19.5 GENERAL APPROACHES IN THE STUDIED INSTRUMENTS

The doctrine of changed circumstances has found a widely recognized expression in the CISG, UNIDROIT Principles and PECL, inspired by public international law and international commercial practice. They combine the different domestic rules and compromise between various approaches. However, the relevant circumstances and their consequences concerning the two major concepts vary to some extend under the three international instruments. In the following, a brief review will be made, and more details on the relevant provisions will be found in Chapters 20 and 21.

19.5.1 Approach under the CISG

Under the CISG, Art. 79 deals with the circumstances in which the buyer or seller may be excused from performance of his contractual obligations because of an extraneous event that is judged sufficiently important to warrant the excuse--what in the common law is referred to as frustration of the contract and in civilian legal systems under such headings as force majeure, cause étrangère, and Wegfall der Geschaftsgrundlage. The Article is probably one of the most difficult in the whole convention for several reasons.  ¹⁰⁷⁹  Given the complexities it is focused here mainly on some of the more salient features of Art. 79.

Art. 79 is a compromise between the civil law doctrine, which bases impossibility on the lack of fault of the obligor and bars on award of damages, and the common law approach, which views impossibility as an exception from absolute liability and therefore terminates the contract. Like the ULIS, the CISG in general, and its force majeure provision in particular, have been widely criticized as linguistic compromises lacking in substance. It has been suggested that "the outcome of a dispute governed by this CISG Provision may ultimately turn on whether a court chooses to emphasize the common law or civil law" view, or that of the other legal systems throughout the world. The provision's malleability may undercut its ability to guide the international business person. Nevertheless, its existence demonstrates the universally held view that in certain circumstances, at least, a force majeure event should excuse the non-performance.  ¹⁰⁸⁰ 

It is said that the CISG addresses the changed circumstances issue in Art. 79 in an attempt to create uniformity and tackle the problem of changed circumstances on an international level. Therefore, the solutions adopted in CISG Art. 79 do not follow any of the national laws as such. It does not use the terms force majeure, frustration or the like, and it forms a system of its own autonomic from the national systems. In other words, the CISG avoids reference to existing concepts as it develops a system of its own. However, this concept does not solve the problem entirely. It is likely that Art. 79 will be the Convention's least successful provision. The most discussed problem in the context of Art. 79 is whether radically changed circumstances (hardship), 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 Art. 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.  ¹⁰⁸¹  In this respect, the UNIDROIT Principles and the PECL serve once again as a supplementary source of CISG's interpretation and application.

19.5.2 Approach under the UNIDROIT Principles

Generally speaking, the Convention limits exemption to impossibility of performance. Greater leeway and flexibility of exemption and remedial rights are granted in the UNIDROIT Principles. Under the UNIDROIT Principles, hardship is dealt with through Arts. 6.2.1 to 6.2.3. Art. 6.2.1 establishes the principle of pacta sunt servanda as the main rule to be followed. Art. 6.2.2 then defines hardship and 6.2.3 provides for the effects of it. Where the equilibrium of the contract has been fundamentally altered, the disadvantaged party is entitled to request renegotiations. Where such negotiations fail to lead to an agreement within a reasonable time either party may resort to the court, which may, if reasonable, terminate the contract or adapt it with a view to restoring its equilibrium. It should be noted that hardship does not automatically lead to an exemption from performance. The disadvantaged party is still under obligation to perform even if renegotiations have commenced. Only an agreement or a court order may release the party from this obligation.

Art. 7.1.7 concerns force majeure situations. According to Art. 7.1.1, the term non-performance refers to a failure by a party to perform any of its obligations under the contract, including defective performance or late performance. Art. 7.1.7 thereby applies to all such events. According to the Official Comment, this article concerns the area covered in common law systems by doctrines of frustration or impossibility and in civil law systems by doctrines such as force majeure, Unmöglichkeit, and the like, but it is identical with none of these doctrines. The term "force majeure" was chosen because it is widely known in international trade practice, as confirmed by the inclusion in many international contracts of so-called "force majeure" clauses.  ¹⁰⁸²  Further, Art. 7.2.2 provides for grounds of exemption in cases of non-performance of non-monetary obligations.  ¹⁰⁸³  If the less strict criteria of Art. 7.2.2 are met, the obligor is exempt from performing specifically, but he may still be liable in damages if he cannot prove an impediment in accordance with 7.1.7.

