Published by Manz, Vienna: 1986. Reproduced with their permission.
Univ. Prof. Dr. Peter Schlechtriem [*]
H. Exemptions (Article 79)
Despite non-performance, late performance or lack of conformity, a party is not liable in damages when he is not responsible for his failure to perform.[416a] The Convention's provision corresponds to ULIS Article 74(l),[416b] but specifies more clearly the risks which an obligor assumes. It was decided early on not to let exemptions turn on the question of fault. Instead, according to Article 79(1), an exemption is permitted only when the impediment to performance is beyond the obligor's control. The obligor is always responsible for impediments when he could have prevented them but, despite his control over preparation, organization, and execution, failed to do so.[417a] In this sense, the obligor "guarantees" his ability to perform. If he wishes to restrict his liability, he must specify the particular impediments for which he will not be liable. Furthermore, the obligor is liable even for impediments beyond his control, as long as they were either reasonably foreseeable or known to him at the conclusion of the contract. Where the impediments are foreseeable, he must generally accept responsibility if he has not disclaimed liability. In the case of unforeseeable impediments whose origins are not within his control - which, therefore, means that they should be considered to be unavoidable - he must take reasonable measures to avoid or overcome the impediment or its consequences in order to claim an exemption.
The terms of the contract will often describe the extent to which the obligor is expected to prevent impediments to performance which lie outside his own area of control. Guarantees can increase the scope of his liability; disclaimers and limitation can diminish it. In the absence of express terms, the parties' promises to perform are to be interpreted on the basis of Article 8: The standard, as in Article 74(1) of ULIS, is based on the expectations and intentions of reasonable parties. For example, whether a party supplying goods has assumed the risk of fluctuating markets or risk of war must, in the end, be decided with reference to the actual case and the particular contract. Though the circumstances permitting exemption cannot generally be equated simply with "force majeure", efforts were made to define them narrowly.[420a] On the other hand, it is irrelevant whether the impediment existed before the conclusion of the contract - the "pre-existing impossibility" or "pre-existing inability" of German law - or whether it did not arise until later.[page 101]
One of the controversial points in the preliminary UNCITRAL discussions was whether economic difficulties - "unaffordability" - constitute a ground for exemption. In the end, the general view was probably that both physical and economic impossibility could exempt an obligor. It cannot be concluded, therefore, on the basis of the change in terminology from "circumstances" in ULIS Article 74(1) to "impediments" that an impediment in the sense of Article 79(1) of the Convention is only an occurrence that absolutely bars performance, but - under very narrow conditions - impediment also includes "unaffordability".[422a] As a rule, however, since the obligor generally guarantees his financial capability to procure and produce the promised goods, increased procurement and production costs do not constitute exempting impediments.
In Vienna, the rule on exemption produced primarily two controversial issues: The first involved the scope of the rule; the second the scope of liability for acts of employees, subcontractors and other "third persons." Regarding the first, the Federal Republic of Germany proposed the clarification that despite Article 79(5) (restriction of the effects of exemption on damage claims) the existence of grounds for exemption should extinguish the obligor's obligation to perform. Comparable Norwegian proposals, corresponding to ULIS Article 74(2), provided for the release of the obligor's duty to perform in the event of temporary but lengthy impediments if the circumstances had fundamentally changed in the meantime. There were several reasons for the rejection of these proposals, the foremost being the fear that a release from the obligation to perform could also extinguish collateral rights and secondary claims such as interest. There was [page 102] special apprehension that the Norwegian proposal to Article 79(3) intended to introduce the "theorie de l'imprevision" into the Convention). Finally, there was the fact that, in cases where obligations are physically impossible to fulfill, domestic legal doctrine -- "impossibilium nulla est obligatio" would generally prevent a demand for performance anyway. The rejection of the German and Norwegian proposals  can be interpreted to mean that an impossible obligation remains intact and is actionable, as long as the obligee does not declare an avoidance on the basis of a fundamental breach.[429a] Especially in the case of incurable defects for which the seller may not be responsible  under Article 79(1), there is a danger the domestic courts will set fines or penalties based on their rules of procedure for failure to follow an order for specific performance. In the end, such fines or penalties could be the equivalent of granting damages and could even surpass them in amount. In my opinion, a German court could, however, on the basis of Article 28, dismiss a complaint asking for specific performance in such a case. Moreover, recognition of a foreign judgment that ordered specific performance of an impossible act would conflict with German public policy (328(1) No. 4 Code of Civil Procedure; Article 27 No. 1 of the European Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters). Above all, it may be hoped that the general belief expressed in Vienna that a judgment for a physically impossible performance would be neither sought nor obtained should lead to a reasonable limitation or Article 79(5).
