Cite as Tallon, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 572-595. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
(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.
1. History of the provision
1.1. - The short but very important section IV of chapter V governs the extent to which a party is exempted from liability even [page 572] though he has failed to perform his obligations. Two cases are considered: failure due to an impediment beyond the promisor's control (Article 79) and failure due to the promisee's act or omission (Article 80). Significantly, the French title uses the singular (exoneration) whereas the English title is worded in the plural (exemptions). The plural is preferable because, as compared with ULIS, the two cases are clearly separate in form as well as in substance. Exemption exists in these two cases only. The absence of fault cannot give rise to any exemption since the Convention sets aside the system of liability based on fault. Moreover, in contrast with earlier drafts, the lack of good faith is not specifically envisaged in this section. Indeed, it is regarded as a general principle that applies to all the provisions of the Convention, including those under discussion in this comment.
1.2. - Since the doctrine of absolute obligation was abandoned by the common law (Taylor v. Caldwell 3 B.&S. 828), one may say that legal systems provide for the discharge of one or both parties when a contract has become impossible to perform. This widely accepted rule does not, however, apply similarly everywhere. In many countries it derives from the concept of force majeure, a concept extraneous to the common law which is impossible to translate into English. Furthermore, the notion of force majeure is subject to various interpretations. East European legal systems, for example, rarely permit the discharge of the promisor because it jeopardizes official planning. Elsewhere, the notion, although interpreted narrowly at first, became gradually more flexible. Standard forms in internatiorial commercial agreements illustrate this trend. To make this scheme even more complicated, a number of theories emerged in the twentieth century, e.g., imprévision, «frustration of the venture», «impracticability», Wegfall der Geschäftsgrundlage, which extended the doctrine beyond the sphere of absolute impossibility to situations where, due to an unexpected change in circumstances, performance simply proved far more expensive than anticipated. In some legal systems (French private law, for instance), such unexpected change in circumstances produces no effect. It is synonymous with impossibility in some systems (English law) and allows the judge to adjust the contract in others (German and American law). Moreover, lawyers have imagined a wide range of [page 573] clauses (sliding scale, hardship, sauvegarde, renegotiation, etc.) designed to adapt contractual obligations to such situations.
1.3. - Thus Article 79 was elaborated on a variegated background. Significantly, however, the Convention avoided reference to the domestic theories recapitulated above. It developed a system of its own, which in fact results from a slow maturation process that started with ULIS. This autonomy, illustrated by the lack of reference to accepted wording and concepts of domestic laws (force majeure, frustration, impracticability), renders the interpretation of Article 79 extremely difficult because one cannot resort to these laws as a guide. Besides being novel, the system set forth in Article 79 is also unitary in the sense that it does not distinguish between supervening impossibility and imprévision per se. A doubt therefore subsists regarding the extent to which this theory is part of the Convention (see §§ 3.1. to .3.6., infra).
1.4. - The text of Article 79 is one of the longest in the Convention. It is, in its final wording, drafted in the same form as Article 65 of the UNCITRAL Draft Convention. Only paragraph (2) underwent a slight modification.
Article 79 corresponds approximately to Article 74 of ULIS. Two paragraphs of minor importance, (2) and (4), were added. The definition of impossibility was slightly modified. Finally, Article 74(3) of ULIS was split into two. One part became paragraph (5) of Article 79 and the other, Article 80. This alteration separates more clearly the two types of exemption: impediment and act or omission of the other party.
1.5. - One might be inclined to look into the travaux préparatoires of ULIS and of the present Convention to discover the meaning of Article 79. This search is, however, unproductive. Surely, it appears that exemption has become more widely recognized over the years (as the inclusion of force majeure clauses in international commercial contracts demonstrates). This represents a significant evolution from the restrictive approach of the initial Draft of 1935.
The Secretariat's Commentary is succinct. It is a mere exegetic analysis of the text, sometimes even inconsistent with the wording of the article. The discussions bore essentially on [page 574] questions of terminology. Obscure at times, they were nonetheless regarded by some (HONNOLD, Uniform Law, 432) as relating to a «fundamental point ». For example the replacement of the word «circumstances» by «impediment» was considered as having altered the scope of the exemption. This question will be examined infra, § 2.6.1.
The Vienna Conference considered only relatively minor points, especially in view of the principle itself.
2. Meaning and purpose of the provision
2.1. - Article 79 deals with one of the most delicate questions in contract law; the effects of the impossibility to perform one of the obligations of the contract. To what extent may the non-performing party be exempted, i.e., may he avoid the remedies available to the other party? It must be noted that Article 79 deals only with the effects as to the non-performing party but remains silent concerning the consequences which follow for the other party (theory of risks). The two questions are, however, closely linked, and Article 79 must be read in conjunction with the provisions that relate to the theory of risks, namely Articles 66 to 70 of the Convention.
