sacrifice" (Opfergrenze) should be allowed, in the event of an unforeseeable impediment to performance as a result of a material change in economic conditions.

That approach to the problem of change in circumstances bases the exemption on the principle of good faith, as stated in Article 7(1) CISG. Note, however, that this approach has been criticized as hindering uniformity/harmony in the Convention's application; see Rimke, op.cit., at 224.

17. The court did not deem it necessary to resolve this conflict stating that the specific defect in the goods was not outside the seller's control and, thus, the seller was responsible for the consequences of a delivery of goods not in conformity with the contract. See Germany, 24 March 1999 Federal Supreme Court, CLOUT case no. 271, also available at <http://cisgw3.law.pace.edu/cases/990324g1.html>. Thus, the court left open the question of whether or not Art. 79 CISG can be invoked by a party to excuse the failure to perform "any of its obligations" under the contract, including the delivery of defective goods.

The court also spoke on many other CISG-related issues in the case (issues of validity, international character of the Convention, conformity of the goods, damages, mitigation; see A.H. Kritzer, Editorial Comments in the online presentation of the court judgment, ibid.)

18. Compare the wording in CISG articles 79(1)-(5) with the corresponding provisions in PECL articles 8.107, 8.108(1)-(3), 8.109.

19. See Comment and Notes to the PECL; Article 8:108, available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp79.html>.

20. Peter Schlechtriem, Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods, (Manz, Vienna: 1986), at 102. Also available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-79.html>.

Also note that a proposal aimed at incorporating an Article in the Convention that allowed a party to "claim an adequate amendment of the contract or its termination" on account of "excessive difficulties" was expressly rejected by UNCITRAL's Working Group, see J. Honnold, Documentary History of the Uniform Law for International Sales (1989), at 350.

21. P. Schlechtriem, id., at footnote 422a; see also that author's text in footnote 423, id.

22. Note that the text of the Secretariat Commentary on article 65 of the 1978 Draft [draft counterpart of CISG article 79] provides additional important guidance:

     "8. The effect of article 65 [draft counterpart of CISG article 79(1)] in conjunction with article 65(5) [draft counterpart of CISG article 79(5)] is to exempt the non-performing party only from liability for damages. All of the other remedies are available to the other party, i.e. demand for performance, reduction of the price or avoidance of the contract. However, if the party who is required to overcome an impediment does so by furnishing a substitute performance, the other party could avoid the contract and thereby reject the substitute performance only if that substitute performance was so deficient in comparison with the performance stipulated in the contract that it constituted a fundamental breach of contract.

     "9. Even if the impediment is of such a nature as to render impossible any further performance, the other party retains the right to require that performance under article 42 or 58 [draft counterpart of CISG article 46 or 62]. It is a matter of domestic law not governed by this Convention as to whether the failure to perform exempts the non-performing party from paying a sum stipulated in the contract for liquidated damages or as a penalty for non performance or as to whether a court will order a party to perform in these circumstances and subject him to the sanctions provided in its procedural law for continued non-performance. [Cf. article 26 [draft counterpart of CISG article 28] which provides that if, in accordance with the provisions of this Convention, one party is entitled to require performance of an obligation by the other party, a court is not bound to enter any judgment for specific performance unless the court [would] do so under its own law in respect of similar contracts of sale not governed by this Convention]."

23. See Denis Tallon, in Commentary on the International Sales Law - The 1980 Vienna Sales Convention (C.M. Bianca & M.J. Bonnell eds.,1987), at 592.

See also Todd Weitzmann, "Validity and Excuse in the U.N. Sales Convention", 16 Journal of Law and Commerce (1997) 265-290, also available at <http://www.cisg.law.pace.edu/cisg/biblio/1weitzm.html>. Weitzmann examines some theoretical issues of contract law that flow from the similarities between the effects of excuse and validity provisions (including the academic debate between Honnold and Tallon), as well as the pitfalls created in the application of Article 79 CISG that undercut the development of a uniform excuse principle. The author has captured the essence of the problem when he states: "Two theoretical difficulties with Article 79 emerged […] both of which could undercut the development of a uniform excuse principle. First, Article 79 could be supplanted directly by a country's domestic law of excuse by virtue of a court concluding that excuse is a validity issue, to be decided under domestic law according to Article 4(a). Second, the principle of justice represented by Article 79 could be averted indirectly when a court reads the language of the Convention in light of presuppositions derived from domestic traditions."

24. E.g., Tallon, op .cit., at § 3.1, p. 592.

25. For a similar conclusion (in the context of the UNIDROIT Principles this time and their potential to supplement art. 79 CISG), Cf. J. Ziegel, "Comparative Editorial Remarks on article 79 CISG and the UNIDROIT Principles", available at <http://www.cisg.law.pace.edu/cisg/principles/uni79.html>. See also, Anja Carlsen, "Can the Hardship Provisions in the UNIDROIT Principles Be Applied When the CISG is the Governing Law?" (Pace Essay 1998), where the author, in a more expansive and thorough discussion of the issues, also concludes that the "hardship" provisions in the UNIDROIT Principles should not be applied in a gap-filling manner when the CISG is the governing law of a contract; essay available at <http://www.cisg.law.pace.edu/cisg/biblio/carlsen.html>.

Cf. Tom Southerington, "Impossibility of Performance and Other Excuses in International Trade", available on-line at <http://www.cisg.law.pace.edu/cisg/biblio/southerington.html>. In the Southerington article, the author points out that under Section 36(1) of the Contracts Act (Finland), which contains rules on validity of contracts, a term of a contract governed by Finnish law (the Sale of Goods Act and the CISG, since Finland is a Contracting State) may be adjusted or set aside if that term "is unconscionable or its application would lead to unconscionability". Under Finnish internal law, a term of the contract or even the entire contract may be adjusted or declared discharged if it is considered to be unconscionable.

There is a concern that the rationale for excluding issues of validity from the realm of the CISG is linked to differences in approach to the issue by the divergent legal traditions. It is the Southerington thesis that, in a contract governed by the CISG, it is possible that a domestic doctrine of hardship may coexist with the UN Sales Convention via Article 4(a) of the CISG, i.e., in circumstances in which there is a domestic validity rule on unconscionability such as the Section 36(1) of the Contracts Act (Finland). This is arguably an indirect way of removing issues from the sphere of the Convention and resorting to national laws and as such it undercuts uniformity in the application of the international sales law.

See also footnote text reference to Todd Weitzmann's article, supra note 23.

Cf. P. Schlechtriem suggests a possible basis for arguing that the problem of hardship and adjustment of the sales contract is matter governed by the Convention, see "Transcript of a Workshop on the Sales Convention", 18 Journal of Law and Commerce (1999) 191-258, excerpt available at <http://www.cisg.law.pace.edu/cisg/biblio/workshop-79.html>. The Schlechtriem argument refers to the remedy of price reduction under CISG Art. 50 as "a kind of adjustment of the contract to reflect a disturbed balance between performance on one side and obligation on the other side. The defects in the goods, or the non-conformities of the goods, constitute a disturbance of the equilibrium or balance of the exchanged performances." Id., at 237. Schlechtriem's argument for the use of the principle underlying Art. 50 "as a springboard to develop a general rule of adjustment in hardship cases" would entail that the solution comes from within CISG, thus eliminating divergent results in the interpretation and application of the Convention's provisions.