CISG Article 79: Exemption from Liability and Hardship in International Sales Contracts, Thesis of Commercial Law

Download CISG Article 79: Exemption from Liability and Hardship in International Sales Contracts and more Thesis Commercial Law in PDF only on Docsity! COVID-19 and international sale contracts: unprecedented grounds for exemption or business as usual? André Janssen* and Christian Johannes Wahnschaffe† Abstract The year 2020 has witnessed a health crisis of unparalleled dimensions that has triggered ongoing complications on a global scale. Through restrictions on economic activities and disruptions in supply chains, COVID-19 has severely impeded global trade. Among the ensuing problems, the question of excusing a party’s failure to perform its contractual obligations is of key interest. This contribution analyses the conditions for exemption from liability with view to contracts for the international sale of goods subject to the 1980 UN Convention on Contracts for the International Sale of Goods. It revisits the statutory requirements and illustrates COVID-19 scenarios that might satisfy the relevant thresholds. This article further examines the particular legal consequences following from an exemption from liability, including the controversial discussion as to the adequate remedies in cases of economic hardship. Finally, this contribution addresses the newly revised International Chamber of Commerce’s clauses on force majeure and hardship. I. Introduction From that point on, it could be said that the plague became the affair of us all. Up to then, despite the surprise and anxiety that these unusual events had brought us, every- one had gone on with his business, as well as he could, in the usual place. And that no doubt would continue. But, once the gates were closed, they all noticed that they were in the same boat, including the narrator himself, and that they had to adjust to the fact. — Albert Camus, The Plague, 1947 * André Janssen, Chair Professor of Civil Law and European Private Law, Radboud University Nijmegen, Montessorilaan 10, 6525 HR Nijmegen, The Netherlands. Tel: 0031 24 3612311, email: a.janssen@jur.ru.nl † Christian Johannes Wahnschaffe, research assistant at the Chair for Foreign and International Law of James Fowkes, LL.M., J.S.D. (Yale) at the Westfälische Wilhelms-Universität Münster, Universitätsstraße 14-16, 48143 Münster, Germany. Tel: 0049 251 8322888, email: cjwahnschaf- fe@uni-muenster.de.. The authors wish to express their gratitude to Edward L Rensmann for the language revision of this contribution. VC The Author(s) (2021). Published by Oxford University Press on behalf of UNIDROIT. All rights reserved. For permissions, please email journals.permissions@oup.com Unif. L. Rev., 2021, 1–30 doi:10.1093/ulr/unaa026 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 With curfews imposed by governments around the world and a myriad of air- crafts grounded, the COVID-19 pandemic has—to borrow from Albert Camus—closed the proverbial gates on international trade. Whilst the pandem- ic is far from over, its severe repercussions on society are all too evident and have evolved into an affair for all of humanity. Among other things, business is not going on: the World Trade Organization expects the volume of world mer- chandise trade to fall by 9.2 per cent in 2020.1 A crisis of this kind raises many questions, not only concerning the response required by the international com- munity but also with regard to the implications for contractual relations in glo- bal trade. The significance of these questions is exemplified by the fact that States such as China are issuing force majeure certificates in an effort to protect (domestic) companies from ensuing contractual claims.2 The unresolved issues troubling international trade are easily discerned. In cross-border contracts for the sale of goods, questions arise as to whether the seller can be held to comply unconditionally, even in these times of crisis; which legal grounds could serve as basis for an exemption from liability; and which conditions could satisfy such an exemption, to name but a few. For international contracts concerning the sale of goods, the answer to these questions can frequently be found within the framework of the United Nations Convention on Contracts for the International Sale of Goods (CISG), which presently accommodates 94 contracting States, including almost all major industrialized countries.3 In a first step, this contribution will therefore explore the general concepts of party liability as provided by the CISG (Part II). These general observations will be followed by a closer examination of the central ex- emption provision in Article 79 of the CISG, focusing on its applicability under the COVID-19 pandemic, aided by practice-oriented scenarios (Part III). These observations then necessitate a critical analysis of the legal consequences that ensue from an exemption from liability under the CISG (Part IV). Finally, this contribution will briefly address the possibility of individual contractual stipula- tions on the basis of two ICC model clauses (Part V), followed by a short out- look (Part VI). 1 World Trade Organization, ‘Trade shows signs of rebound from COVID-19, recovery still uncer- tain’ (6 October 2020) <https://wto.org/english/news_e/pres20_e/pr862_e.htm> accessed 18 December 2020. 2 See, eg, Reuters, ‘China force majeure certificate issuance pass 5,600 amid virus outbreak’ (11 March 2020) <https://reut.rs/2TIfLP2> accessed 18 December 2020. 3 United Nations Convention on Contracts for the International Sale of Goods, 1980, 1489 UNTS 3 (CISG). For the full list of Contracting States, see, eg, UNCITRAL, ‘Status: United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG)’ <https:// uncitral.un.org/en/texts/salegoods/conventions/sale_of_goods/cisg/status> accessed 18 December 2020. 2 André Janssen and Christian Johannes Wahnschaffe Unif. L. Rev., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 influence on such events. Cases in which the debtor’s ability to perform is restricted as a direct result of the pandemic itself—for example, due to wide- spread cases of illness within his workforce—thus constitute impediments be- yond his control. But even if the pandemic has a merely indirect restrictive effect on the debtor’s ability to perform, Article 79(1) of the CISG may still be of use. Such indirect limitations can include State measures such as restrictions on the import and export of goods and other official prohibitions.14 During the COVID-19 pandemic, there have been direct State interferences in business pro- ceedings, notably through export restrictions15 and business closures.16 Such measures are regularly accompanied by further State interventions that only in- cidentally effect the economy but are just as far-reaching. This applies, for ex- ample, to quarantine restrictions imposed on container vessels, which have led to some significant disruptions in freight traffic.17 These examples constitute further impediments originating in the COVID-19 pandemic that generally ap- pear to be beyond the parties’ control. B. Unforeseeability As a second prerequisite, the COVID-19 pandemic has to pass the test of fore- seeability. This assessment is based on the objective standard of a reasonable person in the position of the debtor, taking into account the specific circum- stances of the case at hand.18 According to Article 79(1) of the CISG, the time of the conclusion of the contract is the relevant point of reference for this test.19 There have been suggestions in the pertinent literature that a terminological dis- tinction could be made between ordinary and extraordinary events with respect 14 CISG-AC Opinion No. 20 (n 13) para 4.3; Larry A DiMatteo, ‘Excuse: Impossibility and Hardship’, in Larry A DiMatteo, André Janssen, Ulrich Magnus and Reiner Schulze, International Sales Law – Contracts, Principles & Practice (CH Beck/Hart/Nomos, Munich/ Oxford/Baden Baden 2016) para 104; Flambouras (n 10) 267; Gilette and Walt (n 7) 296; Huber (n 4) para 11. However, see also Schwenzer, ‘Article 79 CISG’ (n 4) para 18 who notes that particularly Chinese and Russian tribunals tend to maintain a strict stance on this issue, having repeatedly ‘den[ied] exemption in cases of denial of export or import licences or issuing of export or import bans’. 