2.2. - Articles 66 to 70 govern the passing of risk in case of fortuitous loss of the goods. Article 66 defines the cases in which the buyer remains under an obligation to pay the price although the goods have not been delivered. Articles 67 to 69 specify when the risk passes to the buyer. These provisions are of limited scope since they apply to a single type of obligation and relate only to the effects of what is sometimes called (an unfortunate designation) «the risks of the goods». Article 66, however, covers only the loss or damage that is not due to «an act or omission of the seller». Thus it may apply to cases in which non-performance results from an impediment beyond the seller's control (Article 79(1)). In such an event, the buyer's obligations are determined directly by Articles 66 to 69. Should the risks not relate directly to the goods (government refusal to transfer funds, for example) the obligations of the other party should be determined by domestic laws. [page 575]
2.3. - Article 79 is a long and intricate text. It is impossible to analyze it following the sequence of the paragraphs as they refer to questions of unequal importance. A more rewarding approach may be to examine it in four consecutive parts: the scope of the exemption; the notion of impediment; the proof of the impediment and the duty to notify; and, finally, the effects of the exemption.
2.4. - Article 79 sets forth a general cause of exemption for (a) non-performance (b) of «any obligation» and -- what is more debatable -- (c) without any reference to time. This exemption may play in favour of either party, in accordance with the global conception of the Roman-German tradition. These provisions may, of course, be altered by the parties, as this is often the case in international contracts.
2.4.1. - The expression «failure to perform» does not specify the nature of the non-performance. Accordingly, it may be total or partial, delayed or defective (as, for instance, when the terms of a contract that relates to packaging are forbidden by the law of the seller). The nature of the non-performance has, of course, repercussions on the effects of the exemption as discussed below (see §§ 2.9. et seq., infra). All the same, any failure to perform produces a certain exempting effect.
2.4.2. - Article 79 explicity refers to any obligation, no matter which party is concerned. The buyer and the seller are thus subject to the same conditions. This solution does not come as a surprise; it is in harmony with the global conception of the Convention. All the obligations of the buyer, such as they are spelled out in Article 53, as well as all the obligations of the seller listed under Article 30 and all the further obligations which may derive from the individual contract (Articles 30 and 53 are not exhaustive), whether of major or minor importance, fall within the scope of Article 79. A few examples illustrate this point.
18.104.22.168. - The obligation of the buyer to pay the price may contravene exchange laws or regulations (see Article 54). The index to which the parties referred in their agreement may have ceased to exist. By contrast, the financial situation of the buyer [page 576] is generally regarded as irrelevant (see § 2.16., infra). Furthermore, obligation to take delivery of the goods may be hampered by such common obstacles as strikes, blockades, floods, etc. As far as the seller is concerned, the obligation to transfer ownership, in so far as it exists, must be set aside as there is no provision to this effect in the Convention. The same does not apply to the various aspects of the obligation to deliver. Impossibility may indeed follow, although depending on the nature of the goods, from any mode of delivery.
The obligation to deliver conforming goods also comes within the scope of Article 79 when, for instance, some specification of the goods conflicts with the law of the State of the seller.
It should be emphasized that Article 79 applies to obligations of means (obligations de moyen) as well as obligations of result (obligations de résultat) in legal systems that make that distinction.
Thus, Article 79, in its general wording, applies to any sort of obligation generated by a contract of sale.
2.4.3. - The text is silent on the point of time. Presumably, it does not apply to situations where the impediment existed at the time of the conclusion of the contract and was known to the defaulting party. In this case, the conditions set forth in Article 79(1) are not fulfilled as the said party could «have taken the impediment into account at the time of the conclusion». What is to be decided, however, when an impediment unknown to both parties at the time of the conclusion of the contract is revealed at a later date? A typical case is the sale of goods transported on a ship that sank at the time of the conclusion of the contract. The Secretariat's Commentary affirms, without justifying its position, that Article 79 applies to this case (Official Records, I, 55; see also SCHLECHTRIEM, UN-Kaufrecht, 95; Uniform Sales Law, 101). This is also the implicit solution adopted by § 2-613 of the United States Uniform Commercial Code (see also Official Comment, No. 2). But the answer to this question is not obvious in countries, such as France, where the existence of the subject-matter at the time of the conclusion of the contract is regarded as a condition of validity, as one cannot imagine a contract of sale that would relate to goods which do no longer exist. In this case, the absence of the subject-matter raises a problem of validity which is [page 577] not governed by the Convention (see Article 4(a)). One may think that in other systems it will be possible to rely on the theory of mistake. In both cases, the contract will be declared void.
This divergence must not be over-emphasized, however. It all depends on the consequences which follow from contracts void ab initio as opposed to contracts that are avoided because they are impossible to perform. The retrospective effect is not the same in the two cases. But the question will seldom be raised in relation to a contract which, by hypothesis, cannot be performed. The modes of termination also differ. If the contract is void, it comes to an end by operation of the law. If it is avoided, the non-defaulting party, according to a possible interpretation of Article 79 (see § 2.10.2., infra), will have to declare the contract terminated. But, again, in practice, the difference will probably be negligible.
The extensive interpretation of Article 79 is preferable as it creates uniformity, but it may come into conflict with mandatory provisions of domestic law (see concerning ULIS, STOLL, in DÖLLE, Einheitliches Kaufrecht, 445 in favour of the exclusion of national rules). The better view is to decide that when the existence of the subject-matter is regarded as a peremptory rule by a given domestic law, Article 79 ceases to apply by virtue of Article 4(a) of the Convention, especially in the absence of any provision similar to Article 34 of ULIS which excluded reliance on national remedies for mistake in cases of non-conformity of the goods.
