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PACE UNIVERSITY, ELISABETH HAUB SCHOOL OF LAW

INSTITUTE OF INTERNATIONAL COMMERCIAL LAW


(IICL) – JAMS GLOBAL TRAINING SERIES

CISG: EXEMPTION FROM LIABILITY


by Soterios Loizou

TABLE OF CONTENTS
I. General Remarks ................................................................................................................................. 1
II. Breach of Contract by Either Contracting Party (CISG art. 79(1)) ..................................................... 2
III. Breach of Contract as a Result of A Breach by A Third Person (CISG art. 79(2)) ............................ 3
IV. Non-performance due to Act or Omission of the Counter-Contracting Party .................................... 4
V. Hardship .............................................................................................................................................. 4
VI. Comparative Law Remarks ................................................................................................................. 6
VII. Indicative Bibliography....................................................................................................................... 9


Teaching Fellow in Commercial Law, King’s College London, The Dickson Poon School of Law; Post-Doctoral Global
Fellow, New York University, School of Law
© 2018 Soterios Loizou
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RELEVANT CISG PROVISIONS: CISG arts. 6, 7, 79, 80

I. GENERAL REMARKS

 The non-performing party has the right to exempt herself from liability for damages under
CISG art. 79.

 The exemption from liability for damages presupposes a breach of contract. The type of the
contractual obligation and the classification of the breach as “fundamental” are irrelevant for the
purposes of CISG art. 79.

 The exemption granted by virtue of CISG art. 79 merely “freezes” the remedy of damages, including
liquidated damages and other contractually agreed penalties (CISG arts. 79(5); cf. CISG art. 4). All
other remedies, i.e. specific performance (CISG arts. 28, 46, 62), reduction of the price (CISG art.
50), avoidance of the contract (CISG arts. 49, 64), and/or interest for sums in arrears (CISG art. 78)
remain available to the aggrieved party.

 Impediments pertaining to part of the performance result only in partial exemption from liability
(cf. CISG art. 51).

 The exemption is effective only for the period during which the impediment exists. Should the
impediment be lifted and non-performance persist, damages will be available for the breach
committed (CISG art. 79(3)).

 The non-performing party has to give notice to her counter-contracting party advising her of the
impediment, including its permanent or temporary nature and its effect on her ability to perform her
contractual obligations.

 Such notice has to be effected within a reasonable time after the non-performing party knew or ought
to have known of the impediment. Failure to give timely notice could result in further liability for
damages incurred from the late notification (CISG art. 79(4)). These damages, however, may also be
subject to the exemption of CISG art. 79.

 The notice of impediment is not a requirement for the exemption from liability under CISG art. 79;
the breaching party is exempt even without such notice. In any case, notice would not be required, if
the innocent party was aware of the impediment (CISG arts. 7(2), 40).

 The notice need not be in writing (CISG arts. 7(2), 11).

 The non-performing party bears the risk of the lost or delayed notice (cf. CISG art. 27).

 The contracting parties are allowed to derogate from the rules of CISG art. 79 by virtue of CISG
art. 6. Such derogation is, frequently, effected with the inclusion of “force majeure” clauses in the
international sale of goods contract.
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 The burden of proving that the requirements for a CISG art. 79 exemption are met rests with the party
seeking the exemption (CISG art. 79(1)).

II. BREACH OF CONTRACT BY EITHER CONTRACTING PARTY (CISG ART. 79(1))

 The non-performing party has to prove, cumulatively, the following:


i. The existence of an impediment, which resulted in the breach of the sales contract;

- This exogenous impediment must constitute the sole reason for the non-performance.
- The CISG does not define the concept of “impediment,” which, as a result, needs to be
interpreted autonomously (CISG art. 7(1)).

- “Impediment”: Any event which, firstly, renders performance (nearly) impossible


(see also “hardship”)—at least for a limited period of time—and, secondly, falls outside
the non-performing party’s sphere of control. Whether a particular event falls within or
outside the latter’s sphere of control shall be determined on a case-by-case basis.

- The existence of an impediment shall be determined objectively. In this determination,


the lack of fault or negligence on the non-performing party are irrelevant.

- An impediment could arise, among others, from natural disasters (extreme weather
conditions, earthquakes, etc.), war or war-like operations, terrorist or piracy attacks,
epidemics, blockade of transport routes, unavailability of un/loading facilities, labour
strikes (but not strikes within the workforce of the non-performing party), embargoes,
state acts, government regulations and other state measures, such as capital controls (but
not insolvency of the non-performing party), etc.
- The time when the impediment occurred is irrelevant, as the CISG does not distinguish
between existing, i.e. at the time of contracting, and subsequent impediments.