15 For instance for medical equipment, cf European Commission, ‘Implementing Regulation (EU) 2020/402 of 14 March 2020 making the exportation of certain products subject to the produc- tion of an export authorization’ (2020) OJ L 77 I/1. For detailed remarks on this European re- sponse to COVID-19, see Ignacio Carre~no, Tobias Dolle, Lourdes Medina and Moritz Brandenburger, ‘The Implications of the COVID-19 Pandemic on Trade’ (2020) 11 European Journal of Risk Regulation 402, 403ff. 16 For Europe, see, eg, Adam Nossiter, Raphael Minder and Elian Peltier, ‘Shutdowns Spread Across Europe as Spain and France Order Broad Restrictions’ (New York Times, 14 March 2020) <https://nyti.ms/2YAZUob> accessed 18 December 2020. 17 See, eg, Robert Wright, ‘Pandemic strains shipping, air and rail freight operators’ (Financial Times, 22 May 2020) <https://ft.com/content/8403ddbc-9363-11ea-899a-f62a20d54625> accessed 18 December 2020. 18 Schwenzer, ‘Article 79 CISG’ (n 4) para 14; cf Flambouras (n 10) 271. 19 Atamer (n 4) para 50; Flambouras (n 10) 270; Huber (n 4) para 8; Schwenzer, ‘Article 79 CISG’ (n 4) para 14. COVID-19 and international sale contracts 5 Rev. dr. unif., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 to natural phenomena.20 A similar approach has been advocated by proposing that the test of foreseeability should relate both to the exceptional nature of the event and to its exceptional scale.21 These distinctions reflect the fact that the occurrence of countless impediments in the past renders their possible recur- rence foreseeable under regular circumstances.22 (i) The criterion of foreseeability in the general context of epidemics These considerations generally also hold true for epidemics. Indeed, the occur- rence of these events cannot be predicted in each individual case. However, epi- demics are recurring events, as shown by the plague or the Spanish flu. Epidemics have also been documented in more recent times: with the first appearances of the SARS-associated coronavirus in 2002 and 2003 and the spread of MERS-CoV since 2012, it is apparent that the coronavirus has already led to a significant number of infections on two different occasions since the turn of the millennium.23 According to medical publications, it was considered a statistical certainty even prior to the COVID-19 pandemic that further local or global epidemics would occur in the future.24 All of this points to the fact that—to preserve the terminology—an ‘ordinary’ epidemic is a foreseeable event.25 (ii) Foreseeability of the scale and aftermath of the COVID-19 pandemic That being said, the current COVID-19 pandemic is indeed exceptional in many ways compared to other outbreaks of disease.26 This applies in part to the pandemic’s severity and distribution. By way of illustration, in 2002 and 2003, a total of 8,098 human infections were registered in 29 countries for the SARS- 20 For this approach, see Ivo Bach, ‘Artikel 79 CISG’ in Wolfgang Ball (ed), Beck Online Großkommentar (1 June 2020, CH Beck, Munich) para 8; for a comparable approach in the context of unavoidability, see further Flambouras (n 10) 272. 21 DiMatteo, ‘Impossibility and Hardship’ (n 14) para 41. 22 Cf Martin Davies ‘Excuse of Impediment and Its Usefulness’, in Larry A DiMatteo (ed), International Sales Law – A Global Challenge (CUP, Cambridge 2014) 296f. Note that Davies also advocates another innovative, more literal approach to this requirement, considering that ‘[a]lthough consideration of changed circumstances often uses the language of foreseeability, the ultimate question under Article 79 should not be whether the impediment was foreseeable, but whether it was one that a reasonable person would have taken into account when making the contract’ (at 302). If one were to follow the latter approach, this would presumably result in an even higher threshold for Article 79 CISG given that, according to Davies (n 22) 302, ‘[o]ne can reasonably expect any foreseeable force majeure event to be taken into account when the contract is made, simply by including a force majeure clause’. 23 Emmie de Wit, Neeltje van Doremalen, Darryl Falzarano and Vincent J Munster, ‘SARS and MERS: recent insights into emerging coronaviruses’ (2016) 14 Nature Reviews Microbiology 523. 24 See, eg, Leslie A Reperant and Albert DME Osterhaus, ‘AIDS, Avian flu, SARS, MERS, Ebola, Zika . . . what next?’ (2017) 35 Vaccine 4470, 4474 who observe ‘an ever-increasing threat’. 25 Cf Niklas Lindström, ‘Changed Circumstances and Hardship in the International Sale of Goods’ (2006) 3 Nordic Journal of Commercial Law 1, 8 who suggests that ‘[r]eoccuring events such as flu epidemics [. . .] are foreseeable’; see further Christian Twigg-Flesner, ‘A comparative Perspective on Commercial Contracts and the impact of COVID-19 – Change of Circumstances, Force Majeure, or what?’ in Katharina Pistor (ed), Law in the Time of COVID-19 (Columbia Law School, New York 2020) 162f. 26 Cf Twigg-Flesner (n 25) 162f. 6 André Janssen and Christian Johannes Wahnschaffe Unif. L. Rev., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 CoV outbreak, resulting in 774 deaths.27 Even fewer people were infected with MERS-CoV.28 The COVID-19 pandemic dwarfs these figures in comparison: by December 2020, according to the World Health Organization, more than 73 million people had been diagnosed with the disease, and the death toll already exceeded 1,650,000.29 Keeping in mind statistical uncertainties, it is also instructive to take a look beyond the mere numbers. Reactions by State authorities prove to be particular- ly revealing. The governmental measures taken to combat the COVID-19 pan- demic were simply extraordinary—indeed, quite unprecedented. In April 2020, more than 2 billion people worldwide were subject to lockdown restrictions.30 Moreover, numerous States limited international passenger traffic. For example, the entire non-essential travel from third countries to the European Union (EU) was temporarily restricted.31 The individual market participant could not have reasonably foreseen such unprecedented measures.32 In view of all this, the COVID-19 pandemic appears so exceptional in its extent and consequences that, in principle, it should be classified as an unforeseeable event.33 This conclusion appears to be in line with previous case law on the requirement under the CISG. For example, in Raw Materials v Manfred Forberich, the US District Court, Northern District of Illinois, Eastern Division suggested that, even where the freezing of ports is a usual occurrence, a frozen port might nonetheless be considered an unforesee- able event if it is caused by a sudden onset of winter that is unparalleled in its se- verity in over 60 years.34 The ruling of a Dutch court points in the same direction, albeit by implication. The Dutch court rejected an exemption from 27 For the numbers, see Ziad A Memish, Stanley Perlman, Maria D Van Kerkhove and Alimuddin Zumla, ‘Middle East respiratory syndrom’ (2020) 395 The Lancet 1063. 28 Memish, Perlman, Van Kerkhove and Zumla (n 27) 1063. 29 According to the World Health Organization, as of 18 December 2020. 30 Katharina Buchholz, ‘What Share of the World Population Is Already on COVID-19 Lockdown?’ (Statista, 23 April 2020) <https://statista.com/chart/21240/enforced-covid-19-lock downs-by-people-affected-per-country/> accessed 18 December 2020. 