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Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods

Professor Jacob S. Ziegel, University of Toronto
July 1981

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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.

COMMENT

1. Art. 79 deals with the circumstances in which the buyer or seller may be excused from performance of his contractual obligations because of an extraneous event that is judged sufficiently important to warrant the excuse--what in the common law is referred to as frustration of the contract and in civilian legal systems under such headings as force majeure, cause étrangère, and Wegfall der Geschaftsgrundlage. The article is probably one of the most difficult in the whole convention, and this for several reasons [cf. Barry Nicholas, "Force Majeure and Frustration" (1979) 27 Am. J. Comp. Law 231 et seq.].

First, because of the conceptual differences in approach to frustration among the major legal systems, secondly, because of lack of unanimity about the solutions to the policy issues, and thirdly, because of the unsettled state of the law even within a given system. This certainly describes the common law position. Given these complexities it is not possible to do more than to draw attention to some of the more salient features of art. 79 and the extent to which the article differs from the corresponding provincial common law and statutory rules [viz., OSGA ss.7-8, and the Uniform Frustrated Contracts Act. The original or revised version of the Act has been adopted in 9 Provinces and Territories].

2. Art. 79, like its predecessor, art. 74 of ULIS, is more civilian than common law in its conception. Paragraph (1) describes the circumstances when a party "is not liable" for a failure to perform any of his obligations. Paragraph (2) is an extension of the first paragraph and is concerned with the effect of non-performance by a third party whom the contracting party has engaged to perform some of his duties. Paragraph (3) regulates the period of the exemption and paragraph (4) imposes a duty of notification on the party failing to perform. Paragraph (5) deals with the consequences of the non-performance and the remedies available to the parties.

3. Paragraph (1). This paragraph is of critical importance. Two features should be noted. First, the existence of a qualifying impediment to non-performance does not "frustrate" or automatically terminate the contract as is generally the case in the Canadian common law [Cheshire & Fifoot, op. cit., 9th ed., pp. 558-59]. The contract apparently continues to exist unless and until it is avoided. The only immediate effect is to excuse the non-performing party from "liability" for failure to perform, i.e., from a claim in damages. Secondly, the impediment must be not only beyond the control of the non-performing party; he must also be able to show that he could not reasonably have taken the impediment into account, avoided it, or overcome it or its consequences.

Foresight of a supervening frustrating event is also a relevant consideration at common law, as is a "self-induced" act of frustration: see e.g., Maritime Nat. Fish Ltd. v. Ocean Trawlers Ltd. (1935) A.C. 524; The Eugenia (1964) 2 Q.B. 226. However, it appears from the [Secretariat] Commentary, (p. 170, para. 7) that the duty to overcome the impediment may include the duty to tender substitutional performance. Semble, no such duty exists in the Canadian common law unless it can be implied from the terms of the contract. (UCC 2-614 recognizes it to a limited extent).

4. Paragraph (1) does not amplify the meaning of "impediment". Presumably it covers physical impediments (notably destruction of specific goods under a contract for the sale of specific goods: cf. OSGA, s.8, and legal impediments such as the outbreak of hostilities or the imposition of foreign exchange controls. It is not clear to what extent "impediment" may embrace frustration of the purpose of the contract (as in the well known Coronation cases) [Krell v. Henry (1903) 2 K.B. 740; Herne Bay Steamboat Co. v. Hutton (1903) 2 K.B. 683]] and what is referred to in the literature as economic frustration. The Anglo-Canadian position on these points is also unsettled; for the U.S. position see now UCC 2-615, and the discussion in the OLRC Sales Report, pp. 374 et seq.

5. Paragraph 3. This again illustrates an important difference between the common law's approach to frustration and the conceptual basis of art. 79. At common law the contract is only frustrated if the intervening event has destroyed its substratum or so radically interfered with performance that the whole complexion of the contract has been altered: hence a temporary impediment is not sufficient unless it has this effect. See e.g., F.T. Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd. (1916) 2 A.C. 397, Cheshire & Fifoot's Law of Contract, 9th e.g., pp. 550-551. A temporary impediment, regardless of its gravity, clearly is a sufficient excuse under art. 79.

6. Paragraph 5. As already indicated, the existence of an "impediment" does not automatically terminate the contract, and it is left to the other party to determine what remedies he wishes to pursue (other than in respect of damages) in the light of the supervening circumstances. He may be entitled to avoid the contract if the non-performance amounts to a fundamental breach, but seemingly he is not obliged to. If he does avoid, the normal consequences of avoidance will follow. See art. 81-84. These remedies may be too rigid for an art. 79 type situation. [ Nicholas, supra n.1, pp. 241 et seq.]. For example, a seller may be obliged to refund the purchase price in its entirety even though he has incurred substantial reliance expenditures in preparing to perform. Again, the convention provides no guidance as to a seller's duty to prorate his available production among his buyers where, owing to the supervening event, it is no longer sufficient to meet all his commitments. CISG contains no provisions comparable to those in the Uniform Frustrated Contracts Act conferring discretionary powers on the court or those in UCC 2-615 and 2-616 requiring the seller to prorate his production among his customers.

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