Case-law
 American Arbitration Association, 23 October 2007 (Macromex Srl. v. Globex International Inc.) Interim
Award, available at: http://cisgw3.law.pace.edu/cases/071023a5.html
 Germany, 24 March 1999, Supreme Court (Vine wax case), translation available at:
http://cisgw3.law.pace.edu/cases/990324g1.html

ii. The impediment falls outside the non-performing party’s sphere of control;

- All events that take place within or are linked to the enterprise of the non-performing
party fall, usually, within the party’s sphere of control.

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iii. The non-performing party could not be reasonably expected to have taken the impediment into
account at the time of the conclusion of the contract (unforeseeability requirement);
- This foreseeability requirement amounts to a requirement of awareness of the particular
risk for the performance of the contractual obligations. Such awareness could be reflected
in the contractual terms, e.g. in the increased or decreased price of the goods, which would
further signify an allocation of the risk between the parties.
- The “foreseeability” of the impediment shall be determined in light of the likelihood of
the event. Considering that almost all potential risks are predictable, the foreseeability
test of CISG art. 79, comprises, essentially, an examination of the probability of such
risks. The more exceptional the event, the more likely for the impediment to be
“unforeseeable.”

- The foreseeability of the impediment shall be determined on a case-by-case basis against


objective standards, that is, the reasonable person in the same position as the
non-performing party.
iv. The non-performing party could not have avoided or overcome the impediment or its
consequences (unavoidability requirement);

- If the sale of goods provides for the delivery of generic goods, the impediment is,
normally, “avoidable,” since the Seller would be in position to supply the Buyer with
substitute goods.
v. There is a causal link between the impediment and the breach of contract.

Case-law
 Belgium, 02 May 1995, Rechtbank van Koophandel, Hasselt, (Vital Berry Marketing NV v. Dira-Frost
NV), translation available at: http://www.unilex.info/case.cfm?id=263

III. BREACH OF CONTRACT AS A RESULT OF A BREACH BY A THIRD PERSON (CISG ART. 79(2))

 The non-performing party has to prove, cumulatively, the following:


- The requirements of CISG art. 79(1) for an exemption from liability, as delineated above; AND
i. The existence of an impediment, which resulted in the contractual breach;
ii. The impediment falls outside the third party’s sphere of control;
iii. The third party could not be reasonably expected to have taken the impediment into
account at the time of the conclusion of the contract [between the non-performing party
and the third party];

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iv. The non-performing party could not have avoided or overcome the impediment or its
consequences;
v. There is causal link between the impediment and the breach of contract.

 The concept of the “third person,” which has been engaged in the performance of the whole or part
of the contract by either contracting party, needs to be interpreted autonomously (CISG art. 7(1)).
The prevailing view in both legal theory and jurisprudence focuses on the independence of the “third
person” from the non-performing/breaching party, such as independent carriers, financial institutions,
etc.

 Plain suppliers of the seller, usually, do not qualify as third parties under CISG art. 79(2). Considering
that most sellers acquire the goods from other intermediaries, if plain suppliers were treated as “third
parties” under CISG art. 79(2), the remedy of damages would have been limited significantly.

 The careful or negligent selection of the third person is irrelevant for the purposes of CISG art. 79(2).

IV. NON-PERFORMANCE DUE TO ACT OR OMISSION OF THE COUNTER-CONTRACTING PARTY

 Non-performance may be excused, if the breaching party proves that non-performance occurred due
to acts or omissions of her counter-contracting party (CISG art. 80).

 In juxtaposition with CISG art. 79, the rule of CISG art. 80 covers all remedies available under the
Convention.

 The burden of proving that the requirements of CISG art. 80 are met rests with the party seeking
excuse for non-performance.

 The exclusion of remedies under CISG art. 80 should not be confused with the suspension of
performance under CISG art. 71. The key-difference of the two rules is that only the former provision
requires a breach of contract.

V. HARDSHIP

 The CISG does not contain special rules on hardship. This shortcoming has ignited academic
discussion—with legal theory and jurisprudence remaining split—on whether hardship is governed
by the Convention or, alternatively, whether the examiner needs to resort to the otherwise applicable
law.