31 Cf European Commission, ‘Coronavirus: Commission invites Member States to extend restric- tion on non-essential travel to the EU until 15 June’ (Press release, 8 May 2020) <https://ec.eur opa.eu/commission/presscorner/detail/en/ip_20_823> accessed 18 December 2020. 32 This view is shared by Bodhisattwa Majumder and Devashish Giri, ‘Coronavirus & Force Majeure: A Critical Study’ (2020) 51 Journal of Maritime Law & Commerce 51, 58f. 33 Also leaning towards this result Klaus Peter Berger and Daniel Behn, ‘Force Majeure and Hardship in the Age of Corona: A Historical and Comparative Study’ (2020) 6 McGill Journal of Dispute Resolution 79, 110f; Majumder and Giri (n 32) 59; UNIDROIT Secretariat, ‘Note on the UNIDROIT Principles of International Commercial Contracts and the COVID-19 Health Crisis’ para 10 <https://unidroit.org/english/news/2020/200721-principles-covid19-note/note-e.pdf> accessed 18 December 2020; Twigg-Flesner (n 25) 163; Wagner, Holtz and Dötsch (n 13) 846. 34 For this observation, see U.S. District Court, Northern District of Illinois, Eastern Division, Raw Materials Inc v Manfred Forberich, GmbH & Co. KG, CISG-Online No 925 ¼ CLOUT Case No 696 (at paragraph C). Notably, whilst generally endorsing the result, scholars have distinctly criticised the court’s reasoning for following an interpretative ‘homeward trend’ by seeking guidance with domestic case law, which contradicts the command of Article 7(1) CISG. On this, see Joseph Lookofsky and Harry Flechtner, ‘Nominating Manfred Forberich: The Worst CISG Decision in 25 Years?’ (2005) 9 Vindobona Journal of International Commercial Law & Arbitration 199. COVID-19 and international sale contracts 7 Rev. dr. unif., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 In this regard, it seems likely that parties will rely on governmental force majeure certificates to substantiate their claims. In some cases, the parties even expressly stipulate the necessity to present such a certificate as a precondition for exemption from liability.49 As mentioned above, China’s Council for the Promotion of International Trade, a quasi-governmental organization, is said to have issued nearly 5,700 such certificates in response to the COVID-19 pandem- ic for contracts with a total volume of approximately US $73 billion.50 The Italian Chambers of Commerce have also been authorized by the Italian Ministry of Economic Development to issue force majeure certificates.51 Upon application by an individual company, an Italian Chamber of Commerce may confirm having ‘received. . .a declaration that the applicant was not able to per- form the contract due to the contingent measures and the current state of emer- gency’—that is, for reasons beyond the applicant’s control.52 As explicitly emphasized by the Italian Union of Chambers of Commerce, Industry, Crafts and Agriculture (Unioncamere), the authority issuing the certificate is not required to verify the truthfulness of the statement submitted by the applicant. In light of this, authors have doubted that the Italian domestic courts will accept these certificates as actual proof.53 It seems equally unlikely that other domestic courts and arbitral tribunals will consider force majeure certificates as sufficient proof under an international convention such as the CISG, particularly if such certificates are unverified and broadly worded.54 Even so, such certificates may at least serve as an indicator of the degree of State interference within the econ- omy. It has been argued that some tribunals might even draw negative infer- ences from parties not submitting a force majeure certificate.55 3. Relevant constellations under the COVID-19 pandemic Given the distinctive features of the individual cases, a universal determination of the threshold of reasonableness in a broader sense is a futile endeavour. Rather, individual constellations with the potential of proving particularly rele- vant in the COVID-19 pandemic can serve as a preferable basis for closer 49 See CIETAC, arbitral award in FeMo Alloy case, English translation available at <http://cisgw3. law.pace.edu/cases/960502c1.html> accessed 18 December 2020; Larry A DiMatteo, ‘Contractual Excuse under the CISG: Impediment, Hardship, and the Excuse Doctrine’ (2015) 27 Pace International Law Review 258, 297. 50 For these numbers as of 11 March 2020, see Reuters, ‘Force Majeure Certificates’ (n 2). 51 Cf Italian Ministry of Economic Development, ‘Circolare MISE n 008612’ (25 March 2020). 52 For further details on the application procedure, see Marta Cenini, Giulio Maroncelli and Roberta Padula, ‘International supply chain: Italian Chambers of Commerce may issue the “force majeure certificates”’ (IPSOA, Wolters Kluwer, 14 April 2020) <https://www.ipsoa.it/ documents/impresa/contratti-dimpresa/quotidiano/2020/04/14/international-supply-chain-ital ian-chambers-of-commerce-may-issue-the-force-majeure-certificates> accessed 18 December 2020. 53 Cenini, Maroncelli and Padula (n 52). 54 Contra Majumder and Giri (n 32) 61, who assume that certificates issued by local authorities ‘should have significant persuasive value over the prospective decisions to be made by the courts in future cases’. 55 DiMatteo, ‘Contractual Excuse under the CISG’ (n 49) 297. 10 André Janssen and Christian Johannes Wahnschaffe Unif. L. Rev., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 analysis. These scenarios are intended to illustrate the specific efforts that debt- ors will need to undertake within the boundaries of the aforementioned require- ments in order to attain an exemption from liability. A. Loss of production on the part of the seller The first constellation of interest is one in which performance fails because the sell- er himself cannot produce the required goods as a result of the COVID-19 pan- demic. There are several conceivable reasons for such a failure to perform. Sovereign measures may have forced a company to temporarily suspend produc- tion. This was the case in parts of China this year, for example, when the Chinese New Year holidays were extended.56 At the same time, some companies made similar decisions on their own initiative.57 The predictability of respective State measures is thus likely to prove a decisive criterion with respect to certain claims for exemption. With regard to measures initiated independently by the debtor, on the other hand, the organizational risk with regard to all internal processes gener- ally remains with him.58 This general rule may be subject to narrow exceptions— namely, if these measures are directly related to the COVID-19 pandemic—for in- stance, a massive outbreak of infections within the workforce.59 The question of exemption will then presumably centre on the unavoidability of each individual operational measure, subject to the strict requirements discussed above. B. Disruptions in the supply chain The COVID-19 pandemic has also led to some significant disruptions in supply chains. The automotive60 and electronics61 industries, among others, have reported serious interruptions, which have in turn led to vast production down- times. Could an exemption from liability for failure to perform constitute a rea- sonable way of resolving ensuing contractual disputes? The shortfall of a supplier alone cannot constitute grounds for exemption.62 In principle, the suppliers’ reliability falls within the seller’s area of 56 Chris Buckley and Steven Lee Myers, ‘Chinese Officials Race to Contain Anger Over Virus’ (New York Times, 27 January 2020) <https://nyti.ms/2t3RE35> accessed 18 December 2020. 57 Christoph Rauwald and Tara Patel, ‘VW, Airbus Shut Plants as Pandemic Slams European Industry’ (Bloomberg, 17 March 2020) <https://bloomberg.com/news/articles/2020-03-17/vw- says-virus-outbreak-poses-unknown-financial-challenges> accessed 18 December 2020. 58 Oberlandesgericht Munich (Higher Regional Court), Stolen car case, CLOUT Case No 1233, English translation available at <http://cisgw3.law.pace.edu/cases/080305g1.html> accessed 18 December 2020; Atamer (n 4) para 47; Huber (n 4) para 12; Magnus (n 4) para 18; Schwenzer, ‘Article 79 CISG’ (n 4) para 19. 