Cover PageStudent Name Saranda Cunaku
Student Number 509815
Assignment Name Force Majeure and Hardship Clauses in Comparative Law Perspective
United States of America v. France
Word Count
(excluding foontotes) 1850
Contents
TOC o “1-3” h z u Cover Page PAGEREF _Toc524859240 h 1I.Abstract PAGEREF _Toc524859241 h 3II.The exemption for non-performance of contract on basis of force majeure in the United States of America and France PAGEREF _Toc524859242 h 4III.The exemption for non-performance of contract on basis of hardship in the United States of America and France PAGEREF _Toc524859243 h 6IV.Conclusion PAGEREF _Toc524859244 h 8Bibliography PAGEREF _Toc524859245 h 9
Force Majeure and Hardship Clauses in Comparative Law Perspective
United States of America v. France
AbstractThe first and principal task of international commercial contracts is organizing the relationship between the parties in an optimal manner. This is achieved by determining the rights and duties of the parties in order for the transaction to be successful and by providing remedies in cases of breach of contract. Nevertheless, with globalization, problems are increased as the participation of more and more countries in production and procurement entails even greater uncertainties.
It has long been highly disputed whether a party to a contract may be exempted for non-performance, whether it is on basis of force majeure, hardship, frustration or a similar defence available under the applicable substantive law. An approach like this goes in contradiction with the principle of pacta sunt servanda or the sanctity of the contract. The aforementioned principle binds a party to the completion of its obligations. Yet, it has been generally acknowledged that the principle of pacta sunt servanda may have to be qualified by certain exemptions.
The relation between pacta sunt servanda and its exceptions has been specifically addressed by general contract law principles. The exemptions may be found in substantially similar terms in the United Nations Convention for Contracts in the International Sale of Goods (CISG), the UNIDROIT Principles of International Commercial Contracts (UPICC), Principles on European Contract Law (PECL) and in the model contract clause International Chamber of Commerce (ICC).
However, differences in approaches towards non-performance of contract are particularly encountered among common and civil law systems. This paper will provide a comparison of this matter between the United States as a common law country and France as a civil law country. In more precise terms, the grounds of force majeure and hardship will be examined in each of the legal systems.
The exemption for non-performance of contract on basis of force majeure in the United States of America and FranceFrench law represents the crib of the doctrine of force majeure with it being based on the Roman doctrine of Vis Major and is embodied in most civil codes. In the beginning, it was referred to as acts of God and was limited to events of natural causes, and later expanded to cover events induced by men and nature. In its simplest characteristics, force majeure refers to those situations beyond the control of parties and when a contractual obligation has become impossible of being performed.
Under the common law, anything within the nonperforming party’s sphere of control or allocated risk cannot be a reason to grant an excuse.
As such, the applicability of the concept of force majeure, which is an effective theory in civil law legal system, is very limited in common law. The limitation only relates to what has been expressly agreed between contract parties. Hence, the context of the force majeure clause and its provisions define the extent of the application of the theory and its boundaries of coverage.
In reality, in common law countries, this concept has evolved from one of “physical impossibility” to “frustration of purpose” (U.K.) to “commercial impracticability” (U.S.). In the United States, the U.S. Restatement of Contracts and the U.S. Uniform Commercial Code Section 2–615 concerning the sale of goods regulate the grounds when commercial impracticability occurs. Section 2–615 (a) sets forth a three part test: a “contingency” (event or impediment) occurred, which makes contract performance impracticable, and the nonoccurrence of the contingency was a basic assumption on which the contract was made.
Contrary to the United States where the concept of force majeure is not regulated with federal parameters, under the French law force majeure is very well defined. Article 1218 of the French Civil Code defines force majeure as the occurrence of an event which is beyond the control of the obligor, which could not have been reasonably foreseen at the time of the entry into force of the contract and the effects of which cannot be avoided by appropriate measures and which prevents performance of its obligation by the obligor. Furthermore, the same legal provision entails that if the effects are temporary, the performance of the obligation is suspended, whether if the effects are definitive, the contract is automatically terminated and the parties are discharged of their obligations (without damages being due).
When it comes to the strict and limited application of the provisions for exemption due to non- performance of the contract on basis of force majeure in the United States the case of Raw Materials Inc. v. Manfred Forberich GmbH ; Co., brought before the Northern District Court of Illinois in 2004 can be taken into consideration. The factual circumstances comprised a contract for the purchase of used railroad rail, between a corporation with its place of business in the United States and a seller with its place of business in Germany. Due to non-delivery of the rail by the seller, the buyer sued the seller for breach of contract. The seller argued on basis of force majeure as the loading of rail in St. Petersburg, as agreed by the parties, could not be completed because of unexpected cold winter that closed the port. In the absence of a force majeure clause in the contract, the Court applied the CISG, noting that it was the law governing the contract as agreed by the parties. When interpreting Article 79 of CISG the Court also took into consideration decisions in U.S. cases construing “analogous” provisions of Article 2 of the Uniform Commercial Code (“UCC”). Consequently, the court looked to whether a contingency had occurred making performance impracticable, and whether the nonoccurrence of the contingence was a basic assumption upon which the contract was made. Accordingly, after examining such conditions, the Court asserted that the severity of the winter in 2002 was far from ordinary circumstances and did not constitute force majeure.
