INTRODUCTION:

The United Nations set the sails of the Convention on the International Sale of Goods (CISG) in 1988. The ambition was to create a uniform set of rules to support the ever-growing international trade. The Convention has become vastly successful and can count most of the world’s largest economies as its contracting states.

When a party to a contract governed by CISG is suddenly struck by unforeseen events causing his performance to become a considerably larger burden, he has a natural interest in some sort of remedy. The otherwise very successful Convention has been subject of intense discussion about whether or not such issues of hardship are governed by Article 79. Courts and scholars have eagerly been discussing whether or not hardship is governed by CISG, but to this date no definitive consensus has been reached. This has rendered an uncertain and confusing state of law on the matter.

A literal interpretation of Article 79 and arguments presented by case law conclude that hardship is in fact governed by CISG.

This conclusion provides the foundation of a further study of hardship and the remedy provided by Article 79. The focus is more specifically directed towards the question of whether the UNIDROIT Principles Articles 6.2.2 and 6.2.3 can be utilized as meaningful interpretative aid to CISG. This issue is mainly examined through a study of to what extend CISG Article 7 authorizes influence from other sources.

The answer to this rather disputed question is that Article 7 limits the interpretative aid to a clarification of the principles on which CISG is based. Hence, the UNIDROIT Principles can provide for a clarification of the hardship concept, but cannot supplement the remedy set forth by CISG Article 79.

Force Majeure and Hardship:

It is important to distinguish between force majeure and hardship as they are triggered by different impediments and provide different remedies. However they both deal with the consequences of changed circumstances after a contract has been agreed upon.

· Force Majeure:

The more successful concept of the two is force majeure, which has gained a strong footing in contracts and courts. Force majeure occurs when a party’s obligation to a contract has become impossible due to unforeseeable circumstances beyond the control of the parties. Such circumstances could be natural catastrophes or other "acts of God".

Articles relating to force majeure can both be found in Article 79 of the CISG and in the UNIDROIT Principles Article 7.1.7. The wordings of these two provisions are very closely related.

Article 79 does not expressly mention the term force majeure, but is nevertheless; clearly governing the classical force majeure situations.¹ This peculiarity is interesting in connection to the question of whether hardship is also contained within this provision.

· Hardship:

Hardship applies in cases where the performance of a party has not become impossible, but the grounds on which the contract was formed has changed dramatically and made the performance of a party onerous. The generally accepted definition of hardship in the UNIDROIT Principles Article 6.2.2 states the following:

There is hardship where the occurrence of events fundamentally alter the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished, and

a) The events occur or become known to the disadvantaged party after the conclusion of the contract;

b) The events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract;

c) The events are beyond the control of the disadvantaged party.

Whether or not the alteration of the equilibrium is "fundamental" depends on the given circumstances.² Such circumstances can according to the official comments to the UNIDROIT Principles³ either be a substantial increase in cost of performance or a substantial decrease in the value of the performance received by one party. This may for instance be an explosive rise in the prices of materials or an extreme devaluation of a currency.

The relationship between Article 79 CISG and Articles 6.2.1 through 6.2.3 of the UNIDROIT Principles

· The UNIDROIT Principles as Interpretative Aid to CISG Article 79.

The CISG and the UNIDROIT Principles both lay down rules on international commercial contracts and have a strong resemblance in their subject matters. The UNIDROIT Principles have a unique character. They were drafted by independent legal experts representing all major legal systems in the world.⁴ The CISG on the contrary enjoys the prominence of being an official treaty with more than 70 contracting states. This means that the CISG will take precedence unless the parties (or in some cases arbitral tribunals) have chosen otherwise.

The UNIDROIT Principles are interesting in relation to the CISG Article 79, because the former contain an express hardship clause. Primarily this can help define hardship. Secondly this may be able to provide a more suitable solution (adaption of the contract) to hardship issues under the CISG.