59 Atamer (n 4) para 47 (‘[o]nly if the illness is an epidemic, . . . will the impediment be qualified as an extraneous one’); cf Huber (n 4) para 12; Schwenzer, ‘Article 79 CISG’ (n 4) para 19. 60 See, eg, Jack Ewing and Neal E Boudette, Geneva Abdul, ‘Virus Exposes Cracks in Carmakers’ Chinese Supply Chains’ (New York Times, 4 February 2020) <https://nyti.ms/2RZ0AjC> accessed 18 December 2020. 61 Ana Swanson, ‘Global Trade Sputters, Leaving Too Much Here, Too Little There’ (New York Times, 10 April 2020) <https://nyti.ms/3c7vLR7> accessed 18 December 2020. 62 Oberlandesgericht Hamburg (Higher Regional Court), Iron Molybdenum case, CISG-Online No 261 ¼ CLOUT Case No 277, English translation available at <http://cisgw3.law.pace.edu/ COVID-19 and international sale contracts 11 Rev. dr. unif., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 responsibility.63 For if the interpretation of the sales contract shows that it con- cerns a market-related purchase of generic goods, the procurement risk, as explained above, remains entirely with the seller.64 This holds true even if the price of the pertinent goods has increased significantly on the market.65 This re- sponsibility for third-party suppliers and subcontractors is derived from Article 79(1) of the CISG, not from Article 79(2) of the CISG.66 The parties, how- ever, may settle on a modified distribution of risk within their contractual agree- ment. For example, parties can include a contractual restriction of the seller’s obligation to the goods in stock.67 In the absence of such provisions, the debtor trading in (generic) commodities is generally expected to purchase these goods elsewhere on the market in the event that a supplier defaults—provided, of course, that the goods are actually available on the market.68 C. Illiquidity on the part of the buyer as a result of the COVID-19 pandemic It is to be expected that the COVID-19 pandemic will have serious economic repercussions for numerous businesses around the globe. As a result, consider- able payment defaults are likely to occur in the international trade of goods. If the COVID-19 pandemic causes illiquidity on the part of the buyer, however, Article 79 of the CISG is unlikely to serve as a promising path to exemption. According to the general view under the CISG, the debtor is wholly responsible for his own financial capacity.69 This general rule could conceivably be subject to exceptions, should the loss of financial capacity itself be caused directly and solely by an event of force majeure.70 But even if such a direct link between the cases/970228g1.html> accessed 18 December 2020; Huber (n 4) para 17; Schwenzer, ‘Article 79 CISG’ (n 4) para 27; cf Schwenzer and Mu~noz (n 9) 155. 63 Bundesgerichtshof (German Federal Supreme Court), Vine Wax case, CLOUT Case No 271, English translation available at <http://cisgw3.law.pace.edu/cases/990324g1.html> accessed 18 December 2020, cf Flambouras (n 10) 268. 64 According to Schwenzer, ‘Article 79 CISG’ (n 4) para 27, this risk allocation is ‘most commonly encountered in international trade’; see further Atamer (n 4) paras 68ff. 65 See, eg, Oberlandesgericht Hamburg (Higher Regional Court), Iron Molybdenum case, CISG- Online No 261 ¼ CLOUT Case No 277, English translation available at <http://cisgw3.law. pace.edu/cases/970228g1.html> accessed 18 December 2020: ‘The Seller generally bears the risk of considerable extra expenses in connection with acquiring the goods elsewhere, even the loss of transactions, as it has accepted the risk of acquiring the goods and the risk that they cannot be acquired at a certain price’. For the particular case of economic hardship caused by extreme price increases, cf below at lit. f. 66 CISG-AC Opinion No. 7, ‘Exemption of Liability for Damages under Article 79 of the CISG’ (Rapporteur: Alejandro M Garro, opinion adopted by the CISG-AC following its 11th meeting in Wuhan, China on 12 October 2007) para 18; Flambouras (n 10) 274. 67 Huber (n 4) para 18; Schwenzer, ‘Article 79 CISG’ (n 4) paras 27f. 68 Huber (n 4) para 17; cf Schwenzer, ‘Article 79 CISG’ (n 4) para 27. 69 Oberlandesgericht Munich (Higher Regional Court), Stolen car case, CLOUT Case No 1233, English translation available at <http://cisgw3.law.pace.edu/cases/080305g1.html> accessed 18 December 2020; Atamer (n 4) para 47; CISG-AC Opinion No. 20 (n 13) para 4.4; Flambouras (n 10) 267; Gilette and Walt (n 7) 300; Piltz (n 11) 136; Schwenzer, ‘Article 79 CISG’ (n 4) para 26. 70 Cf Huber (n 4) para 16. 12 André Janssen and Christian Johannes Wahnschaffe Unif. L. Rev., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 hardship does not pertain to their validity.86 Rather, hardship is a matter closely related to the general concept of impossibility of performance. This naturally begs the question as to whether Article 79 of the CISG might allow for the inclu- sion of this concept. Both the provision’s wording and drafting history have been found to provide anything between enlightening leads and interpretive dead ends in this regard. As a starting point, the letter of Article 79(1) of the CISG does not advocate the exclusion of hardship from the Convention’s scope. Indeed, the provision makes no express mention of this constellation at all. The term ‘impediment’ in itself, however, remains open to interpretation. In the lit- eral sense, it may well be understood to extend to economic aspects.87 In the end, the term simply does not allow for compelling conclusions in either direction.88 The CISG’s drafting history is equally ambiguous. In 1980, the drafting com- mittee addressed a proposal to include a provision that addressed issues of hard- ship explicitly. Admittedly, this specific proposal was rejected.89 Pointing to this rejection, one could conclude that the CISG in fact made a deliberate choice not to govern cases of hardship.90 Yet, again, there are no compelling reasons for this conclusion.91 As the CISG Advisory Council has convincingly noted, the re- jection of this specific proposal is not tantamount to excluding hardship from the Convention per se.92 After all, the decisive factor favouring the inclusion of hardship in the Convention’s scope of application is its inherent objective to foster uniformity in the international sale of goods.93 To accomplish this object- ive, the CISG strives to govern all constellations in which external circumstances 86 Cf CISG-AC Opinion No. 7 (n 66) para 36. 87 See, eg, Davies (n 22) 298, who extensively analyses the provision’s wording, observing that ‘[p]urely as a matter of language, although the word “impediment” can be used to mean some- thing that actually prevents or prohibits progress, it is more commonly used to mean something that merely impedes progress or makes it more difficult. The Latin word impedimenta referred to the baggage of an army, something that slowed but did not prevent its progress. Hardship is a matter of difficulty in performing, not actual prevention of performance. There seems to be good reason to accept that hardship can be an “impediment” for purposes of Article 79’. However, note that Honnold has a point when he observes that the term ‘circumstances’, which had been used in the exemption provision of the 1964 Convention relating to a Uniform Law on the International Sale of Goods (ULIS), was replaced by the term ‘impediment’ in Article 79(1) CISG. He suggests that ‘this change [had] responded to concerns that the reference to “circumstances” could be a basis for excuse merely because performance became more diffi- cult or unprofitable’. On this, see John O Honnold, Uniform Law for International Sales under the 1980 United Nations Convention (3rd edn, Kluwer Law International, The Hague 1999) para 432.2. 88 Atamer (n 4) para 80. 89 Cf Ishida (n 82) 362f. 90 Cf CISG-AC Opinion No. 7 (n 66) para 29. 