The exemption for non-performance of contract on basis of hardship in the United States of America and FranceThe underlying principle of hardship dates back to Roman law and the doctrine of clausula rebus sic stantibus. Hardship deals with cases where the agreed performance is basically still possible. However, the underlying facts have substantially changed so that fulfilling the agreement would be economically detrimental.
Article 6.2.3 of Unidroit Principles provides that the legal effect of hardship is that the party confronted by an impediment can request renegotiation of the parts of the contract, which were affected by the unanticipated changed circumstances.
The main difference between the United States and France with regards to hardship is that while the French legal system recognizes such concept, the United States does not. As mentioned above, in the United States for unforeseen events that make the performance of the contract onerous for one party, the doctrine of frustration or impracticability is recognized.
The French Civil Code provides for a substantially similar definition as that of Unidroit Principles for hardship. As such, Article 1195 of the French Civil Code stipulates that if a change in circumstances which could not have been predicted at the time the contract renders performance of the contract excessively onerous for a contractual party who had not assumed such risk; such party may request its counterparty to renegotiate the contract. In the event of refusal of the other party to renegotiate or in the event that the renegotiation is not successful, the parties may agree to terminate the contract, or mutually request the judge to adapt the contract. Without an agreement within a reasonable time period, the judge may, at the request of a party, revise the contract or terminate it.
What is interesting in the case of France is that this article expressly states that it does not apply to a party who has assumed the relevant risk. Furthermore, this view has been affirmed in 2004 by the French Court of Appeals in the case of Société Romay AG v. SARL Behr France. In this case, a French manufacturer of air conditioners for the automobile industry (the defendant) concluded a “collaboration agreement” with its supplier, a Swiss company (the plaintiff). The plaintiff undertook to deliver at least 20,000 crankcases over eight years according to the needs of the defendant’s client, a truck manufacturer. Following a sudden collapse in the automobile market, which caused the truck manufacturer to change its terms of purchase radically by imposing on the defendant a price for the air conditioners which was fifty per cent lower than the price of the incorporated components sold by the plaintiff, the defendant requested to stop using the crankcases manufactured by the plaintiff. Finding the CISG applicable to the circumstances of the case, the Court of Appeals concluded that the defendant, a professional experienced in international market practice, had to bear the risk associated with noncompliance as it failed to stipulate arrangements to lay down guarantees of performance of obligations to the plaintiff.
On the other hand, the idea that a party can be released of its duty to perform due to hardship caused by an unforeseen event is not recognized under the common law doctrine of impossibility because it is still possible for the party to perform, albeit at great additional costs. However, American contract law, which possesses the doctrines of impossibility and frustration of purpose in its common law, also recognizes the doctrine of impracticability as espoused in Section 2-615 of the American Uniform Commercial Code (UCC). The doctrine of impracticability by its very nature implies the recognition of a hardship defense. But, Section 2-615(a) fails to provide any guidance as to the types of factors to be used in making the determination of the existence of an impracticable performance or basic assumption. Section 2-615(b) establishes a seller’s duty in situations where the impracticability does not expunge the seller’s total capacity to perform. This would be the case were the amount of goods contracted for by multiple buyers exceeds the seller’s inventory of such goods. In this case, the seller must allocate production and deliveries among his customers. It provides a number of allocation methods, on a fair and reasonable manner, such as on a pro rata basis or the allocation can be expanded to include future contracts with regular customers.
Form the provisions of the UCC it can be reflected that impracticability serves other purposes than simply as a defense for non-performance. Thus, it provides rights to the seller for delayed performance or to supply an allocated portion of the contracted goods without incurring liability for delay or shortage of quantity.
ConclusionUnanticipated altered circumstances constitute a significant problem for contract parties, especially those in long term contracts. Even though force majeure and hardship clauses are criticized for inserting ambiguity into contracts, nonetheless, they offer certain advantages. They provide contractual parties with a flexible approach to deal with unforeseen circumstances and provide a framework for parties to renegotiate. In addition and most importantly, the absence of a clause could provide for reticence of courts to engage in a modification that was not agreed upon by the parties at the time of contracting.
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