2.5. - Article 79(1) defines the notion of impediment. Paragraph (2), added to the provisions of ULIS, defines a special form of exemption when the non-performance of one party results from the non-performance of a third party. Again, it must be noted that these provisions are not obligatory. The parties may stipulate other causes of exemption in their agreement.
2.6. - A literal analysis of Article 79(1) reveals a four-part definition: (i) an impediment (ii) reasonably unforeseeable at the time of the conclusion of the contract (iii) reasonably impossible to overcome (vi) having induced the non-performance of the contract («failure ... due to»). These elements constitute the traditional components of force majeure. [page 578]
2.6.1. - For an exemption to be granted, the non-performance of the contract must be due to an impediment. Article 74(1) of ULIS used the word «circumstances» although the expression «temporary impediment» also appeared in Article 74(2). The choice between the word «circumstances» and «impediment» had given rise to long discussions at the 1964 Hague Conference. According to the Tunc report (Hague Conference Records, I, 357, 384) the word «circumstances» would have allowed exemption when the seller could not be held liable for the defects in the goods. By adopting the word «impediment», the Vienna Conference aimed at emphasizing the objective nature of the hindrance rather than its personal aspect. These discussions may appear somewhat recondite. It is not difficult to admit that a simple change in terminology -- in any event one that may become intelligible only after a lengthy examination of the records -- cannot result in such widely different consequences. One cannot expect the judge to spend too much time interpreting a text which is apparently clear. What is actually the issue, as some legal systems readily admit, is the external character of the impediment with regard to the activity of the defaulting party; and, since it does not constitute a separate condition, it must be linked to the condition «beyond his control» (see the excellent discussion of NICHOLAS, Impracticability and Impossibility, §§ 5.10 to 5.14 and references).
2.6.2. - The notion of «impediment beyond his control» is not easy to explain, owing partly to the difference that exists for instance between the English and French versions. By using the expression indépendant de sa volonté (literally, independent of his will), the French text appears to adopt a more subjective approach. In a sense, it is contrary to the drafters' intention and the English version is more in keeping with the proposed objective. If the impediment is not extraneous to the activity of the defaulting party, i.e., if it is under his control, it produces no exempting effect. A comparative analysis of the text reveals that this condition covers two situations.
The first one concerns the behaviour of the defaulting party. One might argue that a question of fault is involved here. But this concept has been set aside by the Convention and does not require consideration. What is meant is that exemption will not [page 579] be granted if the defaulting party fails to behave as required under the contract, including the implicit obligation of good faith. This would be the case if a governmental licence is refused as a result of negligence on the defaulting party's part (e.g., because he failed to apply properly for such a licence: see Article 54 of the Convention), or if the goods had deteriorated owing to improper packaging.
The second situation in which the idea of control appears is that which is defined as the external character of the impediment, i.e., exterior to the defaulting party's activity. A typical example is the damage that a defect in the goods causes to the buyer. Can the seller contend that he had no means to discover the defect? The «external approach» leads to a negative answer and to the conclusion that a non-external impediment may never produce an exempting effect even though it meets the other requirements for a valid exemption. For equity's sake, the risk should be placed on the seller in such a case, or on the manufacturer in case of third-party proceedings. To the extent that the impediment relates to the defaulting party's activity, it is not «beyond his control» (French case law even created an irrebuttable presumption of knowledge of the defect when the seller is a professional). This condition, however, is often mixed with the other -- more traditional -- conditions set forth in Article 39(1).
2.6.3. - The first condition concerns the foreseeability of the impediment. It is formulated as follows: «an impediment ... that [the defaulting party] could not reasonably be expected to have taken ... into account at the time of the conclusion of the contract».
Most domestic laws adopt a similar rule. It is consistent with the basic idea that if the event were foreseeable, the defaulting party should, in the absence of any contrary provision in the contract, be considered as having assumed the risk of its realization.
The formula used in Article 79(1) calls, however, for further comments.
The impediment must be reasonably foreseeable. The reference is thus the reasonable person, the bon père de famille, in accordance with the general concept of the Convention, i.e., halfway between the inveterate pessimist who foresees all sorts of [page 580] disasters and the resolute optimist who never anticipates the least misfortune. The impersonal tone of the text of the Vienna Convention must be noted as contrasting with ULIS which referred to the intention of the parties (this is even clearer in the French version which uses the formula «un empêchement ... qu'on ne pouvait raisonablement attendre»). Everything here is a matter of measure, and it seems difficult to provide more details in a general text. It will be left to the judge or arbitrator to decide depending on the circumstances of the case (for a similar view see Secretariat's Commentary, Official Records, I, 55). Furthermore, foreseeability should relate not only to the impediment per se but also to the time of its occurrence. The closure of the Suez Canal was, for example, foreseeable in the more or less distant future. But the defaulting party could only be exempted if it were reasonably unforeseeable that the impediment should occur during the course of the contract. Foreseeability must be appreciated at the time of the conclusion of the contract. This solution is reasonable and generally acknowledged by domestic laws.