91 See also Gilette and Walt (n 7) 304, who find that ‘[l]ittle can be authoritatively discerned from the drafting history’. 92 CISG-AC Opinion No. 7 (n 66) paras 29f; see further Ishida (n 82) 363; cf Lindström (n 25) 17 (‘the meaning . . . simply cannot be established with the help of the travaux préparatoires and legal literature’). 93 Schwenzer and Mu~noz (n 9) 153; cf Flambouras (n 10) 280. COVID-19 and international sale contracts 15 Rev. dr. unif., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 adversely affect contractual performance, even if performance remains physical- ly possible and has (only) become excessively more onerous for one of the par- ties.94 Referring parties to domestic law for some impediments to performance (those of an economic nature) is at odds with the Convention’s objective.95 Consequently, hardship should be considered to be a matter governed by the Convention in the meaning of Article 7(2) of the CISG.96 Today, the majority of scholars shares this view.97 (ii) In concreto, can the COVID-19 pandemic constitute hardship? Having established that the CISG governs hardship in principle, our interest now turns to the following question: does the COVID-19 pandemic give leeway to pleading hardship? Indeed, cases of hardship may not be its most apparent consequence. As complex as the pandemic’s impact on international trade is, it seems doubtful that the costs for the procurement of goods have risen to the point of excessive encumberment across the board. At first glance, if anything, the expected shock in demand rather hints at a decrease in procurement prices for goods. However, on closer examination, this first glance at global trade proves decep- tive at least for some categories of goods, which were subject to an extreme in- crease in price. This may be illustrated by turning to one of the most notorious goods in times of a pandemic: respiratory masks. Reportedly, at one point, pri- ces for respiratory masks had risen by up to 3,000 per cent.98 This serves as an 94 CISG-AC Opinion No. 7 (n 66) paras 34f; cf CISG-AC Opinion No. 20 (n 13) para 6.4; Cour de cassation (Belgian Court of Cassation), Scafom Intl v Lorraine Tubes SAS, CISG-Online No 1963; Atamer (n 4) paras 79ff; Flechtner (n 85) 92. 95 CISG-AC Opinion No. 7 (n 66) paras 34f; Flambouras (n 10) 280. Cf Gilette and Walt (n 7) 297, who observe that ‘the definition of the requirement [“impediement” is] in any given case highly susceptible to the possibility of a “homeward trend”’. 96 For the contrary view, see, eg, the extensive reasoning by Gilette and Walt (n 7) 313: ‘The lack of uniformity across jurisdictions about the legal principles that govern hardship also indicates a diversity of opinion too great to conclude that the drafters of the CISG intended to resolve the issue without addressing it explicitly. For the same reason, we doubt that one can resolve the issue under Article 7(2) by reference to “the general principles” on which the CISG is based, be- cause those principles, at least with respect to the issue of hardship, are too varied to provide a clear answer to the question . . . Thus, we would resolve the hardship issue under the last clause of Article 7(2). That is, we conclude that the issue of hardship in any individual case should be resolved in conformity with the law applicable to the contract by virtue of the rules of private international law. The legal rule concerning hardship, if any, would be dictated by the governing law that applied to the contract under rules of private international law’. For others against the inclusion of hardship, see, eg, CIETAC, arbitral award in L-Lysine case, English translation avail- able at <http://cisgw3.law.pace.edu/cases/050305c1.html> accessed 18 December 2020; DiMatteo, ‘Impossibility and Hardship’ (n 14) para 32 (‘hardship relief is not allowed under the CISG’); Sarah Howard Jenkins, ‘Exemption for Nonperformance: UCC, CISG, UNIDROIT Principles – A Comparative Assessment’ (1998) 72 Tulane Law Review 2015, 2024. 97 See, eg, CISG-AC Opinion No. 20 (n 13) para 2.2; Lookofsky, ‘Not Running Wild with the CISG’ (n 82) 157 who emphasizes that ‘nearly all CISG scholars agree that the Article 79 exemp- tion standard is not literal impossibility, but rather extreme difficulty of performance, thus opening up the possibility of a liability exemption for an impediment based on “hardship”’; see also Schwenzer, ‘Article 79 CISG’ (n 4) para 31 with further references; Schwenzer and Mu~noz (n 9) 152f. 98 Cf Jack Nicas, ‘It’s Bedlam in the Mask Market, as Profiteers Out-Hustle Good Samaritans’ (New York Times, 3 April 2020) <https://nyti.ms/2Nz6DIK> accessed 18 December 2020. 16 André Janssen and Christian Johannes Wahnschaffe Unif. L. Rev., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 indication that, in specific scenarios affected severely by the crisis, parties will indeed be inclined to plead hardship in the wake of the COVID-19 pandemic. For these specific cases, it seems instructive to draw upon case law to assess the threshold for hardship under the CISG. In Scafom International v Lorraine Tubes, the Belgian Cour de cassation considered a price increase of 70 per cent sufficient to allow for exemption from liability under the concept of hardship.99 The goods under scrutiny in this case were steel tubes. In contrast, in a recent French decision from 2015, D2I v Gabo, the French Cour de cassation consid- ered that a price increase of more than 115 per cent fell short of the threshold for hardship.100 The contract in this second case was concluded for the sale of heating units. What is remarkable with respect to both court decisions is that, prima facie, the market for steel tubes—that is, industrial goods—would seem more prone to price fluctuations than the market for heating units.101 Ultimately, it seems reasonable to assume that the threshold for hardship would be assumed at a significantly higher level if the goods involved are subject to price speculations. Indeed, this is what was suggested by the Hamburg Higher Regional Court in the Iron Molybdenum case.102 The parties to this dispute had concluded a contract for Chinese iron-molybdenum, which is a metal alloy. In its reasoning, the court expressly emphasized that ‘for parties doing business in a sector that has a very speculative aspect the limits of reasonability are very high’.103 Consequently, the court rejected the notion of hardship ‘[d]espite of the triplication of market price’.104 This brief survey of case law hints at several factors that the party invoking hardship must bear in mind. Both the goods involved and their pertinent market are relevant for determining the threshold for hardship. However, it is no secret that much will depend on the individual court or tribunal’s understanding of the concept of hardship. So far, the case law has not followed a uniform approach; it is thus only of limited guidance.105 99 Cour de cassation (Belgian Court of Cassation), Scafom Intl v Lorraine Tubes SAS, CISG- Online No 1963. For criticism of this decision and the established threshold, see, eg, Davies (n 22) 299ff; Lookofsky, ‘Not Running Wild with the CISG’ (n 82) 165ff. 100 Cour de cassation (French Court of Cassation), D2I v Gabo, CLOUT Case No 1501. 101 See also Davies (n 22) 299 who notes that ‘[t]he price of raw materials fluctuates, sometimes widely. . . . Steel is no exception. The market price of steel is quite volatile’. 102 Oberlandesgericht Hamburg (Higher Regional Court), Iron Molybdenum case, CISG-Online No 261 ¼ CLOUT Case No 277, English translation available at <http://cisgw3.law.pace.edu/ cases/970228g1.html> accessed 18 December 2020; confirmed by CISG-AC Opinion No. 20 (n 13) paras 7.7 f. 103 Oberlandesgericht Hamburg (Higher Regional Court), Iron Molybdenum case, CISG-Online No 261 ¼ CLOUT Case No 277, English translation available at <http://cisgw3.law.pace.edu/ cases/970228g1.html> accessed 18 December 2020. 