1. A Gap in the CISG:

As discussed above, hardship may in some situations constitute an impediment in the meaning of Article 79. This can be seen as a gap in the CISG that may or may not be filled by Article 6.2.2 and 6.2.3 in the UNIDROIT Principles. In this context "gap" means that a matter is governed but not expressly settled by the CISG, thereby leaving certain questions unresolved.

To put the following in perspective, the method of gap-filling could just the same be discussed in regards of any other matter governed but not expressly settled by CISG. This method of "gap filling" is sanctioned in the CISG itself, cf. Article 7.

2. The CISG Article 7:

Article 7(1) calls for an interpretation of the Convention with regard to promote uniformity and good faith in international trade. Article 7(2) acknowledges any shortcomings there may be in the Convention’s provisions by allowing outside interpretative aid to "matters governed but not expressly settled by the CISG".

Article 7(1) seeks a uniform interpretation of the Convention. Hereby, the CISG may indicate its support to the approach of letting the UNIDROIT Principles act as an instrument of interpretation.⁵ Article 7(2) provides further assistance, stating the following:

"Questions concerning matters governed by this Convention which are not expressly settled in conformity with general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law".

According to this paragraph, gaps in the CISG must first and foremost be filled by general principles on which the CISG is based. Only in the absence hereof, may they be filled by "competing" domestic rules. The reason behind this hierarchy is the fact that resorting to domestic law would create a very diverse application of hardship issues, which is in direct contrast to the goal of the Convention.

By Article 7(2) CISG provides an interesting tool, which potentially could to fill the elusive gap in Article 79. It should nonetheless be kept in mind when looking for ways to interpret the CISG that only the general principles on which CISG was based can be allowed as gap fillers. In order to be utilized as interpretative aid, Article 6.2.2 and 6.2.3 of the UNIDROIT Principles consequently have to be expressions of general principles behind the CISG.

3. "General principles" Underlying the CISG:

CISG was largely the basis of the drafting of the 14 years younger UNIDROIT-principles. As a chief principle, a later set of rules should be disregarded as a valid source of interpretation to an earlier one.

However, both instruments are results of the same ideologies and ambitions to create a uniform set of rules for the international trade. This objective is clearly seen in the preambles. Furthermore, the UNIDROIT Principles state in the preamble: "[These Principles] may be used to interpret or supplement international uniform law instruments". Offering itself as an instrument of interpretation and supplementation to international uniform law instruments, such as the CISG, does not necessarily mean that they will be allowed to. Instead this depends entirely on whether the CISG supports the supplementation of its articles by the UNIDROIT Principles.

The fact that both instruments are largely based on principles originating from the same legal systems is an argument in favour of using the UNIDROIT Principles in connection CISG. This is a view supported by most scholars and court decisions (to various extends).

On the other side, courts and arbitrators normally exclusively choose to apply the UNIDROIT Principles in connection with the CISG when the parties have specifically agreed upon it.

4. Adaption of the Contract:

As stated above, it can be presumed that the remedy of Article 79 is out of reach in most cases of hardship. This is due to the hefty additional requirements in order to trigger the remedy. Therefore the question is whether the more subtle solution in Article 6.2.3 of the UNIDROIT Principles is compatible with the CISG. The solution under this provision is renegotiation by the parties or through the court. Renegotiation is seen a way to motivate the continuation of the contract, whereas Article 79 contemplates its termination. A decision specifically relating to this question was passed by the Belgian Supreme Court on the 19^th of June 2009.

Scafom International BV v. Lorraine Tubes S.A.S.⁶:

It is critical to understand that the interpretation of the CISG is not looked after by a single superior court, which is otherwise the case in regards of some other international conventions. Furthermore, the case law on this particular subject is barely existing, which means that a case like Scafom is one of our most important guides to the interpretation of the CISG.