2.6.4. - The impediment must also be unavoidable (see § 2.6., supra). The defaulting party must have been reasonably unable «to have avoided or overcome [the impediment] or its consequences».
To «avoid» means taking all the necessary steps to prevent the occurrence of the impediment. In most cases, it will coincide with the idea of «beyond his control» (see § 2.6.2., supra).
«To overcome» means to take the necessary steps to preclude the consequences of the impediment. It is closely associated with the condition of the external character of the impeding event. The attention should be focused on the behaviour of the defaulting party. The basis of reference is the same as for unforeseeability, i.e., the reasonable person. This criterion is, however, rather vague and will often be most difficult to distinguish between what is possible and what is impossible to overcome. This issue raises once again the theoretical question of the distinction between impossibility and imprévision. There may be a nuance between great difficulty of performance (or, as it is called by German authors, «economic impossibility» -- see SCHLECHTRIEM, UN-Kaufrecht, 96; Uniform Sales Law, 102) and absolute impossibility. Here again, a case-by-case analysis is [page 581] required. If an object is lost at sea and can be fished out in good condition although at great cost, the final solution will not be the same if the said object is a highly valuable sculpture or merely a machine tool. Thus, everything is a question of measure.
2.6.5. - Nevertheless, several points deserve further attention. First, as a rule, generic goods are not affected by force majeure: genera non pereunt. Others may be obtained to replace them; thus delivery remains possible. The impediment is not invincible. A different solution might prevail if the goods were of a limited kind, e.g., a rare metal produced in a single country. Export prohibition would constitute an impediment in the sense of Article 79.
The second difficulty is illustrated by the example of a contract calling for the goods to be packed in a specific type of container that turned out to be unavailable (see Secretariat's Commentary, Official Records, I, 56). According to the commentary, the seller would not be liable for damages if he provided «commercially reasonable substitute packing materials». This solution is inspired by § 2-614 of the United Stated Uniform Commercial Code. It is, however, excessive in view of the lack of precision in Article 79; furthermore, it conflicts with Article 35(1) of the Convention according to which the seller must deliver «goods which are ... contained or packaged in the manner required by the contract».
This solution might, in addition, be dangerous as it would enable one party to modify unilaterally the terms of the contract, thus generating insecurity to the detriment of the weaker party. The same result could in any case be reached by a different and more convincing reasoning. If the seller is unable to perform the contract in accordance with the specifications of the buyer and has recourse to a «commercially reasonable substitute» -- very close to what the parties initially provided in their agreement -- the buyer would act in violation of the general principle of good faith by refusing the latter mode of performance. The seller could therefore claim damages. It would indeed be illogical to speak of non-performance and exemption in a case where the only question is whether the contract has been performed or not.
The insolvency of the buyer is not generally regarded as an impediment (in this sense see also Secretariat's Commentary, Official [page 582] Records, I, 55). It is, in effect, difficult to argue that the insolvency of the buyer is «beyond his control». The case would be different of course if the insolvency was due to a force majeure event, e.g., the undue confiscation of the buyer's ownings following a coup d'état.
2.6.6. - The last condition relates to the causal element. The non-performance of the contract must be due to the impediment. This condition is logical. The seller cannot avail himself of an event, e.g., the burning of his warehouse, which occurred after he has refused to perform the contract. Non-performance in this case is due to his prior refusal to perform, not to the fire. Of course, it may sometimes be difficult to identify the precise cause of the failure as, for example, when several causes are invoked, such as the impediment and the act or omission of one of the parties. Since this is usually the case when a problem of causality is raised, the solution will depend on the subjective appraisal of the judge. In the absence of any indication to this effect either in the text (when it is the aggrieved party who has contributed to the damage, see Article 80) or in the spirit of the Convention, the judge will apply the theory that prevails in his country.
Whatever theory is adopted, however, the exempting event must necessarily be the exclusive cause of the failure to perform. If goods not properly packaged are damaged following an unforeseeable and unavoidable accident, the seller remains nonetheless liable (see § 2.6.4., supra). The judge cannot reduce, even partly, the damages owed by the seller on account of that latter accident. The loss is attributable to the seller's failure to provide adequate accident-proof packaging.
2.6.7. - It is impossible to enumerate all the events that constitute an impediment according to Article 79. At the utmost, one may refer to the traditional categories of force majeure, i.e., natural catastrophes (e.g., earthquakes, storms, etc.) and of the fait du prince which is gradually extending on account of the greater interference of States in international commercial relations (e.g., embargo, blockade, war and, more recently, export prohibitions). The various systems of licences and permissions will no doubt give rise to delicate problems: is it possible to regard the refusal of a licence as an unforeseeable event? It all depends on the circumstances of the case. If the refusal were foreseeable at [page 583] the time of the conclusion of the contract the party in charge of obtaining the licence should have arranged the insertion of a clause relating to the consequences of refusal.
Finally, acts of man such as strikes, thefts and accidents of all sorts may also be regarded as impediments.
It must be noted, however, that a war or a strike does not, in itself, exonerate the defaulting party from his obligations. The event must meet all the requirements examined above. A given event, e.g., the closure of the Suez Canal, may thus be considered as an instance of force majeure or frustration in one case and not in another depending on the time of the conclusion of the contract, the nature of the goods, etc.