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 The legislative history of the Convention does not offer any meaningful aid in clarifying this matter.
Actually, the travaux préparatoires of the CISG have been used by scholars reaching diametrically
opposite conclusions.

 A series of lines of argument have been articulated in academic discourse:


i. Hardship falls under the concept of “validity” issues of CISG art. 4 and, therefore, it falls
outside the scope of the CISG. The conflict-of-laws rules of the forum shall determine the
legal regime governing hardship situations (CISG art. 7(2)).
ii. Hardship situations pertain to the rights and obligations of the contracting parties and, since
they fall under the unitary concept of “impediment,” they are governed by the CISG art. 79.
Under this line of argumentation, theory bifurcates regarding the remedy available to the
parties:
- Remedies allowed under CISG art. 79; or

- Other remedies that may be supported by the general principles of the Convention.
iii. Hardship situations pertain to the rights and obligations of the contracting parties, but
CISG art. 79—specifically, the concept of “impediment”—is not wide enough to encompass
financial hardship. This internal gap of the CISG needs to be filled pursuant to the general
principles of the Convention (CISG art. 7(2)).
iv. Hardship situations pertain to the rights and obligations of the contracting parties. The CISG,
however, has neither special rules nor general principles that could be of assistance in
addressing such scenarios. As a result, the matter shall be determined pursuant to the
applicable law, as that is determined by the conflict-of-laws rules of the forum
(CISG art. 7(2)). In this author’s opinion, this is the most doctrinally coherent approach.

 It has been argued that, in light of the general principles of good faith, pacta sunt servanda, and
cooperation in the performance of the contract (CISG arts. 7(1), 7(2), 60(a)), the contracting parties
are required to renegotiate their agreement. Should such negotiations fail, inspiration could be drawn
from the corresponding rules in the UNIDROIT Principles of International Commercial Contracts,
which empowers the adjudicatory authority to make in concreto determinations for the amendment
or termination of sales contracts.
 Any arguments in favour of the “creative” gap-filling of the CISG disregards the very structure, rules,
and principles of the Convention. Other than the remedy of price reduction, there are no special rules
from which principles may arise, which could offer regulatory support for remedies, such as the
renegotiation or adaptation of the contractual terms. Furthermore, the various general principles
arising from the CISG may lead to incongruent results regarding hardship matters. Importantly, any

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links between the general principle of good faith and the renegotiation/adaptation remedies appear to
flow in a reverse manner, that is, identifying the desirable remedy first and only at a second stage
justifying it on the basis of the malleable concept of good faith.
 Case-law resorting directly to the UPICC in order to “fill” the hardship or economic impossibility
gap of the CISG has been heavily—and, in this author’s opinion, correctly—criticized in legal
scholarship. Although, the importance and usefulness of the UPICC in the context of CISG’s
application cannot be overstated, the direct invocation of the UNIDROIT Principles would be in
violation of CISG art. 7(2).

Case-law
 France, 17 February 2015, Court of Cassation (Société Dupiré Invicta industrie vs. Société Gabo), available
at: www.cisg.fr/cgi-bin/createpdf.cgi?id=239
 Belgium, 19 June 2009, Court of Cassation (Scafom International BV v. Lorraine Tubes S.A.S.), translation
available at: http://cisgw3.law.pace.edu/cases/090619b1.html

VI. COMPARATIVE LAW REMARKS


UNIDROIT Convention relating to a Uniform Law on the International Sale of Goods
(ULIS, 1964)
- The rules on exemption from liability are enshrined in Annex I, art. 74, which were used as the
blueprint for CISG art. 79.

- Although a number of differences may be noted between ULIS art. 74 and CISG art. 79, the most
important is the use of the concept “impediment” by the latter, as opposed to the reference to
“circumstances” by the former.
- The ULIS contains no provisions that are similar to CISG art. 80.

UNIDROIT Principles of International Commercial Contracts (PICC, 2016)


- The rule enshrined in UPICC art. 7.1.7 is nearly identical with CISG Art. 79, albeit without the
rule of CISG art. 79(2).
- UPICC art. 7.1.7 exempts only liability for damages; all other remedies are preserved. Notably,
UPICC art. 7.1.7(4) expressly preserves the right of the counter-contracting party to terminate the
contract, to withhold performance, or to request interest on money due are preserved
(cf. UPICC art. 7.2.2).
- The rule enshrined in UPICC art. 7.1.2 is nearly identical with CISG art. 80, albeit it enshrines a
wider exclusion of remedies (including events for which the non-breaching party bears the risk).