Article 79(2)'s rule on responsibility for "third persons" was even more controversial. Practically speaking, the discussion revolved around the liability for secondary suppliers and subcontractors.[431a] The developing countries, and, even more, the Scandinavian states wanted the seller in such cases to guarantee performance unconditionally. The delegation from the Federal Republic of Germany did not support such an unconditional guarantee because it believed that exceptions were needed for cases in which the seller did not choose the secondary supplier and could not exert influence on him, such as when the supplier had a monopoly or had been chosen by the buyer. In other cases, the seller's responsibility for his suppliers in Article 79(1) appeared sufficient and appropriate. In the end, the possibility for exemption  remained the same as provided in Article [page 103] 65(2) of the 1978 Draft Convention, but is presented in a more detailed manner in Article 79(2).
In the application of Article 79, three situations must be distinguished. First, the obligor is always responsible for his own personnel, as long as he organizes and controls their work. Deficiencies and poor performance caused by individual workers, therefore, do not exempt the seller from liability. On the other hand, whether a strike is "beyond his control" or must be regarded as the employer's responsibility depends on the circumstances and the extent of the strike as well as the labor laws of the particular country.
Second, where third persons are involved, the seller's liability depends on whether he engaged these persons in fulfillment of his contractual obligations to the other party. If he did so -- a situation which corresponds to § 278 sentence 1 of the German Civil Code -- the obligor can only be exempted where the failure was, for the obligor himself, unforeseeable and beyond his control (Article 79(2)(a) in conjunction with paragraph (1)) and the third party personally meets the requirements for exemption from Article 79(1) (Article 79(2)(b)). Article 79(2) therefore increases the obligor's liability for third persons who fulfill contractual obligations directly to the obligee, for example, subcontractors who are engaged by the seller to perform directly to the buyer. Finally, Article 79(1) remains the controlling provision in cases where the third party's performance is a mere precondition for the fulfillment of the obligor's obligations, i.e., where a third party does not directly fulfill the obligor's duty to the obligee. In particular, the seller is therefore not liable for secondary suppliers when they are beyond his control and their failure could neither be contemplated nor cured. This exemption will apply only in those very few cases when the seller could neither choose nor control his auxiliary suppliers and it was not possible to procure, produce or repair the goods in any other manner.[433a] Nevertheless, explicit limitations on such liability should probably be written into the contract.
A temporary impediment constitutes grounds for exemption only for the length of its duration (Article 79(3)). The importance of this provision is reduced by the fact that the obligor's duty to perform remains unchanged in the event of exempting impediments. Practically speaking, Article 79(3) will mainly concern [page 104] damages caused by delay, but, of course, other grounds for exemption can arise during the existence of the original impediment, which will then finally discharge the obligor under Article 79(1). Whether the exemption should require a change in circumstances so that - as stated in ULIS Article 74(2) - "performance would be so radically changed as to amount to the performance of an obligation quite different from that contemplated by the contract", was discussed in Vienna on the basis of a Norwegian proposal  and finally rejected. One can assume, though, that "unaffordability", that, under Article 79(1), constitutes a ground for exemption, also discharges the obligor from his liability for damages, even where it first appears at a moment when performance is postponed due to another temporary impediment.
The party who is unable to fulfill his obligations must, according to Article 79(4), give notice of the impediment and its effects on his ability to perform. The notice is effective upon receipt (Article 79(4) sentence 2). If a party fails to notify, he must compensate for damages caused by the lack of notice, even if he would otherwise be exempt.
Whether an exemption from liability under Article 79 also constitutes an exemption from contractual penalties and liquidated damages provisions depends on the contractual prerequisites for such secondary claims and the applicable domestic law. The German Democratic Republic's proposal  to exempt from contractual penalties and liquidated damages parties whose liability for damages is exempted under Article 79 was therefore rejected. [page 105]
* The author of this book participated at the Conference as a member of the delegation from the Federal Republic of Germany. The views expressed here are personal to the author and do not necessarily represent the position of the F.R.G. or its delegation.(...)
416a. This includes defects. After a thorough analysis, Nicholas, however, concluded that the word "impediment" was used to prevent application of Article 79 in the case of non-conformity. See Nicholas at 5-10. But even if a defect is regarded as an "impediment", the seller will rarely be excused. See H.C.H. Salger, Beschaffung und Beschaffenheit at 56-58 (1985).
416b. See Nicholas at 5-2 (improvements in detail and a greater internal consistency, but . . . ).
417. Cf. 5 UNCITRAL Y.B. 58 (1974). Despite Nicholas' doubts, German jurists should not, and most likely will not, read the fault principle into the text of Article 79. See Nicholas at 5-12. See for the Swiss position Vischer, Lausanner Kolloquium at 174.
417a. But see Nicholas 5-7 (skeptical about determining the respective sphere of risk).
418. Cf. Secretariat's Commentary at 169-70 §§ 5-6.
419. Accord Huber at 466; Nicholas at 5-8.
420. Cf. Secretariat's Commentary at 170 § 6.
420a. Contra Naón § 3.18 at 24.