This discussion demonstrates how subjective the notion of impediment is and illustrates the freedom left to the judge in deciding whether a particular event meets the requirements set forth by Article 79(1).
2.7. - Article 79(2) deals with the special case of non-performance by a third party engaged by the defaulting party to perform the whole or part of the contract. This is a novel provision since ULIS contained no similar rule. It is the response to the increasing development of sub-contracting. The term sub-contracting, used in the initial draft was finally deleted as some legal systems ignore it while others use it in a specific sense. It was replaced by a paraphrase: the performance of the contract by a third person engaged by one of the parties to the contract.
In theory, the solution is simple. Non-performance due to a sub-contractor does not in itself exempt the defaulting party, even if all the requirements set forth in Article 79(1) are met: the impediment must also exempt the sub-contractor. In the case of the sale of a machine to be manufactured for which the seller sub-contracted the manufacture of a part, the seller may only be exempted if the sub-contractor does not deliver the part and if the cause of the non-delivery constitutes an impediment or a case of force majeure (e.g., his factory was destroyed by an earthquake). Moreover, the seller must prove that he was unable to obtain the missing part elsewhere and that the default of the sub-contractor was unforeseeable (at the time of the conclusion of the sub-contract). In short, the seller is liable for the sub-contractor's non-performance except in the case of total impossibility. [page 584]
2.7.1. - The conditions set forth in Article 79(2) are restrictive.
First of all, the sub-contract must really exist, i.e., there must be an organic link between it and the main contract. The defaulting party must have asked a third person to perform some task connected with the main contract and the latter should know that his action is a means of performing the main contract. The solution provided by Article 79(2) can only be justified by the link which binds the two contracts. A different solution would prevail if the sub-contractor were a branch (établissement) of the same firm. The default of the «third party» would not be «beyond the control» of the non-performing party and one of the conditions set forth in Article 79(1) would therefore not be fulfilled. The sub-contractor must be legally independent of the party to the main contract. This condition may give rise to delicate problems of interpretation in the case of subsidiaries that are wholly owned by the mother-company.
Another problem of interpretation arises in the not infrequent term of international sale contracts under which the buyer imposes a sub-contractor upon the seller (a local firm for instance). Has the sub-contractor been really «engaged to perform»? The answer must be in the affirmative. The sub-contractor, though not chosen by the seller, has been accepted by him as part of the bargain and he is under the technical control of the seller.
The task performed by the third party must relate to the performance of the particular contract only. The general supplier of goods or raw materials is not a third party according to Article 79(2), as his task is to provide products for a wide range of purposes to a wide range of clients (see Secretariat's Commentary, Official Records, I, 56). These materials moreover often constitute fungible goods, the destruction of which cannot, as a rule, lead to exemption. The assignment of these goods to a specific purpose creates the link without which Article 79(2) is inapplicable.
2.7.2. - Exemption may thus only be attained if the requirements set forth in Article 79(1) are fulfilled with regard to both the main party and the sub-contractor.
The main party will generally have to prove that he engaged a competent and capable sub-contractor; otherwise the impediment [page 585] will be deemed neither unforeseeable nor beyond his control. The bankruptcy of the sub-contractor will seldom give rise to exemption as insolvency is not generally regarded as an impediment.
To sum up, it appears that non-performance of a third person will seldom lead to the exemption of the party to the main contract; that party will remain liable for the failure to perform, as the guarantor of the sub-contractor's activity (nothing, however, should prevent him from initiating an action against the third party).
2.7.3. - The party seeking exemption has the burden of proving that the requirements set forth in Article 79(1) are met. This is the case also if the failure to perform is due to the failure of a third party. The sub-contractor remains a total stranger to the action. This situation may be detrimental to the plaintiff as his own exemption depends on whether or not the sub-contractor is exempt from liability. Separate trials may lead to a somewhat paradoxical situation: the party to the main contract, though unable to prove the existence of the impediment in an action against the other party, may be able to demonstrate its occurrence in an action against the sub-contractor. This situation inevitably follows from the principle known in French as autorité relative de la chose jugée (binding effect of judicial decision in relation to the parties). This handicap may be overcome by joining the two actions.
The means of proof are governed by the law of the forum.
2.8. - According to Article 79(4), the defaulting party must give notice to the other party of the impediment so as to enable the latter to take all the steps necessary to overcome the consequences of the failure. Although no such provision existed in ULIS, this rule was probably implied in the principle of good faith. It is in any event in harmony with international practice and is often the subject of a particular clause in the parties' agreement.
Thus only a few points deserve emphasis.
The duty to notify exists only when the occurrence of the impediment is certain, not when it may still be avoided (although it may be difficult to determine what is and what is not avoidable). [page 586] The defaulting party must notify the other party of the impediment and its probable consequences, i.e., he must indicate whether the non-performance is partial or total, temporary or definitive, etc. According to the Secretariat's Commentary (Official Records, I, 56), the duty to notify also extends to the situation in which a party intends to perform the contract by furnishing a commercially reasonable substitute. This affirmation is subject to criticism (see § 2.4.2., supra). A party is indeed under no obligation to accept a mode of performance at variance with the stipulations of the contract.
