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Impediment, Hardship, and the Excuse Doctrines

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Impediment, Hardship, and the Excuse Doctrines Pace International Law Review Volume 27 Issue 1 Commercial Edition Article 5 Spring 2015 April 2015 Contractual Excuse Under the CISG: Impediment, Hardship, and the Excuse Doctrines Larry A. DiMatteo Warrington College of Business Administration Follow this and additional works at: https://digitalcommons.pace.edu/pilr Part of the Comparative and Foreign Law Commons, Contracts Commons, International Law Commons, and the International Trade Law Commons Recommended Citation Larry A. DiMatteo, Contractual Excuse Under the CISG: Impediment, Hardship, and the Excuse Doctrines, 27 Pace Int'l L. Rev. 258 (2015) Available at: https://digitalcommons.pace.edu/pilr/vol27/iss1/5 This Article is brought to you for free and open access by the School of Law at DigitalCommons@Pace. It has been accepted for inclusion in Pace International Law Review by an authorized administrator of DigitalCommons@Pace. For more information, please contact [email protected]. 5. PROFESSOR LARRY DIMATTEO.DOCX (DO NOT DELETE) 4/29/15 5:20 PM CONTRACTUAL EXCUSE UNDER THE CISG: IMPEDIMENT, HARDSHIP, AND THE EXCUSE DOCTRINES Larry A. DiMatteo * I. Introduction II. Hardship in German and American Law a. German Notion of Changed Circumstances b. Doctrine of Impracticability in American Law III. EXCUSE AND HARDSHIP UNDER PICC AND PECL a. PICC b. PECL IV. APPLICATION OF EXCUSE AND HARDSHIP UNDER CISG ARTICLE 79: IMPOSSIBILITY AND HARDSHIP a. CISG Article 79 b. Is Impossibility or Act of God Always an Im- pediment under Article 79? c. Hardship as Excuse: Scope of Article 79 d. Argument for Hardship as Article 79 Excuse V. CISG JURISPRUDENCE: IMPOSSIBILITY AND FORESEEABILITY a. Sphere of Control b. Allocation of Risk c. Defective Goods as Impediment d. Extraordinary Events e. Foreseeable but not Foreseen Events VI. CONCLUSION * Huber Hurst Professor of Law, Warrington College of Business Admin- istration; Affiliate Professor, Levin College of Law; Affiliate Professor, Center for European Studies. I would like to give my appreciation to Prof. Dr. Reiner Schulze of the University of Münster for getting me interested in the law of changed circumstances. I would also like to note the inspiration provided by the works of Prof. Dr. Ulrich Magnus and his long advocacy for the worldwide adoption of the CISG. 258 1 5. PROFESSOR LARRY DIMATTEO.DOCX (DO NOT DELETE) 4/29/15 5:20 PM 2015] CONTRACTUAL EXCUSE 259 I. INTRODUCTION This article will examine the law of excuse as espoused in the Convention on Contracts for the International Sale of Goods (CISG).1 It will examine the relevant case law applying the doctrine of impediment found in CISG Article 79. The ques- tion posed in this analysis is whether the word “impediment” relates only to the occurrences of force majeure, impossibility and frustration of purpose events or if it also includes changed circumstances, impracticability and hardship events. For pur- poses of simplicity, the first set of excuse or exemption doc- trines2 will be analyzed under the heading of “impossibility”3 and the second set will be discussed under the heading of “hardship”. The key issue to be explored in this article is the distinc- tion between excuse requiring impossibility or frustration of contractual purpose4 and hardship5 as it relates to Article 79 of the CISG.6 These terms and doctrines have often been conflat- ed. This is understandable given the number of such doctrines 1 United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, U.N. Doc. A/Conf. 97/18 [hereinafter CISG]. 2 Excuse (more commonly used in the common law) and exemption (more commonly used in the civil law will be used interchangeably throughout this article. They both represent the concept that, in certain circumstances, a breaching party may not be held liable for damages despite breaching a con- tract. 3 Although at times references will be made to force majeure; not so much as the civil law of force majeure, but as to the types of occurrences or non- occurrences that have traditionally been the grounds for providing an excuse. 4 Excuse is a general term that incorporates the numerous doctrines that provide a party an exemption from liability for breach of contract. The phrases of excuse and exemption, as generic terms, will be used interchange- ably throughout this article. 5 Hardship is a form of excuse but is not as strict in its requirements for exemption as is impossibility or force majeure. Hardship sometimes is re- ferred to as “changed circumstances,” but all forms of excuse necessarily in- volve a change of circumstances that alters the balance or equilibrium of a contract to the detriment of one of the parties. See Ahmet C. Yildirim, Equi- librium in International Commercial Contracts (2011) (focusing on the con- cepts of gross disparity and hardship under the UNIDROIT Principles of In- ternational Commercial Contracts). 