104 Oberlandesgericht Hamburg (Higher Regional Court), Iron Molybdenum case, CISG-Online No 261 ¼ CLOUT Case No 277, English translation available at <http://cisgw3.law.pace.edu/ cases/970228g1.html> accessed 18 December 2020. 105 Cf Ishida (n 82) 373, who emphasises that ‘[p]inpointing the percentage that is uniformly ap- plicable to all sorts of transactions in a reasonable manner is impossible’; see further CISG-AC Opinion No. 20 (n 13) paras 7.1ff for an instructive list of six criteria that may serve as guid- ance when assessing the existence of hardship, namely the contractual risk allocation, whether the contract is of a speculative nature, whether and to what extent there have been previous COVID-19 and international sale contracts 17 Rev. dr. unif., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 remain within the purview of Article 79 of the CISG.118 It is argued that the ex- emption provided for by Article 79 of the CISG can be regarded as a general principle within the meaning of Article 7(2) of the CISG119 or may be used as a rule of interpretation in cases of doubt,120 as long as the individual agreement cannot be found to provide a separate standard for an exemption from liabil- ity.121 Others want to allow an exemption from liability under the requirements of Article 79(1) of the CISG if the interpretation of the individual contractual damage clause shows that this clause is intended to replace, and not merely sup- plement, a statutory claim for damages.122 For the sake of uniformity, both approaches seem preferable to a solution under national law, although recourse to domestic law has also been advocated as a solution for this issue.123 3. The fate of the claim for performance Even if the debtor is considered exempt from liability for damages, the exemp- tion does not affect the existence of the sales contract itself nor the ensuing claim for performance.124 Notwithstanding, there is broad consensus that the claim for performance ceases to exist in the event of objective, permanent im- possibility.125 The dogmatic reasoning behind this result is less obvious.126 Some attempt to fill the gap by applying general principles in the meaning of Article 7(2) of the CISG, 127 whereas others take a more general recourse to the provisions on the transfer of risk and Article 79 of the CISG itself.128 Beyond these dogmatic subtleties, however, the COVID-19 pandemic should, in any event, only rarely result in a permanent, objective impossibility of performance. This is illustrated by the rapid reduction of public restrictions in the Chinese areas first affected by the COVID-19 pandemic, where companies were able to 118 CISG-AC Opinion No. 10 (n 114) para 5.2; Huber (n 4) para 28; Magnus (n 4) para 53; Schwenzer, ‘Article 79 CISG’ (n 4) para 52; Schwenzer and Mu~noz (n 9) 170; cf Berger (n 114) 403. 119 Huber (n 4) para 28. 120 Magnus (n 4) para 53; see further Schwenzer, ‘Article 79 CISG’ (n 4) para 52 (‘In case of doubt, the exemption should accordingly also be applied’). 121 Cf CISG-AC Opinion No. 10 (n 114) para 5.2; contra Flambouras (n 10) 281. 122 Atamer (n 4) para 15. 123 For the latter approach see, eg, Gilette and Walt (n 7) 335, who reason: ‘[T]he CISG does not deem a liquidated damages clause as either damages or as a non-damages remedy. It simply does not regulate damages stipulations, thereby leaving their regulation to domestic law. Thus, because Article 79(5)’s effect is limited to exemption from damages, a liquidated damages clause continues to operate when a party is exempt under Article 79. It becomes inoperable in the circumstances only if invalid under applicable domestic law.’ 124 Atamer (n 4) para 16, Flambouras (n 10) 275; cf Schwenzer, ‘Article 79 CISG’ (n 4) para 53; contra Ishida (n 82) 342-355. 125 See Magnus (n 4) para 58 with further references; Schwenzer, ‘Article 79 CISG’ (n 4) para 54; Schwenzer and Mu~noz (n 9) 171; cf CISG-AC Opinion No. 20 (n 13) para 9.3; Flambouras (n 10) 275f. 126 For instructive remarks on the current state of debate, see Atamer (n 4) paras 16-21, 29-34. See further Piltz (n 11) 137 who criticises that no reasoning for the exemption from the claim for performance is entirely convincing. 127 Huber (n 4) para 30. 128 Schwenzer, ‘Article 79 CISG’ (n 4) para 54. 20 André Janssen and Christian Johannes Wahnschaffe Unif. L. Rev., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 resume production relatively quickly. In fact, 98 per cent of the listed companies in China had resumed operations by the end of March 2020.129 If the impedi- ment to performance is only temporary, however, the suspension of the claim to performance—regardless of the underlying dogmatic reasoning—can itself be of a temporary nature only.130 4. Effects on other legal remedies The question remains as to what effect the exemption from liability under Article 79 of the CISG has on other legal remedies available to the contracting parties. According to Article 79(5) of the CISG, nothing in this article prevents either party from exercising any right other than the exempt claim to damages. The wording illustrates the CISG’s basic understanding that, in principle, all other remedies remain available.131 The following sections will discuss the effects on other forms of remedy in detail. A. Right to avoid the contract The most drastic legal consequence is found in the remedy of avoidance. As shown above, the claim to performance principally remains intact despite the sel- ler’s exemption from liability under Article 79 of the CISG. Nevertheless, it is easily conceivable that the buyer may seek to avoid the contract in accordance with Article 49(1)(a) of the CISG following a delay in performance due to the COVID-19 pandemic. Principally, the right to avoid the contract will remain available even if Article 79(1) of the CISG applies.132 To this end, however, the failure to comply with the contractually agreed delivery time must constitute a fundamental breach of contract within the meaning of Article 25 of the CISG. The requirements regarding fundamentality are strict since the termination of contracts is understood to be the ultima ratio under the CISG.133 Due to the tem- porary nature of the pandemic as an impediment to performance, the conditions for a fundamental breach of contract are likely met only in exceptional circum- stances. Such an assumption is conceivable, however, if the parties have attached particular importance to the time of delivery as indicated by the contract.134 129 The Economist, ‘China goes back to work’ (26 March 2020), <https://economist.com/china/ 2020/03/26/china-goes-back-to-work> accessed 18 December 2020. 130 Peter Huber, ‘Artikel 46 CISG’, in Franz Jürgen Säcker et al (eds), Münchener Kommentar zum Bürgerlichen Gesetzbuch (8th edn, CH Beck, Munich 2019) para 19; Schwenzer, ‘Article 79 CISG’ (n 4) para 53. 131 Piltz (n 11) 136; Schwenzer, ‘Article 79 CISG’ (n 4) para 56; Twigg-Flesner (n 25) 160. 132 Atamer (n 4) para 40; Schwenzer, ‘Article 79 CISG’ (n 4) para 56; cf Schwenzer and Mu~noz (n 9) 173. 133 Bundesgerichtshof (German Federal Supreme Court), Tools case, CISG-Online No 2545 (at para 24); Urs Peter Gruber, ‘Artikel 25 CISG’, in Franz Jürgen Säcker et al (eds), Münchener Kommentar zum Bürgerlichen Gesetzbuch (8th edn, CH Beck, Munich 2019) para 5; Markus Müller-Chen, ‘Article 49 CISG’ in Peter Schlechtriem and Ingeborg Schwenzer (eds), Commentary on the UN Convention on the International Sale of Goods (CISG) (4th edn, OUP, Oxford 2016) para 2. 