Furthermore, the notice must reach the party to whom it is addressed within a reasonable time after the party in default «knew or ought to have known of the impediment».
By providing that the notice be «received» within a reasonable time the article adopts the theory of receipt, thus placing the risk of the transmission on the defaulting party. The solution is in harmony with the provisions of the Convention relating to offer (Article 15) and acceptance (Article 18(2)), although it deviates from the general rule set forth in Article 27.
If the notice has not been given or received within a reasonable time, the defaulting party is liable for damages. It should be noted that the damages for which the latter is liable are only those which result from the failure to give notice as opposed to those which follow from the non-performance of the contract. The former will, in effect, often constitute an additional charge for the defaulting party as the other party will have been unable to take the steps necessary to alleviate the consequences of non-performance.
The impediment which makes one party to the contract unable to meet his obligations may also bear on the notification, e.g., in the case of a general strike that paralyzes the manufacturer's factory and the postal service as well. In such a case, of course, the non-performing party will not be liable for the failure to give notice if the requirements set forth in Article 79(1) are met.
2.9. - The effects of the exemption are described in Article 79 in a most obscure and even contradictory way. The title of section IV is of no avail: exemption from what? The principle set forth in paragraph (1), which is copied from Article 74(1) of ULIS, is worded in very general terms: the party «is not liable [page 587] for a failure to perform». Paragraph (5), however, is an innovation and appears to restrain the effects of the exemption to one remedy alone: damages. As for paragraph (3), it provides that the exemption has effect only for the period during which the impediment exists.
The gaps in Article 79 also raise problems. The text deals with temporary non-performance but provides nothing concerning partial performance. It considers the non-performance of one obligation but remains silent as to the consequences of the non-performance on the contract as a whole.
Finally, it must be noted that this text is not binding and that, in practice, the parties often stipulate means of redefining the terms of their agreement in the event the performance is jeopardized, e.g., by providing an obligation to renegotiate and by entrusting the adaptation of the contract to a judge or to a third person.
2.10. - The contradiction between the general formula of paragraph (1) and the restrictive provision of paragraph (5) must be dealt with first. According to the former provision, the defaulting party is not liable for the failure to perform: the non-performance is acknowledged, but the party is exempted on account of the impediment. Consequently, the other party cannot claim any remedies. This solution appears to be in harmony with ULIS. Paragraph (5), however, provides that «nothing ... prevents either party from exercising any right other than to claim damages ...». Taken literally (why then is Article 79 not included unaer the section entitled «Damages»?) this text entails unrealistic results. It would allow an action for specific performance in a case where the goods are destroyed (and thus cannot be delivered) or in the case where the transfer of funds is prohibited (thus rendering the payment of the price impossible). Other remedies are inconceivable: replacing or repairing the goods (because the conditions of exemption would not be fulfilled); allowance of extra-time (because the extra-time allowed might exceed the period during which the impediment exists and would conflict, in most cases, with the durable nature of the impediment). The only remedies available are thus avoidance and specific performance insofar as a reduction in price may be regarded as a form of damages. [page 588]
To clarify this issue, three types of situations must be distinguished: those in which the solution is certain; those in which the failure to perform is total and definitive; and those in which the failure to perform is partial or delayed.
2.10.1. - Exemption from liability for damages is certain because it is explicitly stated, although in a negative form, in paragraph (5). The party who fails to perform a contract owing to an impediment that meets all the requirements set forth in paragraph (1) is not liable for damages. The term «damages» must be interpreted widely. It designates all damages, regardless of their proper denomination: dommages-intérêts compensatoires (damages), dommages-intérêts moratoires (damages for over-due performance, interests on damages), direct or consequential damages, etc. This solution is not subject to controversy; the granting of damages to one party presupposes the liability of the other party. The question as to whether the failure to perform exempts the defaulting party from paying a sum stipulated in the contract (either in the form of liquidated damages or penalties) is a matter of domestic law (see Secretariat's Commentary, Official Records, I, 55). The answer depends, in effect, on the interpretation of the clause. If the sum is due in lieu of damages, it will have to be set aside.
Furthermore, the exemption of a party does not prevent the other party from claiming remedies (including damages) as a result of the non-performance of any other obligation. This solution follows from the requirement of a cause-effect relationship described above (the non-performance must be due to the impediment). Thus, if non-conforming goods are delivered with delay on account of some impediment, the buyer will be able to claim every remedy normally available in cases of non-conformity.
Beyond these incontrovertible points, Article 79 raises considerable problems of interpretation. The nature of the non-performance is then decisive.
2.10.2. - The restrictive interpretation of paragraph (5) according to which the defaulting party is exempted only from liability for damages -- is least acceptable when tbe non-performance is total and definitive (definitive non-performance is defined in § 2.10.4., infra). The right of the injured party to claim [page 589] specific performance or avoidance does not make sense any more. Specific performance is, by definition, impossible and avoidance useless (see, however, HONNOLD, Uniform Law, 427, who states without further justification that «the right to avoid the contract is not impaired»). The consequences of an inescapable event cannot depend upon the will of the parties. If, for instance, an American museum buys a work of art in France for exhibition in the United States and delivery is rendered impossible by some regulation prohibiting export, the seller could hardly claim the price since he would not be in a position to deliver the work. If the aggrieved party does not declare the contract avoided, this contract would have nonetheless disappeared. In this case, it disappears by operation of the law. However, the consequences of avoidance, as declared by the aggrieved party, and of termination due to impossibility are not so different. Yet the time of the disappearance may be different: in the case of avoidance, the contract ends at the time of the declaration; in the other case, it ends at the time of the event.