6 See UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS ARTICLE BY ARTICLE COMMENTARY 1088 (Stefan Kröll, Loukas Mistelis, & Pilar Perales Viscasillas eds., 2011) (“The [CISG] is silent on the problem of allocating the risk of severe and unpredictable changes in circumstances, altering the contractual equilibrium fundamentally”). https://digitalcommons.pace.edu/pilr/vol27/iss1/5 2 5. PROFESSOR LARRY DIMATTEO.DOCX (DO NOT DELETE) 4/29/15 5:20 PM 260 PACE INT’L L. REV. [Vol. XXVII::1 found in various national laws and international law instru- ments, such as impossibility,7 impracticability,8 frustration of purpose,9 force majeure or Act of God,10 hardship,11 change of circumstances,12 and so forth. The question posed is whether the impediment doctrine provides an exemption from liability only for “absolute” excuse (impossibility, force majeure) or if it also extends to the more liberal “relative” excuse doctrines (hardship, changed circumstances, impracticability). Given the vagueness of Article 79’s use of the word im- pediment, its interpretation and application has had to be con- structed anew. This has to, of course, be done with all CISG provisions under the autonomous interpretation date.13However, the interpretation of the exemption of impedi- ment is an especially difficult task given the context of the nu- merous excuse doctrines in the various national legal systems, as well as the conflation of different excuse doctrines within national legal systems. French law has the most restrictive 7 The seminal case in the common law relating to excuse for impossibility is Paradine v. Jane, [1647] 82 Eng. Rep 897 (K.B.); see 2 E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS 624-32 (3rd ed. 2004) (examining the growth of the excuse of impossibility). 8 The doctrine of impracticability is ensconced in UCC Article 2-615. See generally, Norman R. Prance, Commercial Impracticability: A Textual and Economic Analysis of Section 2-615 of the Uniform Commercial Code, 19 IND. L. REV. 457 (1986). The doctrine of impracticability has also been used by analogy in the American common law of contracts; see Paula Walter, Com- mercial Impracticability in Contracts, 61 ST. JOHN’S L. REV. 225 (1987). 9 See G. TREITEL, FRUSTRATION AND FORCE MAJEURE (1994) (a compara- tive analysis of frustration in American and English law). 10 See FORCE MAJEURE AND FRUSTRATION OF CONTRACT 5-10 (Ewan McKendrick ed. 2nd ed. 1995) (providing an analysis of force majeure in French and English law). 11 See, e.g., KARSTEN KEILHACK, THE HARDSHIP APPROACH IN THE UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS AND ITS EQUIVALENT IN GERMAN LAW OF OBLIGATIONS—A COMPARISON; Dietrich Maskow, Hardship and Force Majeure, 40 AM. J. COMP L. 657 (1992) (provid- ing a comparative analysis of two excuse doctrines). 12 The notion of “changed circumstances” is common to all of the excuse doctrines. See CHENJING JIAO, CHANGE IN PRICE AND CHANGED CIRCUMSTANCES (2013) (providing a comparative analysis of Chinese, English, German, and American contract law); see also, RODRIGO M. URIBE, THE EFFECT OF A CHANGE OF CIRCUMSTANCES ON THE BINDING FORCE OF CONTRACTS (2011) (comparative perspectives) 13 CISG, supra note 1, art. 7 (the CISG is to be interpreted using the gen- eral principles of the CISG and not to recourse to national laws). 3 5. PROFESSOR LARRY DIMATTEO.DOCX (DO NOT DELETE) 4/29/15 5:20 PM 2015] CONTRACTUAL EXCUSE 261 form of excuse recognizing only force majeure events that make it impossible to perform; the United Kingdom’s law is slightly more liberal, adding the doctrine of frustration of purpose to the impossibility doctrine; and German law incorporates the more common civil law bifurcation of impossibility and hard- ship doctrines, while also recognizing frustration of purpose, as well as recognizing both physical and economic impossibility.14 The United States has a tripartite excuse regime involving im- possibility, frustration, and impracticability. Part II briefly examines the law of excuse in the German and American legal systems focusing on the German concept of changed circumstances and the American doctrine of impracti- cability, while Part III briefly reviews the law of excuse provid- ed in the UNIDROIT’s Principles of International Commercial Contracts (PICC) and the Principles of European Contract Law (PECL). The reviews in Parts II and III will set the context for analyzing the case law relating to CISG Article 79 that is un- dertaken in Part IV. II. HARDSHIP IN GERMAN AND AMERICAN LAW The common law, represented by American law and Ger- manic civil law, is divided on whether hardship or changed cir- cumstances can provide an excuse or exemption from liability for damages for breach of contract. American excuse law evolved from English common law, which, in its modern form, recognizes objective impossibility (impossibility) and frustra- tion of purpose. Hardship is not grounds for excuse under Eng- lish common law, but is captured within the American doctrine of impracticability.15 It is for this reason that American law has been chosen to compare to German law.
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