Force Majeure and Hardship in International Commercial Contracts: A Legal Overview, Slides of International Commercial Law

Download Force Majeure and Hardship in International Commercial Contracts: A Legal Overview and more Slides International Commercial Law in PDF only on Docsity!  Case law on force majeure and hardship in international commercial contracts: a brief overview Dmitry Davydenko, Ph.D. in Law, Ass. Professor at MGIMO University, Moscow, Russia, Executive Secretary of the ICC Russia Arbitration Commission Expert Council, Director of CIS Arbitration Forum E-mail: dmitridavydenko@gmail.com General remarks Pandemic results in a large-scale economic turbulence.  Debtors: impossibility, unexpectedly burdensome performance of the contract caused by restrictions on trade and movement, economic crisis, price fluctuations etc.  Force Majeure and Hardship: regular, rather than exceptional remedies? Unforeseen impediments to performance As a rule, a debtor can be released from liability only if:  at the time of the conclusion of the contract, the impediment to its fulfillment was not foreseeable and  this impediment or its consequences could not be avoided or overcome. The debtor has to prove that he did not assume the corresponding risk. e.g. that the extent and period of existence of the impediment were unpredictable. Each party bears the risk that performance of the contract may become more burdensome ! Even if this risk was not foreseeable at the time of the conclusion of the contract.  The buyer bears the risk that the market price of the goods drops down or that the goods will lose their value.  The seller bears the risk of a price increase or an increase in the cost of purchase or manufacture.  The party cannot be relieved of liability due to a lack of money (e.g. loan terminated). Exceptions  an extraordinary depreciation of money, or  economic impracticability: extraordinary increase of the seller’s expenses;  payment in a foreign currency prohibited by a state act, and payment by other means impossible or unreasonable. The principle of good faith applies. The conclusions of the arbitral tribunal  The party that refers to a force majeure event bears the burden of proof that its performance was impossible due to such event.  The debtor must use a commercially reasonable replacement (for example, generic goods that differ slightly) or production and delivery methods (e.g., other packaging, other means of transport).  However, unrealistic, impractical and uneconomical extremes cannot be expected.  The seller, by default, is obliged to find this kind of goods in the market.  UNLESS the contract limits the seller’s obligation to deliver to one or more sources. NB: the seller’s risk can be reduced if the contract provides for the seller’s obligation to deliver goods from one or more specific sources. The force majeure event must be the cause of non-performance If the goods were lost during an unforeseen natural disaster, but because of defective packaging, the debtor is still liable for non-performance of the contract.  No causal relationship if the obstacle did not exist at the time the performance was to take place. However, the parties may agree otherwise in the force majeure clause.  The debtor does not need to prove that he would be able to fulfill the contract if the force majeure did not happen. A notice of force majeure is NOT ALWAYS necessary to relieve liability No timely notice – no right to invoke force majeure? Only if the contract provides so, or the failure to notify causes damage to the other party.  No need if the party knew about the facts underlying force majeure. ICC Award 19222 2016, General Dynamics United Kingdom Ltd. v State of Libya.  Conclusion Parties are relieved from their obligations only on exceptional basis. Force majeure and hardship remedies should be applied carefully to avoid an avalanche-like default. To preserve the legal certainty of international trade: a party should not, as a general rule, be exempted from liability due to lack of financing or an unexpectedly increased burden of contract performance. A detailed Force majeure and Hardship clause is important. Sources and further reading  Fabio Bortolotti and Dorothy Ufot (eds), Hardship and Force Majeure in International Commercial Contracts: Dealing with Unforeseen Events in a Changing World, Dossiers of the ICC Institute of World Business Law, Volume 17 (© Kluwer Law International; ICC 2018).  Berger, Klaus Peter and Behn, Daniel, Force Majeure and Hardship in the Age of Corona: A Historical and Comparative Study (April 20, 2020). McGill Journal of Dispute Resolution, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3575869.  Davydenko, Dmitry, Reference of the Parties to Economic Hardship in the Practice of International Dispute Resolution (May 27, 2020). https://ssrn.com/abstract=3611706  Global Tungsten & Powder Corp v Largo Resources Ltd. Award in ICC Case 19566 of 2011.  Tandrin Aviation Holdings Ltd v Aero Toy Store Llc & Anor [2010] EWHC 40 (Comm).  Cessna Finance Corporation v Gulf Jet LLC (Final Award), Award in ICC Case 18769 of 2014  General Dynamics United Kingdom Ltd. v State of Libya. Award in ICC Case 19222 of 2016.