This solution prevails in many countries (see § 275 of the Federal Republic of Germany's Civil Code and French case law relating to Article 1184 of the Civil Code, which is traditionally referred to in this matter).
2.10.3. - Partial non-performance supposes that the impediment affects only part of the main obligation or an accessory obligation and that the contract may still be performed. Article 79(5) leads to less absurd results in this case. As opposed to the situation in which the failure to perform is due to one party, the other party can neither claim damages for the non-performance of part of the contract nor specific performance. But Article 79(5) may be regarded as implicitly, although awkwardly, referring to a provision on breach of contract, namely that which allows a party to declare the contract avoided if the failure to perform amounts to a fundamental breach. Partial performance may indeed be of no interest to the injured party.
If, for example, the output is cut by half after the partial destruction of the seller's plant by an earthquake, the buyer may either declare the contract avoided or claim the delivery of the goods with a commensurate reduction in price. He cannot, however, claim damages. [page 590]
The rigidity of the system (termination or status quo) contrasts with the solution that German courts and French administrative tribunals have imagined with regard to Wegfall der Geschäftsgrundlage and imprévision (also adopted by the Italian -- Articles 1467 to 1469 -- and Greek -- Article 388 -- Civil Codes) which authorize, or at least encourage, the adaptation of the contract by the judge.
Article 79(5) applies indifferently to the buyer or to the seller («either party»). If the buyer, in the above example, refuses to take delivery of the goods, the seller can either compel the buyer to take delivery or regard his attitude as a fundamental breach of contract. He must also account to the seller for all benefits which he has derived from the goods or part of them in case of restitution (Article 84).
2.10.4. - If the performance of the contract is only delayed by some impediment, Article 79(3) provides that the exemption is temporary and has effect only for the period during which the event exists, meaning that the buyer is not liable for damages for over-due performance. This provision contrasts with Article 74(2) of ULIS which granted definitive exemption when late performance amounted to non-performance.
Article 79(5) nevertheless leads to the same result, as over-due performance may be deemed a fundamental breach that enables the injured party to declare the contract avoided.
When «time is not of the essence» of the contract and performance becomes possible, the injured party may claim any remedy, including damages, except for damages for over-due performance.
3. Problems concerning the provision
3.1. - Under some legal systems, an unforeseeable change in circumstances which renders the contract more difficult, but not impossible, to perform may entail the avoidance or even the revision of the contract. These domestic theories, called imprévision, frustration of the venture, impracticability, Wegfall der Geschäftsgrundlage, eccessiva onerosità sopravvenuta, etc. must be compared with the system of Article 79. The issue is of [page 591] importance as the judges may feel tempted to rely on these rules rather than on the rules of the Convention.
The question as to whether Article 79 covers such unexpected events is debatable. As previously noted, the English version of Article 79, as opposed to the French text, may be (wrongly) construed in favour of the theory of imprévision. Unfortunately, the travaux préparatoires are of no avail on this particular point. The 1956 Report of the Hague Conference special Commission (38-39) tried to bypass the difficulty by referring to the intention of the parties (or, more precisely, to what would have been the intention of persons of the same rank and quality as the parties had they been placed in the same circumstances). This approach would have, however, reinstated the principle rebus sic stantibus and maintained a variety of solution because not all legal systems acknowledge such a principle.
The adaptation of the contract by the judge is not expressly allowed in the Convention and must therefore be regarded as impossible. The only remedy available is avoidance.
The insurmountable character of the impediment is moreover defined rather strictly even though it is submitted to the requirement of reasonableness. The borderline between impracticability and a reasonably insurmountable impediment is, of course, uncertain. But if the Convention appears to refer to a more flexible standard than that of traditional force majeure, it is undoubtedly stricter than frustration or impracticability (see concerning force majeure and frustration, NICHOLAS, Force majeure and frustration, 233 et seq.; see also the overall studies of ZWEIGERT-KÖTZ, Introduction to Comparative Law, Amsterdam (North-Holland Publishing Co.), 1977, II, 187-207 and DAVID, L'imprévision dans les droits européens, Mélanges A. Jauffret, 1974, 212-229).
Article 79 thus constitutes an autonomous system in line with, although not as strict as, the rather rigorous Roman-German system. The Convention does not favour very easy exemption for non-performance. A more flexible approach would have been unacceptable to developing countries because imprévision generally operates to the advantage of the most powerful party. Moreover, it would have been regarded by socialist countries as incompatible with their planning policy.