134 Cf Bundesgerichtshof (German Federal Supreme Court), Tools case, CISG-Online No 2545 (at para 35); Gruber (n 133) para 21; Ulrich G Schroeter, ‘Article 25 CISG’ in Peter Schlechtriem COVID-19 and international sale contracts 21 Rev. dr. unif., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 Alternatively, the buyer may declare the contract avoided in accordance with Article 49(1)(b) of the CISG if the seller, in spite of physical possibility of perform- ance, fails to deliver within a reasonable period of grace (Article 47(1) of the CISG). If the period of grace lapses at a time when performance is not yet possible again, the buyer may not declare the contract avoided. Ensuing disputes will then most likely focus on the determination of a reasonable period of time. This assessment must be made in accordance with the circumstances of the individual case.135 The literature suggests taking the cause of the original failure to perform into consider- ation: if non-performance is caused, for example, by fire or strike, the buyer can usu- ally be expected to tolerate a prolonged delay.136 This concept might be transferred to the assessment of an appropriate grace period under the COVID-19 pandemic. B. Right to reduce the purchase price Likewise, the right of the buyer to reduce the purchase price in accordance with Article 50 of the CISG continues to exist.137 According to Article 50 of the CISG, the buyer may reduce the price in the same proportion that the value of the delivered goods bears to the value that conforming goods would have had at the time of delivery. The right to reduce, hence, is contingent on the delivery of non-conforming goods. This remedy is likely to remain more of a theoretical as- pect under the COVID-19 pandemic. At least at a first glance, there is hardly a scenario conceivable in which goods will actually be delivered while their quality falls short of contractual standards due to the COVID-19 pandemic. On the other hand, it does seem conceivable that the COVID-19 pandemic may result in a partial delivery due to disruptions in the supply chain. The ques- tion then arises whether Article 50 of the CISG allows for a price reduction in the case of a partial delivery. This has not been conclusively established. In prin- ciple, Article 50 of the CISG does not cover cases of non-performance. However, some authors argue in the context of partial performance that devia- tions in quantity lead to a lack of conformity pursuant to Article 35(1) of the CISG. From this argument, they conclude that Article 50 of the CISG is applic- able to partial delivery.138 However, this contradicts the systematic structure of Article 45 and following of the CISG since partial non-performance is specifical- ly governed by Article 51(1) of the CISG. Thus, Article 50 of the CISG is not ap- plicable in the case of partial delivery.139 Instead, the failure to deliver the and Ingeborg Schwenzer (eds), Commentary on the UN Convention on the International Sale of Goods (CISG) (4th edn, OUP, Oxford 2016) paras 38f. 135 Markus Müller-Chen, ‘Article 47 CISG’, in Peter Schlechtriem and Ingeborg Schwenzer (eds), Commentary on the UN Convention on the International Sale of Goods (CISG) (4th edn, OUP, Oxford 2016) para 6. 136 Müller-Chen, ‘Article 47 CISG’ (n 135) para 6. 137 Atamer (n 4) para 41. 138 See, eg, Peter A Piliounis, ‘The Remedies of Specific Performance, Price Reduction and Additional Time (Nachfrist) under the CISG: Are these worthwhile changes or additions to English Sales Law?’ (2000) 12 Pace International Law Review 1, 31. 139 Ivo Bach, ‘Article 50 CISG’, in Stefan Kröll, Loukas Mistelis and Pilar Perales Viscasillas (eds), UN Convention on Contracts for the International Sale of Goods (CISG) – A Commentary (2nd 22 André Janssen and Christian Johannes Wahnschaffe Unif. L. Rev., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 renegotiation, and it also provides for the possibility of a judicial (or arbitral) adjustment of the contract.151 In part, this provision of the PICC is regarded as an expression of a general principle (Article 7(2) of the CISG),152 in part as reflecting an international commercial practice (Article 9(2) of the CISG).153 Both approaches are not free of pitfalls.154 It is worth noting that the CISG requires an autonomous interpretation pursuant to Article 7(1) of the CISG.155 Thus, any solution requires an autonomous justification inherent in the Convention.156 The mere fact that a soft law instrument provides for a specific solution to an issue falling under the CISG does not in itself make this approach convincing, even if the soft law originates within an authority such as UNIDROIT.157 This is particularly true as there is no evidence of universal recogni- tion of the PICC, especially not in the common law.158 Likewise, Article 6.2.3 of the PICC is not merely a codification of an existing international trade practice. There is, quite simply, no uniform approach to approaching cases of hardship that transcends the boundaries of individual legal systems.159 No 1501; Atamer (n 4) para 86. For guidance on the process of renegotiation and adaptation under the UNIDROIT Principles in times of COVID-19, see UNIDROIT Secretariat (n 33) paras 42ff. See further Berger and Behn (n 33) 126ff and UNIDROIT Secretariat (n 33) paras 33ff for recent comments on the threshold for hardship under the PICC. 151 Article 6.2.3 PICC reads: ‘(1) In case of hardship the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based. (2) The request for renegotiation does not in itself entitle the disadvan- taged party to withhold performance. (3) Upon failure to reach agreement within a reasonable time either party may resort to the court. (4) If the court finds hardship it may, if reasonable, (a) terminate the contract at a date and on terms to be fixed, or (b) adapt the contract with a view to restoring its equilibrium’. 152 Cour de cassation (Belgian Court of Cassation), Scafom Intl v Lorraine Tubes SAS, CISG- Online No 1963. 153 See Atamer (n 4) para 86 (regarding Article 6.2.3(4) PICC). 154 For comprehensive criticism, see, eg, Franco Ferrari, Clayton P Gilette, Marco Torsello, Steven D Walt, ‘The Inappropriate Use of the PICC to Interpret Hardship Claims under the CISG’ (2017) 17 Internationales Handelsrecht 97–102; see further Lindström (n 25) 20 (‘How inter- national principles could fill a gap in the CISG seems to remain somewhat unclear’). 155 See CISG-AC Opinion No. 20 (n 13) para 11.9; Ferrari, Gilette, Torsello and Walt (n 154) 101; cf Davies (n 22) 298; Gilette and Walt (n 7) 297. 156 Notably, the preamble to the PICC emphasises that ‘[t]hey [the PICC] may be used to interpret or supplement international uniform law instruments’. However, to conclude from this that a provision of the PICC does in fact supplement the CISG seems to be a circular argument. This view is shared by, eg Ferrari, Gilette, Torsello and Walt (n 154) 100; Flechtner (n 85) 95. See, however, Joachim Bonell, ‘UNIDROIT Principles of International Commercial Contracts: Why? What? How?’ (1995) 69 Tulane Law Review 1121, 1143, who emphasises that the PICC could at least ‘considerably facilitate’ the task of establishing the autonomous principles and criteria to interpret international conventions. 157 Ferrari, Gilette, Torsello and Walt (n 154) 101. 158 See Scott D Slater, ‘Overcome by Hardship: The Inapplicability of the UNIDROIT Principles’ Hardship Provisions to CISG’ (1998) 12 Florida Journal of International Law 231, 260, who notes that ‘[d]espite some wishful thinking on the part of commentators in civil law nations, the UNIDROIT Principles are not general principles on which the CISG is based’. 