In the Scafom-case, a French seller and a Dutch buyer entered into a contract for the sale of steel tubes that were to be delivered in Belgium. The contract was governed by the CISG. After the conclusion of the contract but before delivery was due, the market price of steel increased by approx. 70% and the seller asked the buyer for a renegotiation of the contract.

The court ruled that hardship was governed but not settled by the CISG Article 79 and noted that the CISG does not provide any specific remedy on how to resolve hardship issues. This argument supports a strong tendency in the opinions of many legal scholars.

The court further reasoned that the issue of hardship should be solved with reference to CISG Article 7(1)(2), or in other words by the general principles of the Convention and with regard to its international character. On that basis, the court resorted to the UNIDROIT Principles and concluded that the unforeseen increases in the price of steel "gave rise to a serious imbalance" of the contract. Ultimately, the court granted the seller the right to request a renegotiation of the contract even though the parties had not agreed on this nor applied the UNIDROIT Principles to the contract.

This far-reaching decision opens up for the possibility of a party to invoke the hardship provisions in UNIDROIT Principles Article 6.2.2 and 6.2.3 as a supplement to the CISG. The premises of this ruling do not faithfully go hand in hand with the opinion of the CISG Advisory Counsel, but the approach is nonetheless very similar.

CONCLUSION:

The concepts of hardship and force majeure constitute exceptions to the principle "pacta sunt servanda." They apply in situations where the circumstances existing at the conclusion of the contract have subsequently changed so drastically that the parties would not have made the contract, or would have made it differently had they known what was going to happen. Hardship occurs where the performance of the disadvantaged party has become much more burdensome, but not impossible. On the other hand, force majeure, means that the performance of the party concerned has, at least temporarily, become impossible. The classical concept of force majeure is primarily directed at settling the problems resulting from non-performance, either by suspension or by termination. The concept of hardship, however, is mainly directed at the adaptation of the contract.

The problem of changed circumstances is clearly an issue in the field of international trade. Here, many contracts have a complicated structure, and even if they are not long-term contracts, they frequently exist over a significant period of time. Furthermore, they are subject to political and economic influences in foreign countries. This means that international trade transactions may entail a great deal of uncertainty.

The CISG addresses this issue in Article 79 in an attempt to create uniformity and tackle the problem of changed circumstances on an international level. It avoids reference to existing concepts as it develops a system of its own. This concept does not solve the problem entirely. It is likely that Article 79 will be the Convention's least successful provision. The most discussed problem in the context of Article 79 is whether radically changed circumstances, where the performance of one of the parties has become much more onerous and difficult, but not impossible, falls within the scope of this provision. Because of Article 79's vagueness, however, it cannot be determined with sufficient certainty how this issue can be decided on the basis of the CISG. The adaptation of the contract by the judge is, moreover, not expressly allowed by the Convention, and must therefore be regarded as impossible. For these reasons, contracting parties are urged to include in their contracts a provision dealing with the matter of changed circumstances in the manner desired by the parties.

REFERENCES:

1. Anna Veniziano, "UNIDROIT Principles and CISG: Change of Circumstances and duty to renegotiate according to the Belgian Supreme Court," (2010), p. 143.

2. Michael Joachim Bonell, "Unidroit Principles in Practice: Caselaw and Bibliography on the Unidroit Principles of International Comercial Contracts.," (2006). Page 327

3. The UNIDROIT Principles, 2010 Edition, comments to Article 6.2.2

4. Rimke, Force Majeure and hardship: Application in international trade practice with specific regard to the CISG and the UNIDROIT Principles of International Commercial Contracts, p. 233

5. Rimke Id. 235-236.

6. C.07.0289.N, Belgium 19 June 2009 Court of Cassation [Supreme Court] available at http://cisgw3.law.pace.edu/cases/090619b1.html.

Received on 09.03.2015 Modified on 18.03.2015

Int. J. Rev. & Res. Social Sci. 3(1): Jan. – Mar. 2015; Page 20-23