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- In contrast to the CISG, which defers issues pertaining to the “validity” of exemption clauses to
the applicable law (CISG arts. 4, 7(2)), UPICC art. 7.1.6 provides that limitation or exclusion of
liability clauses may not be invoked, if, having regard to the purpose of the contract, it would be
grossly unfair to do so.
- Cf. special rules on hardship, UPICC arts. 6.2.1-6.2.3.

Principles of European Contract Law (PECL, 2002)


- PECL art. 8:108 is nearly identical with UPICC art. 7.1.7.
- Should non-performance be excused, PECL art. 8:101(2) provides that all remedies be preserved
other than the precluded remedies of damages and specific performance.
- Note PECL art. 8:107, which provides that the risk of non-performance entrusted to third parties
remains with the entrusting contracting party. Combined application of PECL arts. 8:107 and
8:108 governs the exemption from liability when third parties have been engaged in the
performance of the contract (cf. PECL 1:305).
- The PECL contains a special rule on the absolute impossibility of performance (“total and
permanent impediment”), which, in essence, provides for the automatic termination of the contract
(PECL art. 9:303(4); cf. PECL arts. 9:101(2)(b), 9:102(2)(a), 9:102(2)(b)).
- In contrast to the CISG, which defers issues pertaining to the “validity” of exemption clauses to
the applicable law (CISG arts. 4, 7(2)), PECL art. 8:109 provides that limitation or exclusion of
liability clauses may not be invoked, if deemed to be contrary to good faith and fair dealing
(see also PECL art. 4:110(1)).
- The rules enshrined in PECL arts. 8:101(3) and 9:504 are similar in their effects to CISG art. 80
(cf. PECL art. 1:301(1)).
- Cf. special rules on change of circumstances enshrined in PECL art. 6:111.

Draft Common Frame of Reference (DCFR, 2008)


- The rules on exemption from liability enshrined in DCFR art III.-3:104 are very similar to
PECL art. 8:108, and, by extension, to CISG art. 79.
- Should non-performance be excused, DCFR art. III.-3.101(2) provides that all remedies be
preserved, other than the precluded remedies of damages and specific performance
(cf. DCFR arts. III.-3:701(1), III.-3:708(1)).
- The DCFR contains a special rule on the absolute impossibility of performance (“permanent
impediment”), which, in essence, provides for the automatic termination of the contract
(Art. III.-3:104(4)).

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- In contrast to the CISG, which defers issues pertaining to the “validity” of exemption clauses to
the applicable law (CISG arts. 4, 7(2)), DCFR Art. III.-3:105(2), combining both the
corresponding UPICC and PECL provisions, stipulates that exemption clauses may not be
invoked, if it would be contrary to good faith and fair dealing to do so (see also DCFR art. II.-
9:405).
- The rule on remedy-exclusion of DCFR art. III.-3:101(3) is nearly identical with CISG art. 80.
- Although there is no special rule on the liability for third parties engaged by the debtor, the issue
is governed by the general rule of DCFR art. III.-3:104.
- Cf. special rules on hardship enshrined in DCFR Art. III.-1:110.

Draft EU Regulation on a Common European Sales Law (CESL, 2011)


- The rules on exemption from liability enshrined in CESL Anx. I, art. 88 are nearly identical—with
minor differences in the wording—with PECL art. 8:108.
- Should non-performance be excused, CESL Anx. I arts. 106(4) and 131(2) provide that all
remedies be preserved, other than the precluded remedies of damages and specific performance.
- Cf. special rules on change of circumstances enshrined in CESL art. 89.
- The rules enshrined in CESL arts. 106(5) and 131(3) are nearly identical with CISG art. 80.

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VII. INDICATIVE BIBLIOGRAPHY