159 See Ferrari, Gilette, Torsello and Walt (n 154) 101, who observe that ‘it would be difficult to find a legal issue that had more varied responses among legal systems than the rights of the parties when circumstances change dramatically’. See further Gilette and Walt (n 7) 309, who emphasise that ‘[t]o elevate a “soft law” principle of renegotiation from the PICC into a default rule enforceable by courts in the name of uniformity seems to ignore both the variations in do- mestic law and the intentions of parties who omitted, perhaps intentionally, a renegotiation COVID-19 and international sale contracts 25 Rev. dr. unif., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 A solution based on the principles inherent in the CISG, without explicitly resorting to the PICC, seems more appropriate.160 The following principles of the Convention could serve as cornerstones of such a solution: the principle of maintaining good faith in international trade,161 the general principle of co- operation,162 the principle of preserving the contract (favor contractus),163 and, finally, the principle of reasonableness.164 Taking all these factors into account, it seems appropriate to draw the following conclusions: in the event of an ex- treme and simply untenable shift in the economic parameters of contractual performance, triggered by external factors and leading to a corresponding, equally extreme distortion of the contractual equilibrium, the affected party may seek to preserve the essence of the contractual equilibrium by demanding renegotiations and, ultimately, adjustment of the contract to a reasonable ex- tent, restoring the economic feasibility of adhering to the contract. This ap- proach corresponds with numerous comments in the literature.165 If a breach of such an obligation to renegotiate is understood as a breach of contract, at least the outright rejection of any offer of renegotiation could in itself give rise to a claim for damages.166 There is no doubt that the determination of the exact scope of the obligation as well as the extent of the causal damage in such a case is likely to pose some difficulties in practice.167 Recently, Schwenzer and Mu~noz have advocated a slightly different approach. Both authors reject a duty to renegotiate by law. They consider any such statu- tory duty ‘neither advisable nor necessary’.168 Whilst rejecting a specific duty to clause from their contract’. Finally, see Flechtner (n 85) 91 who notes that ‘the relief available for hardship under the UNIDROIT Principles is unfamiliar—indeed, almost shocking—to one trained in U.S. law’. 160 Cf CISG-AC Opinion No. 20 (n 13) para 11.9 (‘[A]ll solutions developed must be based on the Convention itself’); Flambouras (n 10) 289 who argues that the PICC exclusively apply if the parties so agree; Schwenzer, ‘Article 79 CISG’ (n 4) para 55. 161 On the principle of good faith as a standard of behaviour of the parties and the respective con- troversies, see, eg, Pilar Perales Viscasillas, ‘Article 7 CISG’, in Stefan Kröll, Loukas Mistelis and Pilar Perales Viscasillas (eds), UN Convention on Contracts for the International Sale of Goods (CISG) – A Commentary (2nd edn, CH Beck/Hart/Nomos, Munich/Oxford/Baden Baden 2018) paras 24ff. 162 See, eg, Perales Viscasillas (n 161) para 64. 163 For further remarks on the principle of preserving the contract, see Perales Viscasillas (n 161) paras 64f; Schwenzer and Hachem (n 147) para 35. 164 See, eg, Perales Viscasillas (n 161) para 64. 165 See, eg, CISG-AC Opinion No. 7 (n 66) para 40; Huber (n 4) para 21; Magnus (n 4) para 24b; cf Anna Veneziano, ‘UNIDROIT Principles and CISG: Change of Circumstances and Duty to Renegotiate according to the Belgian Supreme Court’ (2010) 15 Uniform Law Review 137, 144ff, who invokes both on the good faith principle and, supplementary, the PICC. For the opposing view, see, eg, CISG-AC Opinion No. 20 (n 13) para 11.5; Flambouras (n 10) 288; Slater (n 158) 261. Undoubtedly, some of the arguments against a duty to renegotiate do have some merit; particularly that it seems difficult to determine the duty’s scope in advance, on this, see Atamer (n 4) para 84. 166 On this, see Veneziano (n 165) 147: ‘Though not expressly stated, a failure to comply with the above-mentioned provisions should give rise to a right to recover damages in favour of the other party.’ 167 For a critical assessment of this question, see, eg, Atamer (n 4) para 84; CISG-AC Opinion No. 20 (n 13) paras 11.6f; Schwenzer and Mu~noz (n 9) 162f. 168 Schwenzer and Mu~noz (n 9) 163; see further Schwenzer, ‘Article 79 CISG’ (n 4) para 55. 26 André Janssen and Christian Johannes Wahnschaffe Unif. L. Rev., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021 renegotiate, they nonetheless endorse the result of the contractual terms being renegotiated in cases of hardship. In fact, Schwenzer and Mu~noz still consider it probable that the benefiting contractual party will be held to accept an offer to re- negotiate under the duty to mitigate losses laid down in Article 77 of the CISG.169 In any event, what cannot be inferred from the general principles of the CISG is the judicial (or arbitral) competence to adapt the contract.170 No provision under the Convention assigns a comparably creative role to the court (or tribu- nal).171 It is therefore not up to a court (or tribunal) to adapt or terminate the contract in these cases.172 Besides, as Flechtner has put it, the remedy of contract adaptation by courts is ‘vehemently rejected in the Common Law tradition’.173 Consequently, recognizing such a remedy would contradict the international character of the Convention. That said, the prospect of damage claims should be sufficient to encourage the parties to refrain from rejecting renegotiation offers prematurely. V. Individual contractual agreements: parameters and examples One final point worth mentioning is the possibility of including individual con- tractual and thus tailor-made exemptions from liability in the letter of the con- tract. As shown above, Article 79 of the CISG provides for a specific legal approach favoured by the CISG. Nevertheless, this provision is open to party disposition in accordance with Article 6 of the CISG.174 Generally speaking, it 169 Schwenzer and Mu~noz (n 9) 165; Ingeborg Schwenzer, ‘Force Majeure and Hardship in International Sales Contracts’ (2009) 39 Victoria University of Wellington Law Review 709, 721ff.; cf CISG-AC Opinion No. 20 (n 13) para 11.3 (‘[T]here are factual incentives for the par- ties to renegotiate their contract’). 170 See Schwenzer and Mu~noz (n 9) 167 who note that any such approach is ‘hardly convincing from a dogmatic point of view’. See further Flechtner (n 85) 96f. For scholars seemingly lean- ing towards a court’s right to adapt the contract, see, eg, CISG-AC Opinion No. 7 (n 66) para 40, stating that ‘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’. However, see also CISG-AC Opinion No. 20 (n 13) para 12.6, clarifying that the ‘Advisory Council’s statement did not suggest that the rem- edy of contract adaptation was contemplated in Article 79 CISG, because allowing a court or arbitral tribunal “to determine what is owed to each other” does not give the adjudicator the power to adjust a term of the contract’. 171 CISG-AC Opinion No. 20 (n 13) para 12.1. See further Flambouras (n 10) 288, who has, how- ever, advocated this finding regarding both renegotiations and contractual adaptation by a third party. For the contrary view, see Ishida (n 82) 379, who argues: ‘[I]t is the very function of the CISG to interpret and supplement what parties have expressly agreed to. In this sense, a judge applying the CISG always rewrites or supplements a contract. This is all the more true of the provisions with the word “reasonable” in their texts. . . . Taking account of these extensive powers granted to judges by the CISG, it would not be a deviation from the language of the Convention for them to adapt the contract based on the “reasonable expectation test” of Article 79(1), particularly when they deal with an unexpected skyrocketing price beyond once- in-decade increase.’ 172 CISG-AC Opinion No. 20 (n 13) paras 12.1, 13, 13.3. 173 Flechtner (n 85) 97; cf CISG-AC Opinion No. 20 (n 13) para 12.7. 174 Lindström (n 25) 6; Magnus (n 4) para 65; Schwenzer, ‘Article 79 CISG’ (n 4) para 58; cf Flambouras (n 10) 283. COVID-19 and international sale contracts 27 Rev. dr. unif., 2021, 1–30 D ow nloaded from https://academ ic.oup.com /ulr/advance-article/doi/10.1093/ulr/unaa026/6126398 by guest on 03 February 2021