421. See also Secretariat's Commentary at 169 § 4.
422. Cf. Nicholas, Force Majeure at 240; see also 5 UNCITRAL Y.B. 39, 66-67 (1974); 6 UNCITRAL Y.B. 84-85 (1975); 8 UNCITRAL Y.B. 57 § 459; id. at 135 § 24; id. at 160 § 14.
422a. It is imperative, in my 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. But see Vischer, Lausanner Kolloquium at 177, who considers this as unavoidable.
423. The question was not specifically discussed again in Vienna. There was considerable hesitation about giving consideration to unforeseen changes in the underlying basis of the contract. This again became clear in connection with a Norwegian proposal (A/Conf. 97/C.1/L.191/Rev. 1 = O.R. 134). The Norwegian proposal concerned the case of temporary impediments which later vanish. In that case, consideration would be given to the fact that the economic situation of the debtor might fully have changed. Though the contractual agreement should be decisive in this situation, some delegates apparently assumed that recourse to domestic law would still be possible. See A/Conf. 97/C.1/SR.27, at 9 § 58; id. at 20 § 59 (= O.R. 381). By the acceptance of the Norwegian amendment to delete the word "only" in Article 79(3), it became clear that, even if the original impediment is removed, it is still possible that a new exemption can arise for the debtor if there is a change in circumstances. In the discussion on the proposal to release a party from his duty to perform, the Norwegian interpretation - that a party could also be exempted for economic reasons - remained uncontested. See A/Conf. 97/C.1/SR.28 at 5 § 28 (= O.R. 384). But see Nicholas at 5-18 (skeptical opinion). Contra Vischer, Lausanner Kolloquium at 176.
424. A/Conf. 97/C.1/L.208 (= O.R. 134 et seq.).
425. A/Conf. 97/C.1/L.191 Rev. 1 (= O.R. 134 et seq.).
426. See A/Conf. 97/C.1/SR.26 at 5 § 25 (= O.R. 373) (position of the Swedish delegate).
427. See A/Conf. 97/C.1/SR.27 at 10 § 59 (= O.R. 381) (French position).
428. See A/Conf. 97/C.1/SR.28 at 5 § 26 (= O.R. 384) (French position).
429. Unfortunately, they were brought to a vote separately, although they were concerned with the same principle. My impression is that the result would have been different if they had been brought to a vote together.
429a. See also Nicholas at 5-18.
430. But see supra note 416a (as to the likelihood of this exception). Cf. also Vischer, Lausanner Kolloquium at 177.
431. The responsibility for one's own personnel is, however, governed by paragraph (1). See text infra.
431a. The discussions centered on sub-contractors. Nicholas interprets Article 79(2) as applying only to this class of "third persons". Nicholas at 5-22. But see judgment of March 3, 1984, BGH, 1984 NJW 2035 as to the buyer's responsibility for his lessee not taking delivery.
432. Already in the January-February 1974 sessions of the UNCITRAL Working Group, this led to considerable differences of opinion with respect to the first oil crisis. See A/Conf. 97/C.1/SR.27 at 5 § 24 (= O.R. 379) (report of the Japanese rapporteur).
433. Those proposals and motions which were designed to increase the liability of the seller for acts or omissions of third persons provided for the deletion of paragraph (2) (e.g., the Turkish motion, A/Conf. 97/C.1/L.210= O.R. 134), while others sought to reformulate it. See A/Conf. 97/C.1/L.186, L.190 (= O.R. 134) (proposals of Denmark and Finland). The reason for the proposals' divergent aims was that there was no agreement on the meaning of paragraph (2): Some saw it as an extension of responsibility and some as an extension of the grounds for exemption. See A.Conf. 97/C.1/SR.27 at 4 et seq. (= O.R. 378 et seq.) (discussion). The alternative proposals submitted by a working group (A/Conf.97/C.1/L.243= O.R. 135) again provided for either the increased liability for third persons or the deletion of paragraph (2). The majority, which favoured increased liability for third persons, again misunderstood the new formulation of paragraph (2) as an expansion of the possibilities for exemption and therefore rejected the proposal. Cf. A/Conf. 97/C.1/SR.33 at 2 et seq. (= O.R. 410 et seq.) (discussion).
433a. Accord Nicholas at 5-23.
434. See supra at VI.G. (as to interest).
435. See supra notes 423, 425.
436. See supra note 423.
437. A Norwegian proposal (A/Conf. 97/C.1/L.191 Rev. 1= O.R. 134) to make this notice subject to the dispatch principle under Article 27 was rejected. See A/Conf. 97/C.1/SR.28 at 2 et seq. (= O.R. 383).
438. A/Conf. 97/C.1/L.217 (= O.R. 134).
439. Cf. A.Conf. 97/C.1/SR.28 at 8 (= O.R. 386).
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