 CISG Advisory Council, Opinion No. 7, Exemption of Liability for Damages under Article 79 of the CISG, Rapporteur:
Professor Alejandro M. Garro, Columbia University School of Law, New York, N.Y., USA. Adopted by the CISG-AC
at its 11th meeting in Wuhan, People's Republic of China, on 12 October 2007. Available at:
http://www.cisgac.com/cisgac-opinion-no7/
 Yesim M. Atamer, Article 79, in UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (CISG)
(Second Edition) 1039 (Stefan Kröll, Loukas Mistelis, & Pilar Perales Viscasillas eds.), Hart Publishing, 2018.
 Cesare Massimo Bianca & Michael Joachim Bonell, COMMENTARY ON THE INTERNATIONAL SALES LAW: THE 1980
VIENNA SALES CONVENTION, Giuffrè, 1987.
 Michael G. Bridge, THE INTERNATIONAL SALE OF GOODS (Fourth Edition), Oxford University Press, 2018.
 Fritz Enderlein & Dietrich Maskow, INTERNATIONAL SALES LAW, Oceana Publications, 1992.
 Franco Ferrari & Marco Torsello, INTERNATIONAL SALES LAW – CISG: IN A NUTSHELL (Second Edition), West
Academic, 2018.
 Franco Ferrari, Harry Flechtner, & Ronald A. Brand, THE DRAFT UNCITRAL DIGEST AND BEYOND: CASES,
ANALYSIS AND UNRESOLVED ISSUES IN THE U.N. SALES CONVENTION, Sellier. European Law Publishers, 2004.
 Dionysios P. Flambouras, Exemption and Hardship: Remarks on the Manner in which the principles of European
Contract Law (Articles 6:111 and 8:108) may be Used to Interpret or Supplement CISG Article 79, in AN INTERNATIONAL
APPROACH TO THE INTERPRETATION OF THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL
SALE OF GOODS (1980) AS UNIFORM SALES LAW 499 (John Felemegas ed.), Cambridge University Press, 2007.
 Dionysios P. Flambouras, The Doctrines of Impossibility of Performance and Clausula Rebus Sic Stantibus in the 1980
Convention on Contracts for the International Sale of Goods and The Principles of European Contract Law – A
Comparative Analysis, 13 Pace Int’l L. Rev. 261 (2001).
 Alejandro M. Garro, Force Majeure and CISG Article 79: Competing Approaches and Some Drafting Advice, in
Drafting Contracts Under the CISG 379 (Harry M. Flechtner, Ronald A. Brand, & Mark S. Walter eds.), Oxford
University Press, 2008.
 Alejandro M. Garro, Exemption of Liability for Damages: Comparison between Provisions of the CISG (Art. 79) and
the Counterpart Provisions of the UNIDROIT Principles (Art. 7.1.7), in AN INTERNATIONAL APPROACH TO THE
INTERPRETATION OF THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (1980)
AS UNIFORM SALES LAW 236 (John Felemegas ed.), Cambridge University Press, 2007.
 Clayton P. Gillette & Steven D. Walt, THE UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS:
PRACTICE AND THEORY (Second Edition), Cambridge University Press, 2016.
 John O. Honnold & Harry M. Flechtner ed., UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE 1980 UNITED
NATIONS CONVENTION (Fourth Edition), Kluwer Law International, 2009.
 Peter Huber & Alastair Mullis, THE CISG: A NEW TEXTBOOK FOR STUDENTS AND PRACTITIONERS, Sellier. European
Law Publishers, 2007.
 Joseph M. Lookofsky, UNDERSTANDING THE CONTRACTS FOR INTERNATIONAL SALE OF GOODS: GUIDE TO THE 1980
UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (Fourth Edition), Kluwer Law
International, 2012.
 Joseph Lookofsky, CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (CISG), Wolters Kluwer
Law & Business, 2012.
 Peter J. Mazzacano, EXEMPTIONS FOR THE NON-PERFORMANCE OF CONTRACTUAL OBLIGATIONS IN CISG ARTICLE 79:
THE QUEST FOR UNIFORMITY IN INTERNATIONAL SALES LAW, Intersentia, 2014.
 Joseph F. Morrissey & Jack M. Graves, INTERNATIONAL SALES LAW AND ARBITRATION: PROBLEMS, CASES AND
COMMENTARY, Kluwer Law International, 2008.
 Ingeborg Schwenzer, Article 79, in SCHLECHTRIEM & SCHWENZER COMMENTARY ON THE UN CONVENTION ON THE
INTERNATIONAL SALE OF GOODS (CISG) (Fourth Edition) 1128 (Ingeborg Schwenzer ed.), Oxford University Press, 2016.
 Ingeborg Schwenzer, Force Majeure and Hardship in International Sales Contracts, 39 Victoria U. Wellington L. Rev.
709 (2008).
 Ingeborg Schwenzer, Christiana Fountoulakis, & Mariel Dimsey, INTERNATIONAL SALES LAW, (Second Edition),
Hart Publishing, 2012.

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