It remains to be seen what will be the attitude of judges when their law acknowledges the theory of imprévision (in the wide sense of the word). [page 592]
3.1.1. - Two categories of domestic laws must be distinguished. In the first one, the notion of impossibility (in its wider sense) exists and covers both impossibility (defined strictly) and unforeseen but surmountable contingencies. This is, roughly speaking, the position of the common law for which the notion of «frustration of the venture» comprises both supervening impossibility (Act of God) and imprévision. Paragraph 2-615 of the United States Uniform Commercial Code, which refers to the intention of the parties, adds nothing to the discussion. But, Restatement Second on Contracts (§§ 261 and 265) (see FARNSWORTH, Contracts, Toronto-Boston (Little, Brown and Company), 1982, 690 concerning the consistency of these two texts) illustrates this unitary trend by resorting to the notion of «impracticability» which covers impossibility and frustration (and which also gives the judge a regulating power, as opposed to the common law rule). This extensive approach must not, however, influence the judge with regard to Article 79. This text embodies an original conception which is wholly independent of the notions of frustration and impracticability.
3.1.2. - The second category raises a more delicate problem. It comprises all legal systems in which the theory of impossibility (or that of force majeure) exists side by side with the theory of «changed circumstances». The law of Federal Republic of Germany is a typical example because the caselaw theory of Wegfall der Geschäftsgrundlage exists notwithstanding the provisions of the Civil Code on impossibility. The same solution prevails in Italy (Articles 1467 to 1469 of the Civil Code). In these systems, the modification or the avoidance of the contract owing to imprévision is more or less directly associated with the notion of good faith. A party is deemed of bad faith if he demands the performance of a contract that has become highly unbalanced. The temptation for the judge to apply one of these systems instead of Article 79 appears clearly. The argument would run as follows. As noted above, Article 79 is concerned only with the question of impossibility; whereas the issue of imprévision is comprised in the general principle of good faith spelled out in Article 7. Also the caselaw of the Federal Republic of Germany elaborated the Wegfall der Geschäftsgrundlage theory starting from § 242 of the Civil Code, the jack of all trades of West German law. [page 593]
This solution is unacceptable. The principle of good faith must not be used to bypass explicit provisions of the Convention. Article 79 adopts an intermediate solution which ensures both contractual justice and the security of transactions. Furthermore, the notion of good faith is practically of no avail to the judge. If it were to be regarded as the legal basis of the theory of imprévision in international sales, harmony would be jeopardized and the aim of the Convention, as stated in Article 7(1) would not be attained.
The dualistic approach involves another danger. One could argue on the basis of the distinction between impossibility and imprévision that the latter issue is not «expressly settled» by the Convention and should therefore be governed by the law designated by the conflict-of-laws rule. This approach is, however, unsatisfactory. First of all, the question as to whether this issue is in effect settled by the Convention is debatable. It is clear, especially in view of the travaux préparatoires, that the Convention has opted for a unitary conception of exemption and has thus set aside the theory of «changed circumstances» (even if this choice may be criticized). Moreover, this approach would preclude uniformity. And uniformity would be jeopardized if the restrictive theory of Article 79 existed side by side with the various domestic theories, some of which acknowledged imprévision, although subject to varied conditions, and some of which reject it. Article 79 would become practically useless in the systems which acknowledge imprévision.
3.2. - As it has already been noted, the general wording of Article 79 leaves much room for judicial interpretation. The 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 (see SOKOLOW, La force majeure dans les contrats entre sociétés occidentales et centrales commerciales soviétiques, in Droit et pratique du commerce international, 1978, 329; see also Articles 245(2) and 275(1) of the Czechoslovakian International Trade Code). Judges in socialist countries will also have a peculiar attitude with regard to strikes. 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. The risk of divergence thus exists and must not be underestimated. [page 594]
3.3. - The view has been expressed (HONNOLD, Uniform Law, 434) that the judge should adopt a «comparative law approach» and examine the «prevailing patterns and trends of modern domestic law» insofar as they are consistent with the necessities of international commerce. This author emphasizes «a special value of legal trends that reflect a careful rewording and modernization of traditional and archaic legal concepts». This approach is subject to criticism. It might, indeed, arouse the nationalism of judges as every lawyer is inclined to believe that his law is the best and that «traditional and archaic concepts» exist only in other laws. The «special value» rule would thus eventually lead to the application of domestic laws.
More precisely, the comparative law approach, which may prove rewarding in other circumstances, would yield only limited results in the present case as no specific overall trend may be traced. The analysis of the «Suez cases» in various laws is instructive in this respect. The comparative law approach may lead only to the elimination of all the solutions that too strongly deviate from any given legal system. Judicial construction should be guided by the necessity of finding a balance between the two fundamental principles which govern the issue of exemption in international commercial law -- security of transactions and contractual justice. The most powerful or the cleverer party must not be given the means to elude a contract which has turned to his disadvantages and the risks must be equitably apportioned between the parties in case of impossibility. The circumstances will, of course, be decisive, but their role must be limited by the principle of uniform interpretation which follows from Article 7 of the Convention. This is especially important in the instant case as a given event (blockade, war, etc.) may effect a considerable number of international contracts. Harmony would be jeopardized if this event were subject to varied interpretations on the part of judges and arbitrators. In effect, uniformity can only be achieved if the cases are known, published and discussed. However, this goal can only be attained in the long run, and the flexible terms of Article 79 will always leave considerable room for judicial appraisal. [page 595]