JURIST Guest Columnist Israr Khan, a legal adviser at the Citizens Advice Bureau, discusses the possibility of non-performance exemptions for sellers under COVID-19...
The international trade of goods across borders is conducted within a complex web of international and domestic regulations and involves a complex set of arrangements between sellers/exporters and buyers/importers. In times of a pandemic such as COVID-19, the relation between sellers and buyers becomes complicated due to contractual breaches. Both domestic and international courts and arbitration organizations have yet to witness an array of international trade law disputes. However, in the mean time, this article looks into the important question of whether there are any exemptions from liability under the United Nations Convention on Contracts for the International Sale of Goods (CISG) in a situation where the seller breaches the contract by failing to deliver the goods due to COVID-19.
CISG applies where an international sale of goods is at issue and either the law of a contracting state applies, or the parties have agreed on the application of CISG. On the question of exemption from liability for non-performance, Article 79 of CISG provides the guidance. Article 79 of the CISG provides for exemption from liability for damages if the damages were caused by an impediment beyond the control of the party claiming the exemption and restrict an undue or harsh result by limiting strict liability. Here, exemption means that an aggrieved party shall not be entitled to claim damages for breach of a contract. Article 79 of CISG provides only for the exemption from damages and leaves other claims unaffected.
Article 79(1) provides for several requirements for a party to be exempt from liability for damages: (1) an impediment to the performance of a contract has arisen; (2) the party’s non-performance was due to the impediment; (3) the impediment was beyond the control of the party claiming the exemption; (4) the party could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract; and (5) the party could not reasonably be expected to have avoided or overcome the impediment or its consequences.
The existence of an impediment is a prerequisite to an exemption according to the UN Commission on International Trade Law (UNCITRAL). However, Article 79 does not state what an impediment is or what qualifies as an impediment. It is not defined in Article 79 or elsewhere in the CISG. The term impediment is broad and vague.
In the 1996 CLOUT case, the German Court held that an “Impediment must be an unmanageable risk or a totally exceptional event, such as a force majeure, economic impossibility or something excessively onerous” and, in 2002, suggested that the non-existence of means to prevent or detect a lack of conformity in the goods may well sufficiently constitute an impediment under Article 79. This approach by the German Court suggests that impediment within Article 79 aligns with the civil law concept of force majeure. The force majeure concept has its origins in French law where there are express force majeure provisions in the French civil code which excuse contractual performance where events have happened outside the parties’ control which could not have been foreseen at the time of contracting and which could not have been avoided by appropriate measures. The parallel concept in the Common law system is that of frustration.
The bigger question to look into is whether the COVID-19 pandemic is sufficient to attract the application of “impediment.” Reviewing CISG cases leads to the conclusion that an event that makes the performance objectively impossible can qualify as an impediment within the meaning of Article 79. Scholars’ views on the meaning of an impediment further support this notion. Schlechtriem states that an economic event that prevents performance in its entirety is an impediment. John O. Honnold states that the exemption should be confined to an impediment that prevents the performance of a contract and Chengwei Liu states that “greater interference of States in international commercial relations e.g., embargo, blockade, war and, more recently, export prohibitions” can constitute impediment.
It can be established that the current pandemic may constitute an impediment under Article 79. However, for the seller to seek exemption under Article 79, the seller has to prove that the non-performance is due to the pandemic and that it was beyond the control of the seller, and the seller could not have foreseen the impediment due to the outbreak. Furthermore, the seller also needs to prove that the pandemic occurred after the conclusion of the contract.
Given the nature of the pandemic, it likely is temporary and pursuant to Article 79(3) CISG, temporary impediments will only temporarily excuse the obligor for the period for which the impediment exists. Although Article 79 provides a safe spot to sellers in international trade, its successful application, due to COVID-19, depends on a case by case basis.
For more on COVID-19, see our special coverage.
Israr Khan a Legal Adviser at the Citizens Advice Bureau. He is also studying Law at the University of Aberdeen, UK.
Suggested citation: Israr Khan, COVID-19 Exemptions for Sellers/Exporters under the UN Convention on Contracts for the International Sale of Goods (CISG), JURIST – Student Commentary, May 17, 2020, https://www.jurist.org/commentary/2020/05/israr-khan-cisg-covid19/
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