In view of the respective definitions of hardship and force majeure under the UNIDROIT Principles there may be factual situations which can at the same time be considered as cases of hardship and of force majeure. If this is the case, it is for the party affected by these events to decide which remedy to pursue. If it invokes force majeure, it is with a view to its non-performance being excused. If, on the other hand, a party invokes hardship, this is in the first instance for the purpose of renegotiating the terms of the contract so as to allow the contract to be kept alive although on revised terms.  ¹⁰⁸⁴ 

19.5.3 Approach under the PECL

Under the PECL, Art. 6:111 addresses the issue of a change of circumstances. Southerington submits in this respect: "Article 6.111 can clearly be classified as a hardship type of rule. It bears resemblance to the Article 6.2.2 of the UNIDROIT Principles. There is no express requirement for a fundamental disturbance of balance though, but a reference to excessive onerousness. However, this difference may be superficial. The commentary to this Article explains that the contract has to be completely overturned by events. Another difference is that the change of circumstances has to have occurred after the conclusion of the contract. Furthermore, 6.111 does not state whether or not the obligor is still under a duty to perform. The most interesting difference perhaps is the rule in 6.111(3)(c) which gives the court the power to award damages to compensate losses caused by the other party's refusal to negotiate or his breaking off negotiations contrary to good faith and fair dealing. It should be noted that both of the parties are under the duty to negotiate in good faith, the purpose of the provision is to allow the contractual relationship to continue, not for example to give the party suffering hardship time to resist the other party's demands."  ¹⁰⁸⁵ 

PECL Art. 8:108 provides for an excuse due to an impediment. "Article 8.101(2) [...] states that where a party's non-performance is excused under Article 8.108, the aggrieved party may resort to any of the remedies set out in Chapter 4 except claiming performance and damages. According to the commentary on the EU Principles, under 8.108 the performance has to have become totally impossible, and furthermore, that the preconditions are those traditionally required for force majeure. The Article applies to any obligation, including monetary. The Article has been modelled after CISG Article 79(1), but according to some commentators resembles also the common law frustration in that both parties are automatically discharged. Article 8.108 read in conjunction with 8.101(2) is almost identical to the UNIDROIT Principles Article 7.1.7, [...]"  ¹⁰⁸⁶  Again, Art. 9:102 PECL is very similar to Art. 7.2.2 of the UNIDROIT Principles, according to which an exception is provided for cases where the creditor is yet to perform and it is clear that the debtor is unwilling to receive performance.  ¹⁰⁸⁷  PECL Art. 9:103 explicitly states that an exemption from performing under Art. 9:102 does not lead to an exemption from damages. This question is to be decided under Art. 8:108.

19.5.4 Concluding Remarks

With respect to situations of changed circumstances, both the UNIDROIT Principles and the PECL could offer sufficiently elaborate and widely accepted rules on hardship and force majeure. By implementing these rules into their contract, parties could supplement the narrow and vague provisions of Art. 79 CISG.

Both the UNIDROIT Principles and the PECL contain what we could call the "full set" of juristic tools for coping with changed circumstances. They encompass rules exempting from specific performance and from liability in damages and they provide for renegotiations and adjustment. Events of impossibility, force majeure, and hardship have been taken into consideration. Furthermore, the two Principles widen the applicability of the exemptions outside pure instances of impossibility or force majeure by references to unreasonableness or unconscionability as well as to loyalty or the observance of good faith.  ¹⁰⁸⁸ 

Both of the two Principles differ from the CISG. Though pacta sunt servanda still is the main rule, under the two Principles exemptions from obligations are granted on a more lenient basis and the contract can be more freely modified by the court. Furthermore, both Principles contain express references to the obligation of observing good faith and for example the hardship provisions seem to promote a more co-operative, loyalty-based notion of contract. It should also be noted that both sets of Principles were completed in the 1990's. Therefore they represent the modern developments in the field of contract law. The provision may have positive effects. When the parties know from the beginning of their contractual relationship that changed circumstances may lead to renegotiations they may, for example, assume an attitude towards their relationship that emphasizes co-operation which may in turn make it easier to cope with changed circumstances and other such problems.  ¹⁰⁸⁹